Interview: Thoughts on The Future of Retail

Jochen Wiechen, Intershop CTO

Jochen Wiechen, Intershop CTO

A very select group of companies lead the way when it comes to omnichannel retail solutions. Intershop is one of these companies. Having unveiled its first online shop in 1994, it’s also one of the most experienced and innovative. Now more than 500 mid-sized and large companies benefit from its solutions. Among these you can find Hewlett-Packard, BMW, Bosch, Otto, Deutsche Telekom, and Mexx.

We’ve reached out to mr. Jochen Wiechen, Intershop’s CTO, for a few thoughts on the future of retail. Previously a VP of ERP powerhouse SAP, mr. Wiechen holds a PhD in Physics and has a very interesting view on the future of retail.

 

Netonomy.NET: What are the biggest changes in retail you have noticed in the past 5 years?

Jochen Wiechen: Clearly online is the main disruptive technology that has fundamentally reshaped the entire industry, not only retail by the way. Ubiquitous bandwidth availability, multi-media developments and mobile technologies allow for completely new business models and customer experiences.

The customer journey nowadays starts in the Internet, around the clock and everywhere. Sophisticated online marketing activities trigger more and more personalized buying processes that start with extensive research and lead to process innovations such as click and reserve or collect.

Rising online stars such as Amazon, Zalando and Alibaba grow extremely fast and challenge classical retailers who simply cannot ignore these developments and start embracing those concepts by embodying online into their cross-channel concepts. The winners in this game will be the ones who understand the changing customer profiles and associated behaviors as well as the potential of integrating online into an optimized omni-channel system instead of shying away and sticking to the old offline world.

 

N.: Which retailers do you believe are leading the change in global retail?

J.W.: Out of the blue Amazon has developed to the leading global online pure play as well as a relevant player in the retail industry. By consequently embracing the online concept into their channel strategy Walmart is currently showing an even faster growth rate of their online channel than Amazon and is a perfect example of a winner in the overall online transformation. Other relevant players in this game are Nordstrom, John Lewis or House of Fraser, for example.

 

N.:Do you expect Chinese retailers to increase their market share globally? Do you believe Alibaba Group’s expected IPO in the US is a step in that direction?

J.W.: Alibaba is projected to pass by Walmart in overall sales this year, the latter being the largest retailer worldwide. In the US alone, Alibaba is expected to grow 30% this year and although its development in Europe is still in its infancy, also here surprises will have to be expected.

 

N.:How important is technology in addressing the consumer needs now and in the future?

J.W.:As stated above, nowadays most customers start their journeys in the Internet which is a profound change compared to classical retail. Already at this stage they are able to browse for any categories and products from anywhere at any time with any device, to compare prices, select within huge collections, take advantage of intelligent recommendations and potentially use fitting engines before they buy either online or in the store where they might collect the selected product.

In order to provide large target groups with these services a highly complex, highly scalable, and highly available IT-infrastructure is a prerequisite. Viewed from the other way around, technology is simply key in the paradigm shift that is currently taking place in the retail industry.

“[...]technology is simply key in the paradigm shift that is currently taking place in the retail industry.”

 

N.:Which technologies do you believe are shaping the future of retail?

J.W.:Based on the speed of the disruptiveness that the combination of high Internet bandwidth availability and the development of multi-media capabilities on a plethora of end-user devices has caused in the retail industry it is expected that the evolution of further technologies will continue to reshape the industry.

While Big Data has already gained substantial market share in order to analyze and predict consumer behavior we also see a rapidly growing demand for indoor proximity systems in order to support omni-channel transformations. In general, we agree with analysts that the Internet of Things is the next big thing in not only this industry. Devices, gadgets and sensors of all sorts interact amongst each other as well as with human beings in order to reach a new level of communications and interactions. The winners in the upcoming retail industry battle will be the ones who take advantage of this technology development that will lead to today possibly unimaginable customer journey innovations.

 

N.:How will mobile devices impact retailers and shape consumer behavior?

J.W.:On the one hand, mobile devices allow for ubiquitous browsing and shopping which removes any local stickiness of the consumer, who can even choose the best offer while walking through a mall. Recent search engine analytics reveal astonishing portions of regional references in search requests.

On the other hand, this is an opportunity for retailers thereby taking advantage of location-based services by sending ads or promotions to consumers walking by a store, in which a sales person might then use a mobile shop assistant app in order to lure the customer into a well-educated sales pitch that is not only consisting of more or less good guesses based on gut feelings or superficial conversations that help shying away the customer.

