CASE

JUNE 2012

Five phenomena that will change retail in the years to come:

the stores scale up; cosmopolite retail vs. local retail; the
post-industrial (and post-commercial) retail; the hybrid retail;
the retail of uniqueness. All of them are not temporary
trends, indeed, they represent structural changes originating
either from new needs in society or from new technology. As
such, they are here to remain. Hence, retailers must be able
to shape their present retail-mix accordingly, or they will be
blown away from a new generation of disruptive retailers. In
order to do that, new architecture and new marketing skills
will be necessary.

RETAIL
HORIZONS
By Professor Davide Reina, SDA Bocconi School of Management

STORES SCALE UP

As for the stores scale up, that is to say the shift

from store to building and from spaces drawn under a purely efficiency-driven perspective to spaces
conceived in order to be memorable and beautiful, it
just mirrors another shift.
From periphery to centre, from countryside to cities, with the emergence of globalized megalopolises,
the first 600 cities in population nowadays account
for 60% of the planets GNP, which means 60% of
retail business and, probably, way more in terms

CASE RETAIL HORIZONS 2

of branding and image. Certainly, to be noticed by

customers in a crowded and competitive environment
like that is not easy.
One-way is stores scale up, which can be accomplished via excellence along two dimensions: size
and beauty. To do that, great architecture is key.
Todays megalopolises are the globes nervous system. Places in which information, technology, communication, and education, are maximized. These
are places originating new symbols, new trends and

new behaviors - to succeed there, a retailer must

be excellent and unmistakable, or he will fail.
In a way, what we see now is a new Renaissance of
the high-end, great retail architecture that created department stores at the end of XIX century.
It is the same tension towards excellence and the
same attempt to stupefy people. Meanwhile, there
is a decline of the architecture (i.e. Victor Gruens
architecture) that created shopping malls in the US
countryside in the 50s: big boxes, air-conditioned
and with big parking lots, purposely conceived to
exploit the growing purchasing power of masses
who had won their leave-pass to welfare.

are there to amaze. They are theatres of dreams,

that every retailer who wants to compete under a
global perspective and on great scale, must be able
to set up, and great architects are the wizards of
such a magic world.
To quote Daniel Herman: The Next Big Thing is the
recurring promise of a new typology that will deliver
greater profits and higher customer satisfaction.
Shopping experts believe that the right architecture can make a difference in optimizing the retail
environment1.

Why are shopping malls in deep crisis in the West?

Because welfare in society is dead, consumption
boosted by debt is dead, and the middle-class is going back to low class. At the antipodes, the Guccis
building in Ginza, the Pradas building in Tokyo, the
LVMH building in Paris, are contemporary profane
temples celebrating the opulence of the global social
class of high-net worth individuals, all over the world.
The ultimate goal of the stores scale up is to build
up extraordinary concept stores able to spark off
the brands image and to detonate its awareness.
Those concept stores are not there to sell. They

COSMOPOLITE RETAIL
vs. LOCAL RETAIL
Nespresso is selling coffee to everybody in the world,
mainly because its store is infused with a nowhereeverywhere atmosphere. That is a perfect example
of cosmopolite retailer.
It all starts with the store: when the place is an
astute fusion of styles, lines, colors, design, so that
it leaves you with the feeling that you are nowhereeverywhere. Although, you also have got the feeling
that this nowhere-everywhere place is the place
where great things happen.
That is to say: cosmopolitan cities. It ends with product: Nespressos coffee has now become the global
coffee for global citizens (and, also, the wannabe
global citizens). The mirage of cosmopolitan aspiration so powerful that it wins over the evident fact

that an Italian coffee from an anonymous bar, just

round the corner, is much better than a Nespresso.
Hence, the creation of a cosmopolite retailer might
be a road to success, in a world rewarding global
citizens much more than local ones. However, do not
think one can just sum up different ethnical styles
to create a cosmopolite retailer. That would just be
kitsch. Indeed, a hard and brilliant work in terms of
design, looking for styles and lines that were natural born globals, must be done. Again, this calls for
great talent in architecture.
But we live in a two-layers world: on the one side of
the street the roar of the crowd running for globalization, on the other side of the street our individual,
inner need as human beings, to look at our roots - and

1 Herman D., The Next Big Thing, Harvard Design Book Guide to Shopping, Taschen, 2001
CASE RETAIL HORIZONS 3

roots are always local, that is why they are roots.

