working on transition - rabobank - particulieren · 2020-05-11 · 6 retailing beyond borders...

Working on Transition

Retailing Beyond Borders

Achieving more together

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Dear participant,

I would like to thank you for your presence at the congress today. I trust that the presentations and

discussions have fully energised you to go out and take the opportunities and deal with the challenges in the

retail sector.

The ‘Anton Dreesmann Leerstoel voor Retailmarketing’ Foundation - supported by a group of leading

retailers in the Netherlands - has chosen Rabobank as its partner to host and co-organise its annual congress.

The partnership started in 2011: we have prolonged this successful collaboration until at least 2020. We

appreciate the opportunity to share our knowledge and views on the retail sector with you and hope to

further strengthen our relationships.

The subject of today´s ‘Retailing Beyond Borders’ congress, was ‘Working on Transition’, a key theme for the

retail sector. Jos Voss, our sector specialist retail, has written a report on the congress theme. The key points

of the report are: (i) due to fundamental sector changes, visiting the physical store has become a choice of

consumers instead of a necessity, (ii) the development process of physical stores will continue and the store

as Point of Engagement provides new opportunities, (iii) all stakeholders (retailers, brand owners, real estate

owners, government) will have to act in the transition process towards a more balanced and future-proof

retail landscape. The report is based on a combination of desk research, an online survey among Dutch retail

executives, and discussions with the management of leading Dutch retailers.

Like many retailers in their respective markets, Rabobank strives to be the leader in the Dutch banking

market. We are a knowledge-driven bank, serving a wide range of corporate customers active in all sectors

in the Netherlands. Our industry analysts cover continuously all relevant sectors in the Netherlands,

including food retail and non-food retail. We have a wide portfolio of banking products, sector knowledge

and experience in the retail sector. Rabobank is dedicated in supporting the strategy of retailers. Rapidly

changing market circumstances ask for a partner that knows your business.

I look forward to welcoming you again at next year’s event here at Rabobank.

Kind regards,

Foreword

Foreword

Jeroen WortmanSector banker non-food retail

20 January 2017

4 Retailing Beyond Borders Working on Transition

Table of contents

1. INTRODUCTION 7

2. AS A RESULT OF FUNDAMENTAL CHANGES, VISITING THE STORE BECOMES A CHOICE 82.1 The consumer is changing 8

2.2 The economy is no major driver for the sector 8

2.3 Technology is an enabler of change 9

2.4 Competition is increasing from various angles 10

2.5 The key take away: visiting the physical store is no necessity but a choice 11

3 STORES IN TRANSITION: THE CHANGING ROLE OF THE STORE OVER TIME 123.1 First, stores were Points of Sale, focussed on Efficiency 12

3.2 Later, power shifted towards retailers and stores became Points of Purchase 12

3.3 The age of the customer requires a next level: store as Point of Engagement 13

4 STRATEGIC IMPLICATIONS FOR THE SECTOR 244.1 Retailers: do we have to move towards Points of Engagement? 24

4.2 Brand owners: reassess the portfolio of touch points with consumers 27

4.3 Shopping areas: creating and enabling a new portfolio of stores 28

4.4 Municipalities also play some important roles 29

4.5 All in all, there is still much work to do on the transition 29

LIST OF CONTRIBUTORS 30

Colophon 31

Disclaimer 32

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Management Summary

As a result of fundamental sector changes, visiting the store becomes a choice

For some time already, the retail sector is in a phase of fundamental change. There are changes in

demographics (ageing, growth of one person households, urbanisation) and consumer behaviour (24/7

shopping via multiple channels and devices, more choice and less time). Economic conditions are improving,

but in the long term the economy is no major growth driver for the sector. Gaining market share is more

important than market growth. Technology has been an enabler of change and will continue to be one.

Internet of Things, delivery via drones/robots and Virtual Reality are examples of technologies that will drive

change to new levels. In the already price competitive market, we see competition increasing further at

an even higher pace and from various angles. Brand owners integrate forward. Foreign players strengthen

their positions in the Dutch market, profiting from the relatively flat formula landscape and the investment

opportunities provided by various bankruptcies. New and innovative retail concepts are knocking on the

door. The level and intensity of competition will increase further because of lower entrance barriers, the

advantage (instead of disadvantage) of starting with a clean sheet and the blurring of various borders within

and beyond the sector. All these fundamental changes boil down to one key conclusion: visiting the physical

store is no longer a necessity, but a discretionary choice of consumers.

The development of stores will continue; Points of Engagement provide new opportunities

The history of modern retail goes back to the 1950s. In this time frame, we have seen some important

development phases of the physical stores. In the first phase, the retail market was supply driven and

suppliers/brand owners were in charge. The store was a professional and efficient Point of Sale, supply driven

and transaction based. In the second phase, the power shifted to retailers and the market became more

competitive and demand driven. The marketing mix of Product, Price, Service, Access and Experience was

introduced and professionalised. Stores became Points of Purchase, demand driven, but still transaction

based. Now, we see again a shift of power, this time towards the consumer who has an overwhelming choice

of products and channels. For retailers, differentiation on the various elements of the classical marketing mix

becomes increasingly difficult. ‘Product’ is widely available, both online and offline. The transparency of ‘Price’

has become almost optimal and the battle for the lowest price is difficult to win. ‘Access’ via a dense network

of physical stores becomes less relevant in a fully connected world. ‘Expertise’ and ‘Experience’ are the

remaining value attributes where physical retailers can add value via their staff and their store environments.

These value attributes have to be redesigned in a truly consumer centric way and brought to a next level in

order to engage the customer. Stores become attractional Points of Engagement, based on a combination of

Expertise (driven by staff) and Experience (driven by store environment). Both for Expertise and Experience,

we see various role models for physical stores.