N.:Will 3D printing technologies be used in improving tomorrow’s supply chain?

Amazon's 3D Printing Store points to new developments in retailing.

Amazon’s 3D Printing Store points to new developments in retailing.

J.W.:While the usage of the technology on the consumer side is still in its infancy, Amazon just recently already opened a shop for products coming out of 3D printers and has again proven its leading role in the industry. It is hard to say how far the technology will be able to be pushed in terms of product complexity which then will determine the extent to which it will be used in supply chains.

N.:What are the next steps in Intershop’s evolution, in terms of innovation?

J.W.:Based on a research project we have been carrying out together with local Universities we are currently rolling out a commerce simulation engine (SIMCOMMERCE) that falls into the category Predictive Analytics and that allows for outstanding optimization capabilities for commerce operators.

Apart from that, we are closely working together with our customers and partners to explore various process innovations by integrating new technologies, devices and gadgets with our platform. With our SEED initiative, with which we scan the market for commerce-relevant leading edge technologies that we can incorporate into our offering we are looking for ways to help our customers to substantially improve their traffic, conversion rates as well as sales and delivery processes. We agree with leading analysts that the Internet of Things will play a dominant role in those developments.

Beyond the Store: Drop-shops and Pop-up Stores

There is ongoing change in the retail landscape. Both offline and online retailers now migrate towards hybrid solutions. Just as brick and mortar retailers have shifted towards online retailing, so did online pure-plays started engaging customers offline.

Retailers now need to combine the in-store pick-up options (which most online pure plays don’t have), an offline presence for information and branding purposes, as well as a way of pushing best-sellers into the market. At the lowest cost possible.

Bellow you’ll find two of the most promising directions, especially for online-first retailers:

The Drop-Shop

Not to be confused with the term “drop shipping”, the drop shop is an offline facility that handles first and foremost package pick-up from customers. Such a need arises when customers do not want to subjected to shipping schedule but rather decide when and where to pick up ordered products. When dealing with such customer requests, offline-first retailers have the upper hand, as the existing store network provides support for customer pick-up options.

Slowly moving into the brick and mortar territory, online retailers discover innovative ways to handle customer offline interaction. One such example is the Amazon Locker. Its function is to allow customers to order  products online and then pick-up the package from a near-by Locker.

Amazon Locker

Amazon Locker

As seen above, most Amazon Lockers are not exactly located in the most glamorous locations (here pictured near the lady’s room) but it does the job.

Customers could select the closest Amazon Locker, had their orders delivered there and then receive an email announcing the order is now available. To pick up orders, clients can either enter the pickup code in the central-unit computer or scan the mailed barcode.

So far Amazon tried its luck with the likes of Staples (second largest online retailer in the US),  Radioshack and 7-Eleven. The promise to these companies was that Amazon has many customers and those that will want to pick up their packages from the Amazon Locker will probably buy something else from the store. The practice was not exactly successful as both Staples and Radioshack eventually dropped the project.

However, Amazon and the likes will probably not stop here, to increase sales they need to provide the customer with an way to experience product, as well as return and buy other products from their B&M operations. So far they didn’t need to, as others catered to the showrooming need. Soon enough, however, retailers able to price match will either become serious competitors and improve their online operations and then online retailers will have to battle on unknown land.

The drop shop will be a type of small to medium shop, probably affiliated with larger retail operations, providing customers for:

  • package pick-up
  • merchandise experience and testing
  • returns and customer service

The pop-up store

The concept behind the pop-up store is a temporary location that exists for a short term, to provide marketing exposure or sell limited inventory items. It is not something that online retailers brought to the market but there are a lot using it right now.

Fleur de Mal online retailer uses Pop-Up Shops to engage customers in real life.

Fleur de Mal online retailer uses Pop-Up Shops to engage customers in real life.

Online stores that don’t operate B&M operations found the pop-up store an useful way to attract attention. It’s also a great way to provide sales outlets to customers during high sales periods, such as the holidays.

New brands, focused on retail online increasingly find that using pop-up stores is a great way to attract new customers. These customer acquisition tactic allows potential buyers to experience the brand, as well as its products.

For online retailer Fleur de Mal, setting up pop-up shops has been a great way to appeal to their fashion savvy target customers. Company representatives use pop-up shops to showcase their organic fiber fashion items to potential consumers throughout the US.

BAUBLEBAR, a fresh and innovative ecommerce startup focused on jewelry has seen brand recognition increase as soon as they started opening pop-up shops. Katherin Hill, director of offline at BAUBLEBAR outlined the main incentive to open a pop-up shop: We see about half of the people who walk in to our pop-up shops have never heard of our brand before” [Source].

