The New Multichannel Consumer

10th Retail Industry Meeting

12/04/2013 Madrid

X Encuentro de empresarios de la distribución

“The future has arrived. Online business is already a part of our lives and now is not the time to hesitate. The train is leaving and you have to run to catch it. Whoever doesn’t, will miss out on the market.” These words from IESE Prof. José Luis Nueno summarized perfectly the essence of the 10th Distribution Business Meeting that was held on April 10 and 11 on IESE’s Madrid campus. The theme of this year’s meeting spelt out it clearly: “The Decline of Shopping Streets and the Birth of the New Multichannel Model.” “Little by little, consumers are leaving the malls and a buying more from home or, via their smart phones, from wherever they are,” said Nueno.

The growing importance of e-commerce and m-commerce and the changes that they have brought about in consumer behavior were two questions that were discussed in depth in various sessions. In Spain, online business is the only sales channel that is growing, at 16.3%. “This is a very difficult moment in the consumer market but, in spite of everything, there continue to be opportunities and companies that continue to grow,” said IESE Prof. Julián Villanueva.

The meeting opened with the question: when will the consumer return? In this first session, IESE Prof. José Manuel Campa emphasized that Spanish exports are “growing at 25% more than before the crisis.” “Spain has also become more competitive although at the cost of a terrible rise in unemployment. Inequality in income and wealth is growing,” Campa lamented. He also drew attention to the fall in internal demand. “We will return to 2007 levels but it will take us some time to get back there,” he warned.

When Will the Consumer Return?

In spite of this difficult situation, Campa believes that in 2014 investment in machinery and plant will grow and exports will continue to grow as well. He said the public sector would undergo an adjustment but with less intensity and predicted a possible rise in taxes over the next few months with “a negative effect on consumption.” “Spain is increasingly a bimodal society, with one group of people who have stable and secure incomes and a growing number of people with less access to consumer goods,” he concluded.

Francisco Javier Campo, president of the AECOC, took a similar line. During his talk he mentioned the fall in Spanish GDP, the decline in consumer spending and retail sales and was critical of a possible tax increase which, he said, “would make the possibility of a recovery even more distant.” In his opinion, the consumer would return to the market when there were more jobs. At the same time, he said that the crisis had had a series of consequences on consumer behavior. “Prices have become the most important factor at the moment of purchase,” he said. He also mentioned the impact of the digital world as a key factor in consumption, as well as consumers’ increasing tendency to look for ways of saving money.

Faced with this situation, Campo encouraged businesses to innovate and to use new technologies, to look beyond their shores and to develop efficient and sustainable value chains. “Businesses have to adapt themselves to a different type of consumer,” he concluded. On this point, Prof. Nueno was clear: “Anything that offers the consumer value with new models will pay off.”

The Decline of Shopping Streets and the Emergence of the New Multichannel Model

During the meeting, Prof. Nueno presented the study “The Decline of Shopping Streets and the Emergence of the New Multichannel Model,” produced by AECOC. The study shows how e-commerce is consolidating as an alternative channel, saving the consumer the trouble of going to a shopping center and offering a better choice, lower prices and simpler refund processes.

Further evidence points to the differences between shops in Type A streets (the most commercial) and other streets, where more and more businesses are closing. “This should worry both the municipal authorities and the manufacturers,” said Nueno. He said to be a market leader it was no longer enough to open more shops. “To reach the consumer it is necessary to go multichannel,” he said.

Among the conclusions the report reaches is that “business with a physical presence is losing out during the recession at the same rate that e-commerce is developing with the dizzying speed.” “Anyone who doesn’t have virtual shops or doesn’t connect their inventories is missing out some unique opportunities,” he insisted.  He added: “The e-commerce players that don’t have physical shops are not only showing lack of respect for consumers but to the fact that absolutely everyone buys in the street, and the great majority, much more in off-line than online shops.” The study also suggests that “supermarkets have to revise their fulfillment model.” And he offered various useful pieces of advice such as: “Choose a good model now so that you can change it tomorrow.”

The Rise of “A” Streets

The Spanish retail fashion trade is going through a slump with a loss of jobs and a fall in income, said Marc Onandia, CEO of European Fashion Brands.  “Spain has gone from being a nouveau riche market to a market of the new poor,” said Luis Bodes, CEO of the men’s boutique Hannover 1998. Luis Sans, president of the boutique Santa Eulalia (Barcelona), said that “urban reform can accelerate or slow down trends but cannot create them.” “The premium or “A” streets are experiencing a boom around the world to the detriment of other streets and this tendency will continue,” he warned. This is partly caused by tourists who make up a large number of those with high purchasing power.

Julio Díaz-Freijó, CEO of Vilacaiz, and Enrique Martínez Laguna, director-general of CBRE Spain, believe that the difference between “A” streets and others is becoming increasingly polarized. Díaz-Freijó regretted that shops were closing down in secondary areas of cities due to the slump in consumer spending.  “It’s a very worrying situation and I think it’s almost impossible for those zones to be revived,” he said. However he was optimistic about shops located in prime sites. In this regard, he said that Spain was a very attractive country for big international brands because of the large number of tourists and because, furthermore, the prices in “A” streets are the lowest in Europe.