Management Summary


All stakeholders have to act in the transition process

Not all stores will move from Point of Sale to Point of Purchase or Point of Engagement. There is still room

for all types of stores. The combination and mix of these types will make the difference, both for retailers

and brand owners and for shopping areas. Retailers have to develop a new portfolio of touch points with

consumers, covering the key elements of Engagement (how to attract consumers), Transaction (how to

transact) and Execution (how to fulfil). Cooperation can be an option in the portfolio of touchpoints, e.g.

via platforms, shops-in-shops and franchise. As borders between brand owners and retailers are blurring

more and more, brand owners also have to redesign their portfolio of touch points with consumers. The

new portfolio has consequences for the resources of the retailer/brand owner, especially the competencies

of staff, the locations of the stores and the store lay-out. Points of Engagement also require a re-assessment

of the business model for stores. Shopping areas have to find the right mix between Points of Sale, Points

of Purchase and Points of Engagement. New arrangements on rents between retailers and landlords will be

supportive. Municipalities can support the transition process in various ways: (i) making clear choices for

the functions of the various shopping areas and (ii) making rules, regulations and infrastructure supportive

instead of restraining.

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There is already a lot of research available on the growth of online retail and the consequences for the

landscape of physical retail. In our view, there is still a lack of research on the new role of the store. It is

not only a matter of fewer stores, more concentrated shopping areas and changing store sizes (smaller or

bigger stores). We see the role of the store in the customer journey changing fundamentally over time.

The store is in a permanent transition phase and this has consequences for the strategy of retailers from

multiple perspectives. There are also consequences for other stakeholders like brand owners, landlords and

municipalities.

We have developed a new view on the function of the store and we have drafted various possible role

models for stores. Every model has consequences for the required competencies of the retail staff and for the

store environment. In this report we will drive home three key messages:

• As a result of fundamental sector changes, visiting the physical store has become a choice for

consumers instead of a necessity

• The development process of physical stores will continue and the store as Point of Engagement

provides new opportunities

• All stakeholders (retailers, brand owners, real estate owners, government) will have to act in the

transition process towards a more balanced and future-proof retail landscape.

This report is based on a combination of desk research, an online survey among Dutch retail executives and

discussions with the management of leading Dutch retailers. We have summarised our findings in three

blocks.

1. INTRODUCTION

Fundamental changes(chapter 2)

The store in transition

(chapter 3)

Strategic implications

(chapter 4)

Introduction


Retailers face various changes in the composition, location and behaviour of their customers. Demographic

developments such as the slowing population growth, the rising share of older people and immigrants

and the increasing importance of one person households will lead to a changing base of consumers. Retail

offerings have to be adapted to this consumer base. More people will live in larger cities (urbanisation

trend) which has impact on the way consumers can be reached in smaller cities. Consumer behaviour is also

changing rapidly. Computers, laptops, tablets and mobile phones are an integral part of the life of consumers.

These devices play an increasing role in the customer journey. They are not only used to order and pay for

goods and services, but also for orientation, information gathering and communication with others through

social media. Consumers are confronted with the paradox of choice and time. On the one hand, they have

an overwhelming choice of goods, brands/retailers and channels (online, offline), but on the other, they

have less time since other commitments take up a larger part of their time, or at least have less perceived

time. Visiting the physical store is an investment of time (on top of the financial investment) that will have to

compete with other opportunities to invest time.

2. AS A RESULT OF FUNDAMENTAL CHANGES, VISITING THE STORE BECOMES A CHOICE2.1 The consumer is changing

2.2 The economy is no major driver for the sectorThere is a recovery of the economy. Also private consumption, the most relevant part of GDP for the retail

sector, is contributing to the growth. However, expectations for the growth of private consumption remain

modest in a historical perspective (see figure 1). As population growth - an important driver of economic

growth - is slowing down, the growth of private consumption is losing pace. In addition, there are other

issues, risks and uncertainties that lead to the modest growth perspectives. Financial leverage (gross debt

versus income) for Dutch households is relatively high compared to other countries. Therefore, the Dutch

consumer is more likely to save and/or pay down debt than to spend. There is much uncertainty on future

pensions and the historically low interest rates further contribute to this uncertainty. Finally, the uncertain

and risky macro-economic and geopolitical situation lead to a cautious stand of Dutch consumers. All in all,

we believe the economy is no major growth driver for the sector. Gaining market share is more important

than market growth.

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-3,0%

-2,0%

-1,0%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

Volume private consumption NL (YoY) Forecasts 2016-2023 Average 1979-2008

Figure 1: Growth of private consumption is limited in historical perspective

Source: Data CBS, estimates Rabobank; estimates 2018-2023 based on scenario ‘Muddling Through’, the middle of three scenarios

Technology has already had a huge impact on the retail sector and this trend

will continue going forward. Resulting from developments in online shopping,

mobile devices and social media, various non-store channels have become

available for the customer, besides the traditional physical store channel. These

non-store channels provide convenience in various ways: unlimited assortment,

no hassle of traffic and parking, 24/7 shopping, ability to communicate with

others (via social media) before making shopping decisions. This ‘convenience’

is the most important reason for the high growth of ‘online’ compared to

‘offline’. Besides ‘online’ there are various other technological developments that

have contributed to the shopping experience like virtual fitting rooms, virtual

shopping windows and tracking & tracing technologies. Looking forward,

we see three developments in particular that can lead to a further increasing

popularity of shopping in other ways than via physical stores:

• Internet of Things: ‘everything is connected’. Examples include: various

ordering buttons for ‘routine’ repeat orders (toilet paper, razor blades,

toothpaste et cetera), direct ordering via the refrigerator when a minimum

stock level is reached, wearable technology like glasses and watches with

internet connection

2.3 Technology is an enabler of change

As a result of fundamental changes, visiting the store becomes a choice


The Dutch retail market is already very (price) competitive and we see the competition increasing further at

an even higher pace. Brand owners like Unilever, Adidas, Nike and Sonova (hearing devices) are reconsidering

their supply chain positions and are integrating forward in order to get ‘first hand’ consumer insights and use

this information in their supply chains. Foreign players profit from the relatively flat formula landscape and

from the investment opportunities provided by various bankruptcies. They enter the market or strengthen

their positions. Examples include Amazon, TK Maxx, Hudson’s Bay, Decathlon and JD Sports. Strong Dutch

retailers like Coolblue, Jumbo and Suit Supply gain further market share at the expense of others. New or

relatively young retail concepts are knocking on the door such as Picnic (online delivery of groceries), Leapp

(refurbished Apple devices) and Rijksmuseum (offering retail goods related to the museum). We see three

trends that will increase the level and intensity of the competition even further:

• Lower entrance barriers and higher growth pace

• Starting with a clean sheet can become an advantage

• Competition is borderless in various ways.