There are, however, several obstacles that need to be overcome, such as offline channel connectivity to the central server, as well as store design. The biggest challenge is to find the right spot to place the pop-up shops. As most online pure plays have a hard time navigating and understanding the complex offline retail rent environment, a new startup decided to step in and help small and medium retailers find the right store spot.

Storefront is a company connecting landlords to retailers. It works as a marketplace between the two types of users. As pop-up shop demand has been on the rise, the company launched a Pop-Up Shop blog and an eBook detailing the inner workings of setting up a pop-up shop.

Both the drop shop and the pop-up shop are hybrid solutions that point to the fact that online retailers feel the need to set foot in offline retail. The pressure to reach omnichannel retailing efficiency is, thus, equally felt by offline, as well as online pure plays.

This post is an excerpt from “Understanding Omnichannel Retail – A Detailed Report”.

 

 

 

Omnichannel Payments – Battle Between Giants

What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.

Paypal bets big on POS integration

Paypal bets big on POS integration

Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:

  1. First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.
  2. Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.
  3. Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.
  4. Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.
  5. Let’s not forget Ali Baba Group, the organization that controls over 84% of the fastest growing and biggest ecommerce market: China. AliPay is the group’s payment system, fully featured with the Yue Bao savings account. And now the company is set to have its IPO in the US.

Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.

 

 

Amazon vs Walmart Comparison in one Essential Chart

Two companies have redefined retail in the past 50 years. One is a company founded by Sam Walton in 1962. Mr. Walton opened the first Walmart in Rogers, Arkansas. The other is an Internet company, founded by Jeff Bezos in his small garage in Bellevue, Washington. This second company is Amazon, the largest Internet Retailer.

Both companies went on to be huge successes but in terms of revenue, Walmart has the upper hand. With $469 billion in 2013 revenue and 10700 stores opened worldwide, Walmart beats by far Amazon’s $74 billion 2013 revenue. If you look at the raw data Amazon is no match for Walmart. But pull back just a bit and the picture is changes. By comparing the track records for the two companies an interesting insight becomes clear:

Amazon vs Walmart - 17 years revenue comparison

Amazon vs Walmart – 17 years revenue comparison

The chart above is a comparison in terms of historic revenue. On one hand you have Walmart – the biggest and most successful retailer in recorded history. Employer of 2.2 million people, crusher of markets and destroyer of mom and pop shops. On the other hand you have Amazon, the brave new world of online retail. Both redefined their markets and both are leaders in their respective fields.

But one is unlike the other. See – I couldn’t even put together figures from the first years in Walmart’s history. Walmart’s revenues starts 6 years after the first Walmart opened, in 1968. That’s when the company reached a figure ($12.6 million) comparable to Amazon’s first year with recorded revenue (1996 – $15.7 million). 17 year after the company launch, Amazon registered $74.4 billion in revenue, while Walmart registered “just” $6.4 billion.

Both the trend and evolution show one thing - Amazon is on its way to become the biggest retailer in the world, a type of retailer the world has never seen. This might probably be a good time to reconsider your stock choices.

There’s no Place Like 127.0.0.1

When it comes to computers, 127.0.0.1 is the “localhost”. In computer networking the local host is “this computer”. Or home. We have a changing landscape in computer usage (shift to mobile) and we notice the same trend in human behavior. People change places more than before. Decreased cost in transportation and relocation means we can move from one place to another without much hassle.

Our home when we're away

Our home when we’re away

But there is no place like home, right? Well – what is home? Apparently our digital hubs have become our homes when we are on the move. Social networks are now our go-to place when we want to connect with our friends, even when we are away. Photo sharing apps like Instagram or Flickr store our memories and we can access them on the fly whenever we are away.

Even our local shop gets replaced by the increasingly present favorite online shop brand. There is a pattern that shows mobile buyers (those that change residential areas) are more prone to purchasing online and staying loyal to their favorite online store brand:

“For example, customers at Diapers.com who change locations become more or less likely to shop online, depending on the increase or decrease in their offline shopping costs in their new neighborhoods. Specifically, shoppers who have some experience shopping online and then move to a new location with homes with more storage capacity and relatively few stores will increase their online shopping activity.” Source: MIT Sloan Review

We, human beings, do not enjoy change all that much. In a fast moving world – we need stability. We need a fixed point. And after all it is all relative. If we’re constantly on the move – the only fixed point is that which moves with us or is everywhere around. Brick and mortar stores are fixed and therefore always moving for the traveler. Our fixed point is in the cloud. Our fixed point is the mobile.