This explains the surfacing and growth of local retailers, stressing their local extraction and their being
part of a distinctive community. Just think about
the success of stores selling Gaelic music or, on a
much greater scale, the expansion of restaurants
that are part of the slow food movement.

and their future growth will be determined by new

big cities from the BRICS and MICKS entering the
consuming market. Whereas local retailers are in
the early development phase, and are boosted by
the strong needs of stability and belonging injected
from the 2008s global crisis, further empowered
from the present one.

The point is that these two trends - the global and

the local retail - are interconnected. One person
can enjoy the experience of being a global citizen
today, and feeling irresistibly the experience of buying something truly local and genuine (like the Tweed
jackets from Scotland), tomorrow.
This is just human nature: the desire to cross boundaries on the one hand, the need to state boundaries
on the other hand. What is different than it was in
the past, though, is the fading away of boundaries,
and this calls for an even greater need for roots
and belonging.

That is why global (cosmopolite) brands and retailers

probably are in the late development/maturity phase,

"This is just human nature:

the desire to cross boundaries on the one hand, the
need to state boundaries
on the other hand"
CASE RETAIL HORIZONS 4

THE POST
INDUSTRIAL

(AND POST-COMMERCIAL)

RETAIL

We are at the dawn of a new

era: one in whichless of higher quality is better
than more of lower quality using
is better than owning; using and
sharing is even better.

Consumers are a dying

breed. The sunset of the glorious industrial and commercial society, and the decline of its most
famous dreams, the hedonistic
consumerism and the promise of
a never-ending welfare, have taken
years before ending. Now they are
over in the West. The period of
crisis we are crossing has irrefutably killed them and with them, the
you are what you buy culture has
passed away too. Though, after
having walked through a storm

CASE RETAIL HORIZONS 5

caused by the collapse of previous generations dreams, younger

generations are now envisioning
a new dream. A dream of being,
instead of having. We are at the
dawn of a new era: one in which:
less of higher quality is better
than more of lower quality; using is better than owning; using
and sharing is even better.
Those who claim that this is just
due to the economic crisis in
Western countries do not see

the big picture. Indeed this phenomenon, which I call userism, is

not a temporary one that, should
middle class see better times in
the future, would fade away. On
the contrary it is irrevocable and
definitive, as it is caused by three
structural factors.
First: human nature. Human
beings are not made to buy and
to consume indefinitely, driven by
a sort of psychological addiction.

They are made to look for utility

and meaning in what they do and,
on top of that, once they have
been disappointed by a collective
dream that has proven to be a
false and empty one, they do not
go back to the same silly dream
again.

Second: it is now clear that

Consumer Society is not a sustainable and responsible one. It

pollutes too much, consumes too
much of raw materials and, mostly, sells lots of useless products.
The consequence of this acknowledgement is the emergence of the
Green Society which is based on
the parsimony principle, to get
the maximum out of the minimum,
from an industrial point of view,
and on the utility principle (you do
not buy a television to contemplate
how beautiful it is, you buy it to
watch BBCs news. You dont buy
a refrigerator to admire it, you buy
it to keep your food fresh, etc),
from the customers point of view.

Third: the Web revolution, and

the advent of mobile devices, is

making it possible for customers
to share the use of products when
they need them and where they
need them. This eventually results
in the possibility, for customers,
not only to share but also to use
without owning. That is to say:
collective renting.

Now, these three factors all together determine a retail revolution: a scenario in which there will
be many retailers not selling, but
just renting. A scenario in which
those retailers will represent a
network renting products to cus-

tomers, getting back money from

customers just for the limited (in
time) use of these products, taking those products back to recycle
them as ingredients for new production cycles, once their life-cycle
and utility for customers are over.

How long will the

products use-cycle
be?
It mainly depends on the products
peculiarity, its market, and the
customers need. Of course, when
one thinks about a start-up like
Zipcar, then it is pretty clear the
products life cycle rarely goes
above one day. And, definitely,
Zipcar is a retailer (parking areas
where customers can rent cars
being its stores), exploiting to
a great extent the enablement
deriving from smart devices (customers can look for the closest
Zipcars parking on their mobile
phones and then, they can book
for one car also using the mobile
phone, as well as paying for it in
the same way), and whose key
value proposition is do not buy a
car just share it, use it when you
need it, and pay accordingly.
Now, if we take this example as a
sort of new paradigm to define a
post-commercial retail, then one
fact is crystal clear: we need a
new type of retail. Celebrating the
values of using, renting and sharing, instead of the values of owning
and consuming, and stressing the
greater smartness of a frugal (not
a poor) approach, versus a plethoric and hedonistic one. The pillar
of such an apfor new architecture,
design, marketing, and communi-