2.4.1 Entrance barriers are lower and pace of growth is higher

In the ‘old days of retail’ there were some natural entrance barriers. Consumer relevance had to be built from

scratch and a wide store network was necessary in order to reach all the consumers. Nowadays, consumers

are more ‘global’ and know many international retail brands from their own trips abroad, from experiences

of their network and/or the international media. Social media provide opportunities for brands to increase

brand recognition. The combination of ‘online’ and a few stores in larger cities is a strong alternative for a

dense store network. This combination can grow at a higher pace than a classical store network, as supported

by the growth rates of players like Zalando and Coolblue.

2.4.2 Starting with a clean sheet can become an advantage

Starting from scratch is no longer a disadvantage but has turned into a potential advantage. Existing players

have the benefits of scale, market position and consumer recognition. However, many of them also have an

important disadvantage: legacy. They often have too many stores at less favourable locations, outdated IT

systems and staff that is not ‘up to standard’. Lack of agility can be an issue. New players are small and agile,

can start with ‘best-in-class’ IT systems and pick the best locations and staff, with more favourable conditions.

In this way they can obtain an important market position within a relatively short time frame. Again, Zalando

and Coolblue are strong examples. The challenge for existing players is twofold. First, make optimal use of

• Delivery via drones and/or robots can lead to a drastic reduction in delivery times. Delivery within an

hour or even shorter timeframes becomes reality. This implies that one of the USPs for physical stores -

direct product availability - will become less dominant or even disappears

• Virtual reality. This can add Experience to online/mobile shopping which is now strongly transaction

oriented.

2.4 Competition is increasing from various angles

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2.4.3 Competition is borderless in various ways

Competition is borderless. The term ‘borderless’ has various dimensions. Competition can come from abroad.

The flipside of this coin is that successful Dutch players can find growth opportunities outside the Dutch

market, like Suit Supply and Rituals. There are also no borders within the retail sector and within the supply

chain. Competition is not only coming from ‘peers’ that are active in the same sector. Amazon started as a

book seller, but is now a broad online department store. Coolblue is not only selling consumer electronics,

but is also active in categories like living, household, garden, leisure and sports. Consumer relevance can be

leveraged to other categories, leading to many2many competition.

2.5 The key take away: visiting the physical store is no necessity but a choiceAll of the before mentioned fundamental changes have consequences for the way retailers have to act in

the market. The consumers are comfortable with multiple ways of interaction with retailers (stores, online,

mobile, social media). They are time pressured and choose the best way of interaction for them in every

situation, given consumer need, location, personal preferences, available time frame and devices at hand.

Retailers have to outperform competition in order to increase consumer relevance and market share.

Technology will continue to make life easier for consumers and will give them additional possibilities to

shop and to interact with retailers and brands. Increasing competition leads to more and more choices

for consumers. It all boils down to one key point: visiting the physical store becomes more and more a

discretionary decision of the consumer. It is just one of the many options for spending their scarce resources:

time and money. Retailers have to make an attractive store proposition in order to convince their consumer

to come to the stores.

As a result of fundamental changes, visiting the store becomes a choice

the advantages they have in scale, brand recognition and (market) knowledge. Second, become more agile in

order to respond to the entrance of new market players.


In a simplified way, the development of retail can be characterised by the three Es: Efficiency, Expertise

and Experience. In the first stages of modern retailing (around 1950), the retail market was a supply driven

business as demand exceeded the supply. Stores were supply driven Points of Sale. Both brands and

retailers started to use marketing at these Points of Sale. Brands tried to convince customers to select their

products above the products of the competitors and retailers focussed on efficiency in their operation. The

introduction of self-service (first in the US and later in Europe) fuelled this efficiency focus. The market was

dominated by the suppliers/brand owners.

3 STORES IN TRANSITION: THE CHANGING ROLE OF THE STORE OVER TIME3.1 First, stores were Points of Sale, focussed on Efficiency

Over time, the power shifted from the supplier to the retailer as the market became more competitive and

changed from supply driven to demand driven. Retailers increased their scale and moved from local players

to regional and national chains and ultimately to international players. This larger scale further contributed

to efficiency and also led to a shift in the balance of power: from supplier to retailer. The consumers had more

spending power, but also more choice, both in terms of products and (online and offline) outlets. For retailers,

efficiency changed from point of differentiation to a hygiene factor. The more competitive environment and

the increasing choice for customers made it necessary to differentiate on elements other than efficiency.

Marketing became more important and the marketing mix was professionalised. This marketing mix can

be illustrated by the model of Crawford & Matthews (see figure 2). According to this model, a retail formula

comprises a mix of five value attributes: Product, Price, Service, Access (availability of the offering, via

stores and/or online), and Experience. Instead of product sellers, retailers became formula builders. This

transition has professionalised various retail sectors. We will take the DIY sector as an example (source:

Frank Quix, Retailmarketing, 2016). In the early stages of modern retailing, consumers had to go to multiple

specialists’ stores for their DIY needs. There were specialists for paint, wood, iron et cetera. Each of these

specialist’s stores had its own supply chain with specialised producers and wholesalers. Formula builders

like Intergamma and Praxis have combined the offerings of these specialists, thereby working on multiple

value attributes including Service (one-stop-shop), Price (better conditions due to larger scale) and Access

(wide store network). The business model of retail changed from ‘push’ (putting products on the shelf that

were bought ‘automatically’) to ‘pull’ (aligning offering with consumer demand), with the consumer demand

influenced by the marketing mix. Consequently, stores changed from Point of Sale (‘push’) into Point of

Purchase (‘pull’). The ‘purchase’ consists of the combination of the five value attributes.

3.2 Later, power shifted towards retailers and stores became Points of Purchase

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Figure 2: The marketing mix of Points of Purchase

Source: Rabobank, based on Crawford & Matthews

The power has shifted again, this time from the retailer to the consumer.

Competition for retailers has increased further from various angles, including

the growing online channel. In the online environment, choice is endless,

products are available anywhere and anytime and prices are completely

transparent. Retailers have to take a look at their marketing mix in order to create

differentiation and to stand out from the crowd. Stores have to change from

transactional environments to more attractional places, where consumers (with

more choice and less time) like to come and spend their time and money. The

store becomes a Point of Engagement.