Target CEO Resigns Over Security Breach. Gets Paid Millions to Leave.

Last year american retailer Target was the victim of a security breach. The hack compromised personal data for over 110 million customers. What is now known to be one of the biggest security breach in corporate history has not left the company unscathed.

The Backstory

target-storesOn December 13th, 2013, Target executives meet with the US Justice Department. The reason: discussing a hack that exposed credit and debit card data for over 40 million customers. On December 18th security analyst  Brian Krebs breaks the news. The Secret Service is involved and Target gets investigated.

On Dec. 27, 2013 word’s out that PIN numbers for the stolen cards were accessed. Target acknowledges PIN’s were accessed but says they were not decrypted. Meanwhile Russian forums get flooded with millions of credit cards.

And then it gets worse: Target declares an additional 70 million customers were affected by the security breach. The company reveals poor Holiday sales. Lays off 475 employees and reports costs associated with the data loss topping $200 million.

Fortunately, employees get to wear jeans and polo shirts.

The breach left Target in a disastrous situation as profits dropped 46% in the last quarter (-$440 million), compared to the year before.

First the CIO, now the CEO

After the blast, some heads were sure to fall. First was CIO Beth Jacob, the obvious … target. To show it means business, the company brought Bob DeRodes on board, as new CIO and executive VP. DeRodes, 63, started on May 5th and now oversees the adoption of secure technology, with the help of $100 million worth of tech investments.

The new CIO is a tech security veteran, his previous endeavors including being a senior IT advisor for some organizations you might have heard of: the US Department of Homeland Security, US Department of Justice and the US Secretary of Defense.

gregg-steinhafel

Gregg Steinhafel

But that was not enough. Chairman, President and CEO Gregg Steinhafel announced his resignation. The breach left both Steinhafel and the company in a vulnerable position. 

The company announced the parts have reached a settlement that will probably allow the ex-CEO to walk out with over $11.7 million salary and incentive pay. Not bad for a CEO leaving a company that lost $941 million in its Canadian 2013 expansion, is under heavy fire from Amazon and Walmart and was just exposed to the biggest card robbery in history.

But than again, the man did work for Target for the past 35 years.

Fastest Growing Online Retailers in the United States – an insight

In 1972 an young man, then 22, would join his father in their family owned small tailor shop. After graduating from Waseda University he tried his hand at selling kitchenware in a Jusco supermarket but that didn’t really worked out. So after one year in the kitchenware sales business he was back to the family shop.

It took him 13 years of hard work and one day, in 1985, he opened the first unisex clothing store in Hiroshima City. The brand our young man built would soon become a global multi-billion company and in 2014 – the fastest growing online retailer in the US.

The brand you will see towering at number one in the fastest growing online retailers in the United States is proof that the Internet is indeed a leveled play field. As many economists, investors and analysts showed – the Internet is clearing the way for a border-less economy.

InternetRetailer’s top retailers list clearly shows the fastest growing retailers are a special breed of companies. From foreign investors to Google, from mom-and-pop stores turned fast growing retailers – these companies show that we’re living extraordinary times for a ever-evolving breed of new retailers. Their growth and many others’ amount to a 16.9% growth in ecommerce sales in the US. That’s one big number but it gets even bigger when you have a look at the growth rate for the five fastest growing online retailers.

 

No.5: Google Play – Growth rate – 162%

Google PlayGoogle’s entertainment ecommerce business has been growing rapidly with the extended adoption of Android based mobile devices. In terms of android app sales is second only to the largest online retailer in the world, Amazon, but it seems the gap is closing fast.

The company is now one of the biggest digital goods retailer online, selling anything from music to movies, apps and games. It is also heavily pushing Android – powered mobile devices such as those manufactured by Samsung or HTC and the much praised Chromebooks.

Google Play closes in on the App Store, according to Distimo

Google Play closes in on the App Store, according to Distimo

Google Play, originally named Android Market, was launched on 22 October 2008, as an Android alternative to Apple’s App Store.

In July 2013 Google Play listed more than 1 million apps available and over 50 billion downloads since launch. The number is growing fast and it has already surpassed the App Store in terms of submitted applications and downloads. With gamers worldwide switching from PC and gaming consoles to hand-held devices, the app sales market becomes more and more attractive, thus the increased growth rate.