2 Tae-Wook .C., Ecology, Harvard Design School Guide to Shopping , Taschen, 2001
CASE RETAIL HORIZONS 6

cation. As for the latter, top-down,

patronizing, persuasive communication typical of the consumer
society will be banned. Bottom-up,
humble, transparent information
and education will be welcome. Ultimately, post-commercial retail
will call for a completely different
management typically, new eras
not only see the advent of new
species, but also the disappearance of the old, dominant ones.
Definitely, top-down marketingmix of present commercial retail
based on property and consumption of products, compared to
bottom-up marketing-mix of new
post-commercial retail based on
renting and using (and sharing)
of products, is like a dinosaur to
a mammal - an older, slower and
less smart species, doomed to
succumb.

HYBRID
RETAIL
Hybrid retail is a consequence of and explanation available, in the
presently operating as retailers
the so-called web of things. The
palm of our hand. Also, thanks
fully grasp the magnitude of this
web of things stands for the inex- to the Q-code, we can interact
revolution, and maximize potential
tricable fusion between the virtual
with physical products and places
synergies deriving from this merge.
and the physical world, presently to get further information about A resolute and brave managerial
characterizing our life. Behind this
them, right when we need them. approach, aggressively implementphenomenon, lies a formidable em- When the web walks with us, and
ing e-commerce and connecting it
powerment being generated from
we interact with products, then
with its physical retail network via
technology. More particularly: the web and retail are just the
store locator and CRM programs,
smart devices like smart-phones
same thing. It is a revolution getand tablets, thanks to these tools, ting rid of all kind of intermedi- would be necessary.
the web is now ubiquitous and fully aries, and merging the web and
portable. It comes together with
the retail. The result is tailing. However, many retailers have for
the past ten years been workus, in our pockets, when we walk It does not matter whether it is
on street, and if necessary we e-tailing or re-tailing. What re- ing under a risk-averse approach
when it comes to making retail
have a whole world of information ally matters is that companies
CASE RETAIL HORIZONS 7

hybrid (web + stores). Why has

this happened so far? Mainly for
two reasons: fear of cannibalizing
physical stores sales with the ecommerce, and lack of managerial
skills with reference to the digital
world. As for sales cannibalization potentially generated from
the e-commerces development:
this is the fear that has paralyzed
managers in retail, for years.
This is the reason why so many
retailers made the decision to externalize the e-commerce and to
use it only as a special distribution
channel for discounted, unsold
products. Also, this is the reason
why some retailers have just used
the Web as a sort of PR leverage
and a cheaper way to relate with
customers.
Now, this is over. Innumerable
analyses and research, along with
the evidence of great online business selling products without damaging physical stores sales, prove
that synergy is much greater than
cannibalization. The reason is that
the customer journey has become
hybrid too.
Typically, a woman who is a fashion-victim will use the web to get
information and explanation about
one product she is very fond of,
and then use the store-locator on
the companys web site to single
out which store the product is
available, and eventually go to the
store to buy it. Clearly, the purchase act is hybrid and the web
has played a substantial role.
Then, who has cannibalized what?
The truth is that web and store
play together in the same team.
Also, there are many customers
living too far from a certain brand/

CASE RETAIL HORIZONS 8

store, to buy by going physically

to that store. Instead of doing
that, they will buy online. This is
what happens for 80% of retailers: 80% of their customers live
too far from their branded stores
and there is no possibility for them
to open new stores which are
closer to them, because of the
fixed costs issue: one store needs
a certain size, a certain size determines a certain amount of fixed
costs, and fixed costs must be
absorbed by a local customer base
guaranteeing a minimum critical
amount of sales (otherwise, the
store will lose money). But this
calls for a city that is big enough.
.That is why no company can afford a capillary network of branded
stores. It would cost a fortune
and many stores would work below
the break-even point, as many
cities are too small to offer a sufficiently big customer base.
That is why retailers must develop
e-commerce: there are so many
customers living in the countryside, far away from the physical
network of stores, to reach via
the web, which is much cheaper in
terms of contact costs and even
more crucial, those potential customers can only become customers thanks to the e-commerce, or
they simply will not buy. Therefore,
this is a zero-cannibalization game,
and it may add 100% of incremental business to the company.
Another reason why the e-commerce should be developed in
retail is the fact that it offers
the possibility to sell an unlimited
product portfolio, as web space is
also unlimited and associated to
rather low fixed costs. Which is
the opposite of what happens in