3.3 The age of the customer requires a next level: store as Point of Engagement

Price

ProductExperience

Access

Service

Stores in transition: the changing role of the store over time


Figure 3: The development phases of stores

Source: Ebeltoft Group, Rabobank

3.3.1 Expertise and Experience are the most dominant value attributes

Looking in more detail at the five value attributes Product, Price, Service, Access

and Experience, we arrive at the following conclusions:

• Differentiation on Product becomes increasingly difficult as products are

widely available, via stores, websites and online platforms

• Resulting from the almost optimal price transparency, the fight for ‘the

lowest price’ can only be won by the biggest players in the retail game.

Most players will not succeed in this area

• Access in terms of a wide store network becomes less relevant as products

are widely available via internet.

We see Service and Experience as the remaining value attributes. However,

both Service and Experience have to be redefined, revitalised and lifted to a

next level. Many elements of the ‘classic’ Service and Experience proposition

are less relevant now or have become hygiene factors on which it is difficult to

differentiate. We will give a few examples. Having knowledge and information

on products and applications (part of Service) is no longer enough. Via the

internet, the customer is already well informed and the customer assumes that

the knowledge of the sales staff is at least at the same level. In order to use

expertise as a differentiator, it has to be lifted to a next level. An easy return

and exchange policy is traditionally part of the value driver ‘Service’. Now, it is

Point of Sale

Point of Purchase

Efficiency Experience

Point of Engagement

Expertise

Attraction

Transaction

Transaction

Customer

Supplier

Retailer

Supply chain leader Role of store

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offered by almost everyone and has become a hygiene factor. Catering facilities

were traditionally a part of the Experience value driver. Now, catering is so

widely available, both in stores and in shopping areas, that it is difficult to find a

differentiating edge.

For Expertise, the sales staff of the store can add value and the physical store

environment can play an important role in Experience.

Figure 4: More difficult to differentiate on the five elements of the marketing mix

Source: Rabobank, based on Crawford & Matthews

Price

ProductExperience

Access

Service

Store environment

ExpertiseStaff

Widely available

Hygiene factor; less

relevant

Difficult to win

!

? ?

?

!

3.3.2 Current and future focus on the elements of the marketing mix

In an online survey, we asked retailers how they would score their formulas

on the five value attributes and where they would like to stand within a

three year period. The difference between the scores indicates the focus

areas for improvement of the formula. The results (see figure 5) contain some

encouraging elements. ‘Service’ already has a high score and retailers aim at

further improvement. The current score on ‘Experience’ is low which is in line

with the formula landscape in the Netherlands that is relatively flat. A positive

is the improvement focus on this value attribute: from 6.7 to 7.9. Also the

relatively limited focus on Price is positive. Nowadays, there is too much focus

on price, actions and promotions and we would favour increased focus on other

elements. The survey points in that direction.



Figure 5: Current score and plan on five value attributes

Source: Rabobank and Q&A Research & Consultancy, based on online survey among retailers

8.2 8.2

6.76.0 6.0

9.0 8.8

7.9 7.9

6.8

0

1

2

3

4

5

6

7

8

9

10

Service Product Experience Access Price

Now Target 3 years from now

3.3.3 Bringing Service to a next level: six role models based on Expertise

The first dimension where retailers can add value is Expertise. This dimension

is fully driven by the staff. Based on research by Ebeltoft Group, we see six

roles for staff members which can be chosen to differentiate on the expertise

dimension in order to move towards a Point of Engagement. Retailers have

to make choices on these role models (or on a mix of role models), based on

demand of customers, the competitive environment and internal strengths and

weaknesses. There is no ‘good’ or ‘bad’ choice. It all depends on the internal and

external circumstances.

Educator: The stores are a classroom, the customers are the students and

the staff member act as educator. In the classroom, customers can gain

a better understanding on the way products work and how they can use

them in a better, more productive and more effective way. The Educator

role can add value in relatively complex product environments (e.g. parts of

consumer electronics) where consumers lack time to collect the information

by themselves. People are prepared to pay money for seminars in order to get

access to knowledge. The Educator role adds value in a comparable way.

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Guide: In a world where choice is endless and consumers lack time, they need guidance. What is the best

choice under what conditions? The store becomes a platform for product selection with the staff member as

the guide for the customer. The guide acts in a consumer-centric way and recommends products because

they are the ‘best option’ for the customer and not because they deliver the best margin or the highest

commission. Customers will highly value the guidance towards the best selection for their purposes and

this will have a positive impact on their engagement with the retailer. The risk of the ‘guide role’ is that

customers make free use of the guide and go shopping elsewhere for the lowest possible price. This risk can

be mitigated in various ways: the sales skills of the staff, having unique products, e.g. via own collections and

making it as convenient as possible for the customer to order the product on the spot.

Trainer: The store is a sort of fitness club with the staff member as the personal trainer of the customer. The

Trainer does not focus simply on selling products. They let the customers use the products in the best way,

let them test new products while explaining the way to use them and the differences with other products.

Trainers can create a community of customers, engaging with other users, centred on a product group or a

brand. Creating such a community is supported by technology such as social media.

Entertainer: In this role, the store is a theatre, the staff member is part of the cast and the customers form

their audience. The products become part of the act as the cast is performing. Stores can engage with the

customers by telling the story and letting them become part of the world of the brand. They can entertain

them by presenting showcases, live performances and video performances. People are prepared to pay

for cinemas and theatres in order to spend some time in a pleasurable way. Entertainers deliver value in a

comparable way and make a connection to the products and services offered.

Designer: The store functions as a workshop and the staff member is an artist. Customers might love

individual design (personalisation of the product), but not all of them are creative themselves. The retailers

help their customers by creating great individualised products, together with the customer. This co-creation

process has multiple benefits for customers: they get a special, individualised product and they have the

perception of creating the product by themselves (making them feel special and creative). The staff members

act as co-designers and support their customers in the creative process.

Fixer: The staff member is the fixer in a store that functions as a repair-workshop. Customers can hand in their

broken or non-working product and the staff member will repair or fix it while they are waiting. Customers

often lack time and/or knowledge to do the repairs themselves. They will value the offered help and the

extended life time of the product. They are prepared to pay for this, both directly and indirectly. Direct

payment relates to the business model of the repair service: the customer pays for services rendered. There

is also an indirect benefit as the convenience and the service will have a positive impact on the (retail) brand

appreciation in the long run.