Google Play Sales Figures

Here are some key take-away figures to get a glimpse into Google Play’s sales:

  • estimated $1.3 billion in revenue in 2013
  • 75% of all downloaded mobile apps run Android
  • top 200 grossing apps are cashing in on $12 million /day

 

 

No.4: Alex and Ani – Growth rate – 250%

alexandani

Alex and Ani was founded in 2004 by Carmen Rafaelian. The company designs, manufactures and sells its own line of bangles, earrings, necklaces and rings.

A factory originally built by Rafaelian’s father in 1966 was home for the first manufacturing operations. Now Alex and Ani has 40 brick and mortar stores and an online store that reported a 250% increase in YoY sales.

The one thing that sets the company apart from its competition is its focus on a virtuous company ethos. Alex and Ani, originally named after its founder’s two daughters, takes pride in designing and manufacturing long-lasting, beautifully designed, hand-made jewelry. The products are somehow filled with positive energy, using carefully designed symbols thatcarry their own energy and are accompanied by thoughtfully crafted and meticulously researched meaning. Buyers are of course empowered by the jewels, which “reflect the unique qualities of the individual“. All materials and manufacturing is “Made in America With Love”. And positive energy.

I don’t know about the esoteric power of its products but the company is definately ahead of its game when it comes to customer experience. Besides adopting a multichannel approach to product sales, Alex and Ani adopted a mobile checkout process in store. The company partnered with Mobiquity to create a mPOS (mobile Point of Sale) solution that lets store associates handle payments and answer customer questions independent of fixed POS. The hardware solution is part iPod and part mobile payments processor. Each Alex and Ani store now comes equipped with up to 25 such devices. As a result store associates (or Bangles Bartenders) can bond with customers and quickly answer their needs.

Alex and Ani Sales Figures

  • Alex and Ani opened their first retail store in 2009. Sales that year were $2.9 million
  • In 2012 sales had reached $79.8 million, showing a staggering 3 years growth of 3569%
  • In 2013 sales reached $230 million

 

 

No.3: NoMoreRack.com – Growth rate – 250%

nomorerack

 

NoMoreRack.com was founded in 2010 by Deepak Agarval, now CEO. The company sells women, men, home, electronics, kids, and lifestyle products, through a combination of daily deals and flash sales.

Although the company has had a successful increase in sales, possibly due to it small pricing and short-term sales policy, the customer service still needs work. The Better Business Bureau lists no less than 2590 closed complaints in the last 3 years, most (1335) in the last 12 months. Customers complained about product and service, as well as delivery issues. The company seems to be improving its customer service and is willing to resolve ongoing complaints.

What might be harder to solve, however, is the fact that both Overstock and Nordstrom, retail heavyweights, are suing Nomorerack for copyright infringement. The former claims Nomorerack is bidding on the “Overstock” keyword on Google Adwords and the later claims NoMoreRack infringes on it “The Rack” store brand name.

Be that as it may, the old saying “sales cure everything” may hold true, as NoMoreRack’s 250% increase in sales shows. But just in case – the company has a pool of cash to help it get through rough times, thanks to series A investment by asian G-Market ($12 million, 2012) and series B investment lead by Oak Investments ($40 million, 2013).

NoMoreRack Sales Figures

  • $325 million in 2013 sales
  • $78 million sold Nov 1, 2013 through Dec 2, 2013 (Cyber monday). Yes, that is one month.

 

 

No. 2: TheRealReal.com – Growth Rate – 297%

therealreal

 

Although it may not be number one on the list, The RealReal is probably the most interesting business model on it. It is a mix between luxury sales, flash sales and consignment sales. The company was founded in 2011 by Julie Wainwright and is now the top online resale outlet for luxury goods. Flash sales cover a wide array of luxury products, ranging from clothing to jewelry to art and beyond.

One of the products you can get on The RealReal

One of the products you can get on The RealReal

Previously to being the founder of The RealReal, Julie Wainwright, 57, served as a CEO to high profile consumer dot com ventures such as Pets.com and Reel.com, as well as a board member for the San Francisco Art Institute, Baker and Taylor and more. She was named among the top 50 Most Influential Business women in the Bay Area.

As impressive as that sounds, it may be possible The RealReal is her greatest achievement yet. Companies such as Reel.com or Pets.com folded at times she held top management positions, most likely due to the dot com crash. She outlined the challenges and mistakes that lead to these failures in her book ReBoot: My Five Life-Changing Mistakes and How I Have Moved On.

The RealReal Business Model

Consignors sell their goods through TheRealReal and get up to 70% the end price. The company curates the product listing and authenticates all products with the help of professional gemologists, art experts, horology consultants and authentication experts.