a physical store, where space is

limited and fixed costs are quite
relevant. Hence, slow sellers and
niches cannot be part of the offer
in a physical store
As a consequence, retailers in
which e-commerce is well developed are more able to sell niches
and specialties (which usually
brings in higher margins) than
retailers whose e-commerce business is not well developed. Also,
it will have a greater capacity to
smooth stocks fluctuations, ultimately resulting in a lower average
cost of stocks. Finally, retailers
must go digital because more and
more customers want it.
The point is, retailers whose
stores are characterized by a full
integration with the internet (i.e.
interactive windows and touch
screens; Q-code; smart applications, etc.) are more attractive to
customers, and generate wider
cross selling along the customer
journey and higher conversion
rate. In a few words, hybrid retailers are just better than 100%
offline (or 100% online) retailers.

THE RETAIL OF UNIQUENESS

The world is crowded with stores,
each one offering its own products. That is why retailers whose
stores are unique, and whose offer is unmistakable, are inestimable. Nature loves symmetry
and, as the growing number of
retailers determines more and
more similarities in terms of
store formats and products, the
importance of uniqueness is subsequently growing. The economics
of masses and of standardized
products is the economics of
uniqueness best promoter. The
retail of uniqueness is the domain
of outsiders: one stores owners
and newcomers. It is very rare
to see a big retailer developing a
unique, revolutionary format. Its
inner nature, which is incremental
and not disruptive, denies it. It is
more likely for somebody starting
from scratch to develop a revolutionary concept store. All over
the world, if we walk the shopping streets, these revolutionary
concept stores can be singled
out. For instance, in Notre-Dame
des Sablons Square, in Brussels,
there is a store selling chocolate
as if it was a jewel, its name is
Marcolini. It has been a hugely
successful business so far, not
only sustained by the products
inimitable quality, but also from
the stores uniqueness point of
view. By offering chocolate as an
inestimable thing, in a place whose
design and appearance recall a
jewelry shop, Marcolini has been
able to overcome even the high-

quality Belgian chocolate producers (and retailers) like Neuhaus

and Godiva. That is the magic
spell of uniqueness and indeed, it
really is like an enchanting message propagating very fast and
attracting more and more passionate customers. For sure the
internet plays an essential role,
as it hugely facilitates the quick
and precise propagation of information. The Web is the retail of
uniqueness strongest ally and its
role is not only related to informations dissemination, but also to
business maximization. In fact,
every unique retail must face a
structural trade-off: you cannot
be unique if you have a hundred
stores all over the world. It does
not matter how unique your concept store is. If you start opening more and more stores you
will commoditize it. The maximum
number probably is in between
1 and 10. The guiding principle
is scarcity. Scarcity is a necessary ingredient of uniqueness as
it generates exclusivity. Actually,
if we look at this from a logical
perspective, retail uniqueness
would be fully satisfied when a
retailer just has one store. Again,
the web is a powerful ally in helping you keeping the number of
stores as low as possible. The
reason is you can use your physical (and unique) store as a sort
of masterpiece and primogenitor,
on which to detonate awareness
and attractiveness, via web, on
potential customers. In a nutshell,

one store in Notre-Dame du Sablon in Brussels, when put online,

is a store talking to the whole
world. Then, of course, there will
be constraints in terms of e-commerce capacity, food quality and
transportation, etc. But these are
just details related to the business models execution not to
its founding principles. The point
is retail of uniqueness calls for an
approach that is the opposite of
usual retail, in regard to stores
networks development. Instead of
growing it in number and location
as fast as possible, you must do
it as slowly as possible,

Harvard Design School, Guide to shopping,

Taschen, 2001
Anderson C., The Long Tail, Wired, 2004
Gladwell M. The Tipping Point, Penguin,
2002
Underhill P., Why we buy. The science of
shopping, Simon & Schuster, 1999
Bughing J., Guggenheim Shenkan A., Singer M.,How poor metrics undermine digital
marketing, The McKinsey Quarterly Review,
October 2008
Noble S., Guggenheim Shenkan A., Shi
C.The promise of multi-channel retailing,
The McKinsey Quarterly Review, October
2009
Chappuis B., Gaffey B., Parvizi P, .,Are
your customers becoming digital junkies?,
The McKinsey Quarterly Review, July 2011
Reina D., Architettura e Marketing per
creare valore nel retail, Mark-up, Settembre 2008

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CASE RETAIL HORIZONS 9