Figure 6: Examples of the six models on Expertise

Source: Ebeltoft Group, Rabobank, company websites, various press reports

Educator The Apple Store is much more than a store. It’s a place where people can learn about

their Apple device and about all possible applications. In order to support these learning

experiences, Apple stores offers workshops for people of all experience levels. In these

workshops, customers can explore everything they can do on their Mac, iPad, iPhone or iPod.

They can create slideshows with Photos, edit movies with iMovie or discover ways to improve

their documents, spreadsheets and presentations.

Guide 70% of Dutch women wear the wrong bra size, simply because they don’t know their right

size. Lingerie retailer Lincherie helps these women via its Styling Center. Customers can get

a personal styling session, using a 3D mirror. The 3D mirror makes 140 body measurements

within one minute and translates them into the ‘perfect’ bra size. In addition, a staff member

provides professional advice. There is no stock available in the store. Products are ordered

online.

Trainer Nike stores have various Nike Running Clubs where customers can run together with their

peers. In Amsterdam for example, there is ‘WeRunAmsterdam’. The members of this club come

together every Wednesday at the Nike Store in order to run various distances. Together with

one of the instructors, the members go running through the streets of Amsterdam. The group

is split up in different levels: beginning (3.8 km), average (6.8 km), and advanced (10.5 km)

runners.

Entertainer Visiting the Globetrotter store in Cologne (specialised in outdoor equipment) is really

entertaining. Visitors can try-out the products by really experiencing an outdoor activity. There

is e.g. a climbing wall where the hiking shoes can be tested in a real-life environment. In the

basement, there is a pool where customers can work with canoes and scuba dive equipment.

Furthermore, Globetrotter offers a year-round agenda with events, theme days, readings and

trainings. In the store, customers can explore the different areas and ‘dwell time’ is encouraged

with cafés and a restaurant.

Designer Lots of websites let shoppers customise apparel by picking from a set of available colours

and materials. The Converse store in Boston goes a step further and gives customers the

opportunity design their own Chucks in person. Converse will help its customers with this

customising via its “Blank Canvas” workshop. In scheduled one-hour sessions, a shopper can sit

down with a Converse “maestro” and pick materials, rubber toe caps, laces, eyelets and other

add-ons to create a unique shoe. Converse then sends the design to an off-site manufacturer,

and the shoes are delivered to the customer about a month later.

Fixer Leapp, the retailer of refurbished Apple products, also offers refurbishment as a service.

Customers can bring in their faulty Apple device. The device will be repaired while the customer

is waiting.

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Figure 7: Investment priorities role models Expertise


In an online survey, we asked retailers to indicate their willingness to invest

company resources (money, time, management attention) in these six role

models, using a five point scale (1=low, 5=high). The results (figure 7) indicate a

preference for three role models: Guide, Educator and Entertainer.

4.0

3.6 3.5

2.9

2.5 2.5

1

2

3

4

5

Guide Educator Entertainer Trainer Fixer Designer

Willingness to invest (scale 1-5)

3.3.4 Experience 2.0: the stores as Experience centres

The second dimension where retailers can add value is Experience. This

dimension is fully driven by the physical environment that is created by the

retailer. Based on research by Ebeltoft Group, we see six experiences that can

be created in the retail environment. These experiences can be chosen to

differentiate on the experience dimension in order to move towards a Point of

Engagement. Just as for the Expertise angle, retailers have to make choices on

these role models (or on a mix of role models), based on demand of customers,

the competitive environment and internal strengths and weaknesses. Again,

there is no ‘good’ or ‘bad’ choice. It all depends on the internal and external

circumstances.

Learn: Via ‘Learn’ customers are provided with the opportunity to get more

value out of the investment in their purchase. Retailers can provide training,

workshops and events to show consumers how to use the products they

bought. Examples of these sessions are: cooking classes, software training, and

lectures on travelling to the Amazon area. Customers are prepared to pay for

‘learning experiences’, just as they pay for seminars or courses. This implies that



retailers can build a business model around these experiences (in combination with products and services),

under the condition that they have real added value for the customers.

Evaluate: The ‘Evaluate’ experience gives customers the chance to try out and test the real products. This

can be applied to a wide variety of products: electronics and appliances, sporting goods, food. Examples of

Evaluate experiences are: running tracks, climbing walls, experience rooms for lighting and sound and test

kitchens and bathrooms. In addition to these physical aspects, the retailer can organise events like test rides,

test runs and food and drink tastings in order to strengthen the experience character of the store.

Exercise: The ‘exercising’ customer can train, alone or together with peers. Examples include training classes

for yoga, cycling or running. The training can either be accompanied by professional trainers from the retailer

or the brand or done by customers themselves, with the retailer acting as a facilitator.

Expression: Stores can give customers the chance of expressing themselves. Some customers are great

performers, designers or trainers and/or they have had great experiences. In ‘Expression stores’ they get the

opportunity to share their capabilities, thoughts and/or experiences with the other customers. In this way,

stores become environments of co-creating.

Create: In stores with ‘Create’ experience, customers can make their own personalised products. They can

make their own design ‘from scratch’ or make small changes to existing products in order make them more

customised and provide customers with a personal touch and feel. Sometimes customers can do the creation

by themselves, but they can also be assisted by staff members in the store.

Experiment: Stores can become an environment in which both customers and staff members can experiment.

These stores serve as a lab. In such an environment, failing is not the worst that can happen but just the

starting point of getting new insights and ideas.

21

Figure 8: Examples of the six role models on Experience

Source: Ebeltoft Group, Rabobank, company websites, various press reports

LearnThe Italian food company Eataly combines catering (restaurants) and retail, but also

has a cooking school, La Scuola. Eataly believes that the more customers know, the

more they enjoy the products. La Scuola offers customers various courses, including

pasta making and wine tasting.

Evaluate Sonos is a consumer electronics company, specialised in speakers. Its flagship store

in New York is not primarily aimed at selling speakers, but at experiencing sound

in a real life environment. The listening experiences can take place in seven central

listening rooms, representing five different styled homes, and in two lounge areas

for customers to relax while they are in the store. These seven central listening

rooms (‘pods’) are not only soundproof and acoustically perfect, but also designed

as ‘real life’ kitchens or living rooms.