Because all sales happen during a 72 hrs time-span customers can upgrade to a 24 hrs advance to sales, by purchasing a “First Look” subscription for 5$/month. Right now only 0.6% of all members have upgraded to the First Look subscription, but founder Julie Wainwright is optimistic about the future.

The company considers itself as holding the “top products from Ebay and the bottom of Sotheby’s and Christie’s”. Unlike Ebay, consignors earn 60% of the sale price and can work their way up to 70%, with repeated sales. The RealReal thus built a gamification system that encourages sellers to repeatedly use the platform.

The RealReal Sales and Membership Figures

  • Over 750 000 members
  • Over 1.5 million visits per month
  • 2012 Sales: $15.1 million
  • 2013 YOY growth in sales: 297%

 

 

No. 1: Uniqlo – Growth Rate – 341 %

uniqlo

 

Remember the young man we were talking at the beginning of this post? The one that opened a store in Hiroshima City in 1985 and went on to become the leader of one of the largest retail chains in the world? His name is Tadashi Yanai, the wealthiest man in Japan ($17.6 billion in 2014) and the founder of Uniqlo, now the fastest growing online retailer in the United States.

Uniqlo may not have the biggest number of stores but it does a great job with online retail.

Uniqlo may not have the biggest number of stores but it does a great job with online retail.

It stands as a sign of the times that a brand founded in Hiroshima went on to become the leader in a redefining area of retail, in the largest economy in the world, almost 30 years since its birth date.

In may 1985, Unique Clothing Warehouse was opened as a unisex casual wear store in Fukuro Machi, Hiroshima. It later on changed its name to Uniqlo, a contraction of “unique clothing” and became increasingly popular as it opened store after store in an effort to extend its retail reach.

Uniqlo, now a wholly owned subsidiary of Fast Retailing, is a contender to global casual wear behemoths GAP, H&M, Limited Brands (best known for Victoria’s Secret brand) and Zara (a brand owned by the Inditex Group). Its first urban store opened in the fashionable Harajuku district in november 1998. It was quickly followed by approximately 780 stores in Japan and later throughout the world.

The company entered the chinese market in 2002 and the US market in 2005. Since its debut in America, Uniqlo continuously opened stores and plans to open up to 200 locations by 2020, with a sales target of $10 billion. Right now the total store count is 18, way behind its presence in Japan (790 stores) and China (260 stores). Still not bad considering the fact that many american retailers are actually closing stores.

Uniqlo plans to become the biggest company in its market, by growing at a 20% rate until 2020, when it expects to report $61.2 billion in revenue. The company’s track record so far shows that is possible.

Uniqlo US Online Sales Figures

  • YoY increase:341%
  • 2013 sales: $22 million

 

 

PayPal to Process More Offline Payments

Ebay subsidiary PayPal is dead serious about taking on a $10 trillion market: the Multichannel Payments Market. To do so it will have to prove its worthiness against older companies, especially in offline commerce.

Multichannel Payments

A steady increase in Ebay's Revenue. Biggest cash cow - PayPal, 41% of total revenue.

A steady increase in Ebay’s revenue. Biggest cash cow – PayPal, 41% of total revenue.

With more than 140 million registered users already, PayPal has the sweetest spot in the online payments today. Its acquisition of global payments company Braintree secured an additional 35 million registered users. As President David Marcus puts it – this is a part of an effort to redefine money and payments into what he calls “Money 3.0″ – a new way of looking at payments and how customers use them.

PayPal owner-company Ebay is at the front of what some would call a commerce revolution led by technology. Its three main branches (The Marketplaces, Ebay Enterprise and PayPal) all work together in this changing landscape.

The Marketplaces (including Ebay.com, Shopping.com and Rent.com) enable C2C Commerce, while Ebay Enterprise caters end-to-end multichannel commerce technology. Ebay Enterprise is the tech, operational management and marketing vendor for the likes of Toys’R’Us, Radioshack, Sony ant many others.

Between these two, the payment processing subsidiary PayPal leads the way in online payments. The company is Ebay’s most promising subsidiary, growing at 20% in 2013. As of 2011, it decided to go offline, allowing customers to handle their money, cards and PayPal wallets in one place.

POS solutions

paypalofflineTo increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the new tablet-based counters. Store owners can easily implement its apps and start charging right away.

In an effort to increase adoption, PayPal started integration with third-party store management solutions such as ShopKeep POS, Booker, or Leapset.

Among its benefits for store-owners, Paypal lists security, quick implementation and an all-in-one approach to accepting payments, scanning barcodes, tracking inventory and sending invoices.