“The successful streets adapt themselves to consumer behavior,” said Martínez Laguna. For him, the fall in consumer spending and the rise in e-commerce have had a direct impact both on the consumer and on shops. In spite of the crisis, he said Spain is the fourth most sought-after country in the world by retailers. “Real estate investment will return because retailers and big brands are interested in having a presence in the country,” he concluded.

Understanding the Consumer

For Juan Pedro Agustín, director of strategic projects at DIA Internacional, his company’s strategy is based on price and getting close to the client.  “You have to know the client better. These days technology isn’t a brake,” said. The next challenge for this company, which has put its money on multi-channels and e-commerce, is m-commerce.  “For the consumer, proximity is another way of saving,” said José María Bonmatí, director-general of AECOC.

The director of business relations at Mercadona, Ricard Cabedo,  said his business model was based on “total quality, in which all of these components have to be satisfied: boss-worker-supplier-society-capital.” He expects 2013 to be “very difficult.” “We have to be very efficient to lower the price of the shopping basket and increase productivity, which is our touchstone,” he said. He admitted that multichannel is not a priority for Mercadona.

The director-general of Makro España, José María Cervera, said his food company’s outlets are newer and better organized than ever, thanks to his clients and the team of people that make up the company.
Other brands have gone for expansion in high-growth markets. This is the case of Pepe Jeans, whose international director, Bart Denolf, said that one of the keys to being successful in this type of expansion is to ally oneself with local partners in order to have access to technology, portfolios and capital. He was joined in the session by Cristina Galán, cofounder of Bitcarrier, who talked about projects launched by this small business based in technology, data quality and the ability to analyze that data.

Multichannel Is Here to Stay

Enric Ezquerra, director-general of Grupo Condis, said that his company recognized the importance of multichannel (mobile phones, the Internet, social networks) in its strategy. He said that to carry out a multichannel approach, it was important to redefine the roles and objectives of the channels, the development of a singular and a multichannel vision of each client, and the needs to develop actions and services that improve the client experience.

For Luis Buceta of BNP Paribas, multichannel is inescapable for food industry companies and he listed a number of factors necessary in order for the format to be successful: low-cost, little investment in capital and convenience.  Meanwhile, Jamie Merriman of Sanford C. Bernstein, made it clear that it is important to invest in social networks and the Internet. E-commerce is here to stay, he said, “but every distributor must be clear about the impact of online shops in order to incorporate them, or not, in their business.” At the same time, he insisted that there is still space for physical shops, which have certain advantages over the Internet such as a sense of immediacy, the possibility of touching the product and the shopping experience.

Mobile Shopping

Fuenciscla Clemares, director of Google Spain, and Fernando Gracia, sales director at Facebook, discussed “The Outlook for Big e-commerce and Social Commerce Operators: Social Commerce in Collaboration with the Retailer.”  “The mobile is here to stay but there is still a lot of ignorance in the sector,” Clemares said. She went further to add that “the retail world undervalues the potential of mobiles.” She said the mobile was a way of interacting with and getting to know clients.

After discussing the rise of m-commerce in countries such as United States, she said that  in 2016 20% of purchases were made via mobile phone. Her advice to retailers was to develop a mobile site adapted to the needs of users on the move, to close as soon as possible the online/off-line loop and to facilitate conversion to multichannel and multi device. “The mobile opens up a whole new world of possibilities for marketing and publicity,” she said.

Fernando Gracia said that the consumer is changing the way they consume.  “The mobile is disruptive. The big players have already taken on this change and are working with it,” he said. He pointed out how in a short period of time Facebook has revolutionized global communications and how it can be a tool to help solve retail challenges. “Having a presence on social networks is useful and brings returns,” he said. “You can connect with your real clients wherever they are. You can engage with them to generate loyalty. You can influence other consumers and build identity through various businesses,” he suggested.

Jaume Betrián, cofounder of Ofertia, and Eric Ubals, cofounder of Motobuykers, discussed the topic  “E-commerce: Mobile, Social and Unavoidable.”  The two entrepreneurs discussed the history of their respective companies, whose business is based on a exploiting the potential of the Internet and new technologies. “The smartphone is having a significant influence on shopping decisions,” said Betrián.

Ángel Herrero, director of Samsung’s business channel, said mobile devices have become even more influential thanks to the proliferation of tablets and smart phones. “The retail technology sector is going through a period of consolidation because of reduced margins,” commented.

Universal Technology

Universal access to technology has resulted in the user spending more and more time on their devices from which they have access to an enormous quantity of information. Ubals described the business model of Motobuykers, a shopping club for motorcyclists that offers discounts of between 30% and 70% each week. The business has grown in two years thanks, among other things, to the efficiency of the management of e-commerce and the development of a social APP for motorcyclists.

Isabel Mesa, director of WGSN in Spain and Portugal, believes it is time to rethink the retail experience from the point of view of the consumer, and not the other way round. She said that technology he has to be a keystone in retail strategies in order to extend sales areas. There also has to be innovation in physical stores that are vital for developing the business. Finally, Mar Morosse, of Sotheby’s International Realty, talked about the nature of luxury stores in New York and the ways in which they differ in different areas of the city.