Exercise Lululemon is a yoga-inspired, technical athletic apparel company for women and

men. The Lululemon stores sell products, but also have in-store yoga and fitness

classes and events. Lululemon wants to build a community of customers. In order to

support this, various workshops and events are organised in the stores.

Expression The LEGO stores provide a real experience for children. The store have a ‘Pick & Build’

wall where children can choose all the bricks and elements they want in various

different shapes and colours. Each store has something different, and the bricks

change all the time! Children can follow the building instructions or build by their

own rules to create something special.

Create Luxury brand Gucci has transformed its flagship store in Milan into a customisation

boutique. Customers can use the ‘Gucci DIY service 2.0’ in order to choose e.g. a

jacket of leather, silk or denim and adapt it to their own personal preferences. The

iconic Dionysus handbag and even shoes can also be individually designed. The

customisation facilities are located in a luxury store setting.

ExperimentThe Store of the Future is an experimental lab in which retailers, brand owners and

other partners cooperate to test new technologies. Feedback of consumers is used

to improve the technology.



In an online survey, we asked retailers to indicate their willingness to invest

company resources (money, time, management attention) in these six role

models, using a five point scale (1=low, 5=high). The results (figure 9) indicate a

preference for three role models: Learn, Evaluate, Expression.

Figure 9: Investment priorities role models Experience


3.93.6 3.5

2.72.5 2.4

1

2

3

4

5

Learn Evaluate Expression Experiment Exercise Create


3.3.5 Investment priorities in staff and stores are reasonably aligned

Ten out of the twelve role models (six for Expertise and six for Experience) form

logical combinations:

• Staff as Educator and a Learn store environment

• Staff as Guide and an Evaluate store environment

• Staff as Trainer and an Exercise store environment

• Staff as Entertainer and an Expression store environment

• Staff as Designer and a Create store environment.

The two remaining models (Fixer and Experiment) are less aligned. This

alignment comes back in the results of the online survey. Figure 10 is a

combination of the figures 7 and 9 representing the willingness to invest in the

role models. A high or low score on the Expertise angle is combined with a high

or low score on the corresponding Experience angle.

23

Figure 10: Combined investment priorities


4.03.6 3.6

3.93.5 3.5

2.92.5 2.5

2.72.5 2.4

1

2

3

4

5




4.1.1 There is still sufficient room for Points of Sale and Points of Purchase

Not all stores have to transform from Point of Sale to Point of Purchase or Point of Engagement. There is

still sufficient room for Points of Sale. Action is a good example of a successful Point of Sale. The formula is

strongly ‘supply oriented’. Products are offered without much ‘fuss’ and marketing and this product offering

is attractive enough to pull customers to the stores. The lack of marketing supports the price positioning

and contributes further to the attractiveness of the offering. The same accounts for the classic street markets

that are still successful in many cities. These markets just offer products and are therefore Points of Sale. Also,

Points of Purchase, based on the traditional, transactional oriented marketing mix of Price, Service, Access

(availability of the offering, via stores and/or online) and Experience 1.0, will remain in place. Although it will

be increasingly difficult to differentiate on Product, Price and Access, it is not impossible. For many formulas

there are still sufficient opportunities in these areas. We will give a few examples. Fast fashion retailers like

H&M, Zara and Primark have fast changing collections - sometimes developed in cooperation with others

(H&M) - which have sufficient appeal to customers. The Product angle of the marketing mix is strong

enough to attract customers to the transactional stores. Non-store sales and information channels like web

shops, mobile and social media reinforce the stores and together they form an attractive consumer offering

(omnichannel). Retailers like supermarkets, drugstores (e.g. Kruidvat, Etos) and variety stores like Blokker

and HEMA make life easy for customers. Products have a high ‘need-to-have’ character, there is always a store

nearby, the product assortment is wide, products are mostly directly available and if a product is out-of-

stock, it can be ordered and picked up later or delivered at home. Of course, online is always an alternative,

but the choice to go to a store nearby and have ‘instant satisfaction’ is also very convenient. The closure of

many (smaller) stores in many (smaller) cities is an opportunity for these retailers as they can become the

‘last man standing’ or the ‘last physical resort for customers’, offering a wide variety of products and services

to customers, alone or in cooperation with others. As long as the online alternative is not so strong that

everyone is moving to online, there is room for this type of Points of Purchase, based on Access.

4.1.2 Develop new portfolio of touch points with consumers

Many retail formulas have to make steps towards Point of Engagement because of a combination of three

elements that can reinforce each other: the competition has become too strong, the formula landscape is

too flat and the traditional marketing mix provides insufficient opportunities to differentiate. Other formulas

still have sufficient possibilities as Points of Sale and/or Points of Purchase. However, for this group also,

building additional Points of Engagement can increase the consumer relevance of the formula. For example,

a fast fashion retailer can add a Point of Engagement to its store portfolio, based on a combination of

‘Designer’ expertise and a ‘Create’ store environment. In such a store, consumers create their own garments,

based on either their own designs or small alterations of the existing product offering. The store staff helps

customers with their creations (‘Designer’ expertise) and the store has equipment to make and change

4 STRATEGIC IMPLICATIONS FOR THE SECTOR4.1 Retailers: do we have to move towards Points of Engagement?

25

Figure 11: Portfolio of touch points

Source: Rabobank, Ebeltoft Group

designs (computers, software). Using virtual reality, consumers can see

their designs in ‘real life’. The store cooperates with 3D print shops that can

produce customers’ designs within a relatively short time frame. There is also

cooperation with tailors who can alter the existing products of the retailer

in order to personalise them for the customer. This Point of Engagement can

strengthen the customer loyalty towards the retailer. In addition, the best

designs made by consumers can be taken into mass production (co-creation).

Another example. A convenience store can add ‘Fixer’ expertise to its product

portfolio. This role is valuable, especially if such a store is the ‘last man standing’

in a market area. Many ‘fixers’ (e.g. computer repair shops, bicycle repair shops)

have disappeared and the retailer can become an important ‘service point’ for

consumers. Of course, retailers do not have to fix all the computers, bicycles and

watches themselves. They build a network of cooperation partners and act as

intermediary towards consumers.