Customers willing to take their PayPal Wallet to an offline store account can pay by swiping their PayPal paycard, using their account or by paying online and picking up in store. Having a larger pool of companies accepting PayPal payments allows the company to securely handle all transactions, allow customers to receive loyalty points and handle all personal information.

Ebay and PayPal will stick together

paypal-growthSince Ebay purchased PayPal, both companies listed a successful increase in revenue. Ebay powered PayPal’s adoption to its marketplace users and in turn PayPal grew up to become one of Ebay’s most profitable subsidiaries, amounting to 41% of total revenue in 2013.

With the help from Ebay, PayPal grew from $600 million in mobile payments to $27 billion in just three years. The figures are posted on the 2014 annual shareholder meeting website, in response to Carl Icahn’s demand to spin PayPal off into a separate company.

Carl Icahn, one of the most notorious corporate raiders in the tech industry, demanded PayPal to be split into a separate company and become listed on its on. The board of directors fought his demands showing that even though the company is open to changes in the future, right now the two are working better together.

Luck would have it that shareholders reached an agreement to keep the companies together and handle the incoming commerce revolution as a whole.

“[...] we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.”

John Donahue, Ebay CEO. Source.

 

7 Biggest Retailers Closing Stores and Why Is This Important

It’s likely you’ve heard brick-and-mortar stores are not doing great. With eCommerce on the rise, it just doesn’t make sense for large retailers to keep up their existing stores. Expanding the network is out of the question, especially in established markets. While there is still space for growth in emerging markets, they are not really fond of blindly adopting the brick-and-mortar model.

China, for example, is likely to skip the large store networks and jump directly to eCommerce. Its fast growth in terms of online retail will bring $655 billion in online sales by 2020. The secret lays in the large disparity between the brick-and-mortar reach (13%) and online retail reach (51%).

US, on the other hand, provides a larger brick-and-mortar coverage (30%). US is also the leader in terms of store square feet per capita: 43. That is probably one of the biggest issues in brick and mortar retail: it has outgrown its limits.

As a result, a drastic change in the large retailers strategy had to happen. The likes of Sears, JC Penney and Staples (which is also the second largest internet retailer) started closing shops and decreasing store footage. Jobs were cut and loses reported. Here are the five most prominent cases:

Biggest Retailers closing Stores

1. Sears is set out to close 100 stores

Sears and Kmart

Sears and Kmart

After a disappointing 2011 holidays sales  ($2,4 billion in losses) , Sears Holdings Corp., the  corporation managing Sears and Kmart decided it’s time for a change. They’ve set out to close 100 shops, providing no details wether jobs will be cut.

Sears competition, Walmart and Target have been eroding the company’s sales. Its stores are deteriorating, sales are dropping by the month and even the store closure / selling won’t probably do any good.

Two years after the announcement and the company has hardly seen any improvement. Sears Canada is laying off 1600 people, as a result of store closures, and there is no clear strategy in sight.

The saddest thing: Sears started off as basically the grandfather of eCommerce. 125 years ago, the company was but an mail order by catalogue operation. Talk about going back to the roots.

2. Blockbuster is closing all remaining stores this year

Blockbuster

Blockbuster

Blockbuster was “just around the corner” not long ago. The company that introduced a new way of spending fun time at home, watching movies, is now about to close its remaining 300 stores.

Heavy competition from digital streaming from Netflix, iTunes and RedBox, made Blockbuster’s model obsolete. After closing the DVD-by-mail operations, the company will have cut its links with the past.

“Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.” said Joseph Clayton, CEO of Dish Network, Blockbuster’s parent company.

For Blockbuster, this is definately not a happy ending. In 2004 the company ran a network of 9000 stores and reported $5.9 billion in revenue. After all is said and done, RedBox may be the real winner here, with the potential to attract an additional $300 million in revenue after Blockbuster is bust.

3. JC Penney is closing 33 stores and laying off 2500 people

jcpenney_new_logoJC Penny has had a rough couple of years. Main reason: its former CEO Ron Johnson implemented the wonderful strategy of keeping costs down as opposed to promotions and discounts, in response to lower costs online. Revenue has plummeted and the company, with its margins already stretched thing, needed a change.

Current CEO, Myron Ullman III, expects these closures and lay-offs to save $65 million a year beginning in 2014.

Unfortunately, just like Sears, JC Penney has no strategy but survive long enough for a miracle to happen.