Attraction Transaction Execution

Offline Online Offline Online

POEOwn Social media POP Web shop Own

logistics

AdvertisingThird party SIS Platform Drop shipment

Retailers have to redesign their portfolio of touch points with consumers. How

do we engage with our customers? How do we transact? Do we use our own

touch points? Or do we use the touch points of others too? What will the mix

be of online and offline touch points? Do we need partners for the execution

of transactions, e.g. 3D print shops or tailors to produce the designs of the

customer? This portfolio is not fixed, but should be very flexible. For example, in

smaller cities Points of Purchase can become less attractive as they attract too

few consumers to be profitable. Switching from an own store to franchise can

be an option as the franchisor may be able to get a more profitable exploitation,

based on local entrepreneurship and roots in the local community. Also, if the

franchisor is not able to turn the store into a sufficiently profitable operation,

the switch to online comes onto the radar screen. The physical Point of Purchase

Strategic implications for the sector


will be closed and the market area will be served via an online proposition. The retailer must be able to switch

between the various options, based on changing market circumstances and conditions.

4.1.3 Assess consequences of transition

Compared with Points of Purchase, Points of Engagement have different requirements regarding the

resources of the retailer, in particular staff, locations and store lay out. The Expertise angle of the Points of

Engagement is fully driven by the staff. The six different role models require different skills of staff. We will

give a few examples to illustrate. The ‘Trainer’ staff has to be able to assess the level of expertise, skills and/or

fitness of the customer and must bring this to a next level, based on the demands of the customer. The ‘Fixer’

staff needs in-depth knowledge on the products and technical expertise to assess the problem that needs to

be fixed and to really fix that problem. The Experience angle is driven by the location. Again, the different role

models require different store lay-outs and locations. The ‘Evaluate’ and ‘Expression’ stores are probably best

situated in city centres with high consumer traffic as consumers combine visits to these stores with a ‘fun trip’

to such a city. Many ‘Exercise’ stores need (free) parking facilities and/or good access via bikes as consumers

want to bring along their training gear and don’t like to walk with that gear through a crowded city centre.

Also, the store lay-out is different for each type of store.

The next step after the assessment of the consequences is the answer to the question: how do we align

our resources with the requirements of the stores? Competencies of staff is especially an issue. Retailers

have different options on this issue. Many (mainly larger) retailers have their own training and education

academies. In addition, training on the job, supported by computer-based learning, provides opportunities.

Retailers can also seek cooperation with schools and other education institutes in order to recruit the best

students and, for example, offer them internships. In addition to these training possibilities, we believe

retailers can profit from recruiting people from other sectors. Skills that are available in some other sectors,

perfectly match the requirements of Points of Engagement. A few examples: People with a background in

education could be suited to be sales staff in an ‘Educator’ store where customers learn about products and

their applications. The core task of a museum is ‘curation’: picking the right items out of a wide assortment

of art pieces and presenting them in such a way that they are attractive for the visitors. This is in line with

the requirements of the ‘Guide’ store where customers are helped with their choice from a wide product

assortment. Creative people (e.g. fashion designers or artists) can find their way in ‘Entertainer’ or ‘Designer’

stores.

Another element of the consequences regards the business model for the stores. In the more transactional

settings (Point of Sale and Point of Purchase), the business model is pretty clear and straightforward. Gross

profit minus operational costs gives a contribution margin for the store that can be related to the investments

in the store. In the more attractional setting of the store (Point of Engagement), generating sales (leading to

gross profit and contribution margin) is no longer the primary goal of the store.

27

There are various options for the business model:

• Let consumers pay directly for the attractional value of the store. Consumers are prepared to pay for

a cinema/theatre, workshop/seminar or a professional advice. Why not pay for a store that delivers

comparable values: entertainment, more knowledge or skills, advice and service?

• Let others pay for the attractional value of the stores. Some stores serve as a physical platform for

brands of the brand owners. Via Expertise and Experience the retailer adds value for these brands. It

is therefore reasonable that the brand owners pay for this value, via the profit margin and/or other

conditions

• See the stores as part of the portfolio of touchpoints. Points of Engagement attract customers and

other touchpoints generate business (sales and profits). The combination of all the touchpoints creates

customer value. Therefore, the profitability of the combination must be taken into account and assessed

against the profit targets of the retailer.

Just like retailers, brand owners have to rethink and redesign their portfolio of touch points with consumers.

They have to find out if they need Points of Engagement and if yes, how they are going to develop them.

The borders between brand owners and retailers are increasingly blurring. The traditional model of brand

owners developing and producing products and selling them via a third party retail channel, is out of fashion

for multiple reasons. First of all, retailers become brands via their consumer relevance, their own collections

(developed, sourced and sold via a vertically integrated model) and their own brands and labels. In this way,

they compete head to head with the brand owners. Secondly, multi-brand retail – retailing brands of

others – becomes a difficult business model. Products can be bought ‘everywhere’ (offline and online),

making it difficult to obtain a sustainable competitive edge. The multi-brand model makes the retailer too

dependent on the brand owners. As a consequence, brand owners cannot rely fully on the multi-brand

channel and have to find their own direct way to customers. Thirdly, brand owners need a vertically

integrated model in order to get direct access to consumer information and translate this information into

new products. In short, brand owners have to act in the retail arena. Key questions for them include:

• Do we need own stores in order to build our brand, sell our merchandise and/or get directly in touch

with our (end) consumers?

• If yes, must these stores ‘just’ be Points of Purchase or do we also need ‘Points of Engagement’? If yes,

what type of store do we need?

• How do we develop our store network? Options include: fully owned stores (both owned and operated),

stores operated by others, franchise and shop-in-shop

• How does our store network fit into the total portfolio of touch points with consumers?

4.2 Brand owners: reassess the portfolio of touch points with consumers



4.3.1 Finding the right balance between Points of Purchase and Points of Engagement

There is still sufficient room for the transactional Points of Sale and Points of Purchase and shopping centres

will not move to 100% Points of Engagement. Consumers not only want to be attracted and engaged; they

are also eager to buy and transact. The mix of both types of store is attractive for them. Therefore, shopping

areas have to find the right mix and balance. This balance is different for every shopping area. Inner cities

in larger places are more attraction oriented as people go there to spend their time in a pleasant way.

Consequently, they will have relatively more Points of Engagement. Shopping areas that are located in

vicinities close to where people live, are more transaction oriented. People go there to get their products and

services in a convenient way, as an alternative to going online. These shopping areas will be dominated by

Points of Sales and Points of Purchase.

4.3.2 New arrangements between retailers and real estate owners

Retailers and real estate owners have to redesign their arrangements on rental fees in order to make them

more future-proof. Various options are available and the partners have to choose the option (or the mix of

options) that suits them best. Fixed fees for a certain period have the advantage of being predictable, but

carry no incentives for both stakeholders to perform well. In the current market, more and more retailers

ask for sales-based rents. This seems attractive, but we see also important setbacks. Firstly, there are many

practical issues due to the blurring of boundaries between online and offline sales. How do you handle the

various combinations of online and offline sales, for example ordered online at home and picked up in the

store or ordered online in the store (via e.g. an online terminal) and delivered to home? What about products

that are returned to the store? Do we count this as negative sales? In addition to these practical issues, we see

another important issue: the changing role of the store. Where the traditional store – Point of Purchase – is

transaction (sales) oriented, the Point of Engagement is focussed on other aspects, such as brand building

and strengthening the relationship with the customers. The business model of these stores can even change

from the traditional model of ‘sales, margin and costs’ to other models. The stores can be just for attraction

and customer engagement while the sales are done via other channels (Points of Purchase stores, online). It

is also possible that the retailers get their fees from the brand owner as the store functions as a platform for

the brand. In short: the link between sales and the attractiveness and performance of the store will weaken

further. We would favour a performance link in the rental contracts based on consumer traffic. In this way, the

real estate owner gets an incentive to make the shopping area attractive and increase consumer traffic. The

retailer is responsible for turning traffic into store visits and turning store visits into attraction or transaction

(conversion). An independent assessment of consumer traffic in shopping areas would be supportive for such

new arrangements between retailers and landlords. We would support an independent authority for such an

assessment. In order to stress the independence, this authority can be financed out of governmental charges

to be imposed on retailers and real estate owners. The authority is responsible for collecting and distributing

the data and for the safeguarding of the privacy of consumers.

4.3 Shopping areas: creating and enabling a new portfolio of stores

29

4.4.1 Making choices for various functions of the various shopping areas

There is overcapacity in the shopping real estate market. This overcapacity will increase further because

of changing consumer behaviour, resulting in further growth of online. For municipalities this implies that

they have to make realistic assessments of the role of the various shopping areas. There are around 400

municipalities in the Netherlands and it is impossible for all of them to have a shopping centre that is a sort

of Leisure Park that attracts many visitors from outside the municipality. There will be only a limited number

of these shopping centres, mainly in larger cities. The majority of the shopping areas is ‘just’ focussed on

fulfilling local needs of the local community.

4.4.2 Enabling the transition of the stores

The transition of Point of Purchase to Point of Engagement has also an impact on rules, regulations and

infrastructure. ‘Trainer’ stores for example can require longer opening hours as people like to train after work.

Rules have to permit these longer opening hours and measures have to be taken regarding the security

of the shopping areas, e.g. extra lighting or more surveillance by the police. In ‘Entertainer’ stores it can be

important to serve alcoholic drinks to the customers. Regulations have to make this possible, provided that

the retailer meets the legal and regulatory requirements.

4.4 Municipalities also play some important roles


4.5 All in all, there is still much work to do on the transitionDespite all the structural changes in the sector there is still a future for physical stores. These stores are

developing further: from Point of Sale to Point of Purchase to Point of Engagement. In order to capture

opportunities, retailers and brand owners have to reassess their portfolio of touch points with consumers,

make a plan for transition and free-up resources for this plan. Other stakeholders (real estate owners and

government) can be supportive in this transition.


LIST OF CONTRIBUTORS

We would like to thank the following retail executives who have made valuable

contributions to this report via Round Table discussions and/or individual

interviews and discussions. The contributors are listed in alphabetical order of

their organisations.

Roland Palmer Alibaba Managing Director NL/Belgium

Gerard van Breen AS Watson Benelux CEO

René Moos Basic-Fit CEO

Gert van Laar B&S International CFO

Jan Peters Chasin’ / Score CEO

Rens van der Schoor FNG CFO

Leo van Welij Grandvision Benelux CEO

Rob Schilder G-Star CFO

Ernst de Kuiper Homefashion Group CFO

Harm-Jan Stoter Intergamma CEO

Maartje Bouvy Rituals CFO

Geert van Iwaarden Scotch & Soda CFO

René Olsthoorn Timber & Building Supplies CFO

Paul Burger Welkoop CEO

31

Authors

Jos Voss (Rabobank)

Frank Quix (Q&A)

Art direction and production

Gerben van Eijk (Q&A)

Contact details Rabobank

Sector Knowledge

E-mail: [email protected]

Client Coverage

Jeroen Wortman, sector banker non-food retail

E-mail: [email protected]

Websites

www.rabobank.nl/antondreesmann

www.rabobank.nl/retail

www.rabobank.nl/food

Colophon

Colophon


DisclaimerThis document is a publication of Rabobank. The view presented in this publication has been based on data

from sources we consider to be reliable. These data have been carefully incorporated into our analyses.

Rabobank accepts however no liability whatsoever should the data, opinions or estimates presented in this

publication contain any errors. The information concerned is of a general nature and is subject to change.

No rights may be derived from the information provided. Past results provide no guarantee for the future.

Rabobank and all other providers of information contained in this publication and on the websites to which it

makes reference accept no liability whatsoever for the content of the publication or for information provided

on or via the websites.

The use of this publication in whole or in part is permitted only if accompanied by an acknowledgement of

the source. The user of the information is responsible for any use of the information. The user is obliged to

adhere to changes made by the Rabobank regarding the information’s use. Dutch law applies.

© 2017 - Coöperatieve Centrale Raiffeisen-Boerenleenbank B,A., the Netherlands

www.rabobank.nl/retail

working on transition - rabobank - particulieren · 2020-05-11 · 6 retailing beyond borders...

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