4. Barnes and Noble closed 51 stores since 2008, plans to close an additional 20. Also – it will likely kill its Nook tablet

barnes_and_noble_logoBarnes and Noble may be just another sad case of “ran-over-by-digital”, just like Blockbuster. In July, 2013 – CEO William Lynch Jr. stepped down without any additional information. Suspected reason: net loss doubled to $119 million. Suspected reason no.2: The Nook is taking a plummet, which accounts for the previous stated net loss.

The fact is Barnes and Noble has no chance of continuing without a clear check on its business model. Its competition is not some previously defunct Borders-like company. It is Amazon – the biggest online retailer and the fiercest retail competitor.

Chances are that even if Chairman Leonard Riggio, owner of 30% of B&N stocks, does take the company private, it will not do much. He is no Jeff Bezos and the company is really late to the web party.

5. Borders employed 19.500 people and operated 511 Superstores. It filled for bankruptcy in 2011.

Borders_Bookstore_Sign_LogoOne of the saddest entries on the list is of course Borders. At peak, the company employed 19.500 people that handled each and every customer with great care. People loved the company. They loved visiting the beautiful stores, browsing the books, chatting with store associates. They would than buy the books online.

The harsh truth is Borders was killed by showrooming, Amazon, iTunes and to a certain degree – its own inability to adapt to the web.

The company was everyone’s friend: people would see and feel the books, even buy once in a while. But when it came to the big shopping lists, orders went online.

In 2011, despite an offering from an investing company, Borders failed to find a buyer acceptable to its creditors. Its last 399 retail outlets began liquidating on July 22. Competitor Barnes & Noble acquired Borders’ trademarks, customer databases and the borders.com domain.

6. Radioshack closes 500 stores. Tries to handle $625 million in debt.

radioshack-logoRadioshack is an American classic. It operates 4500 stores nation-wide and it’s now closing 500 of them. Although the news seem gloomy – there is still hope for the company.

Nah, just kidding. The company is awful. It’s shares plummeted in the past years, it barely refinanced its $625 million in debt and is now trying to figure out where its headed.

Radioshack bet big on tablets and smartphones, a move that somehow misfired. These low-margin categories caused a decrease in net income by aprox. 300% . Ouch!

Radioshack's Net Income is in an awful state

Radioshack’s Net Income is in an awful state

In October 2013 Radioshack secured a $835 million loan from a group led by GE Capital, that freed up some cash and managed to get the company back on track, at least for now.

7. The Jones Group cuts 8% workforce, closes 170 stores.

JonesGroup_LogoClothing retailer Jones Group will cut approximately 800 jobs and close 170 retail stores. The group handles sales for some well known brands such as Nine West, Stuart Weitzman, Easy Spirit, Gloria Vanderbilt and Givenchy.

As of last year expected revenue was slashed to $3.8 billion, as opposed to 2006 $4.7 billion.

Global competition, recession and an increase appetite for brands bought online pushed the company to change its overview on brick and mortar retail. A special factor in decreasing sales have been flash sales sites such as Gilt or Ebay’s RueLaLa. Brands bought online on these sites have an increasing customer-base and will continue to put a dent in traditional fashion retail.

And now for the bright side …

Pretty hard to figure how these closed stores would be good thing for anyone. After all retailers are sure to suffer from decreased sales and customers will find it hard to get good deals. Jobs are lost and the economy will be. Unfortunately, that is partly true.

It is also true that most brick and mortar retail chains are a waste of money. The brick and mortar superstore is an over-bloated concept. With 43 square feet per capita in terms of retail footage, something is surely wrong.

A change in retail is needed as both logistics and store operations are hardly at their most productive. Online retail is a revolution that will improve retail. It will clear the old and bring in the new.

Retail chains closing stores means customers  better served online. It means remaining stores used as logistics hubs. It means better showrooming facilities. It means change and here are some:

  1. Inventory will be a burden no more – each store needs investment in shop inventory. Most of it is unnecessary and lots of said inventory goes to waste due to showroom handling. An online-first operation will decrease operational costs and customer prices.
  2. Think network of small stores instead large megashops – Large stores will be replaced by small stores. This stores will cater to smaller communities and reduce overall costs in handling, as well as provide more fulfilling jobs to store associates.
  3. Stores as logistics hub, in support of ecommerce operations – said smaller stores can act as pick-up spots for customers ordering online, testing products and returning orders.
  4. Embrace showrooming – Stores will eventually turn to showrooms as the logistics behind such a concept are more flexible and cost effective . Customers want to feel the product and than get a great deal on it. Showrooming caters to this need.

Yes, retailers are closing stores. But not all. Those that will survive will be smaller, more flexible, showroom-first facilities.