Mergers & Acquisitions = Strange Bedfellows

VOLUME 25 ISSUE 10 • 2017 TRENDS FROM THE

‘IN THE MOMENT’ RETAIL ARRIVES

Another rockin’ rollin’ retail year has come to an end. It’s been a year of retail closings and openings. Of mergers. Of acquisitions. A year when new technologies (like artificial intelligence) took hold and showed their real value. A year when, in spite of the social and political chaos, shoppers moved forward, felt more confident about their future, and began to spend again on more than just necessities. A year in which the future became much clearer as companies moved forward, no longer stuck in Amazon-freeze frame. We are now in one of the most exciting times for retail in decades.

“We are now in one of the most exciting times for retail in decades”. PHYSICAL RETAIL GROWS; DIGITAL GETS PHYSICAL In spite of predictions that physical retail was dead, there was lots of growth, especially of small format, value retailers like Dollar General, Aldi, Target urban stores and Walmart Neighborhood Markets. Lidl, the newest discount kid on the block, arrived with much fanfare and some issues.

Digital-first retailers, likeWarby Parker (eyeglasses), Madison Reed (hair color), Bonobos (menswear), Glossier (beauty) expanded their physical footprint. Amazon finally moved seriously into retail with its acquisition ofWhole Foods, its continued expansion of Amazon Books, meanwhile continuing to noodle with Amazon Go. MERGERS & ACQUISITIONS = STRANGE BEDFELLOWS Mergers and acquisitions rolled on at a great rate. Strange bedfellows emerged. Beyond Amazon and Whole Foods, Walmart recognized it could buy its way into digital, leveraging its Jet.com platform (and CEO) to build its digital marketplace (and announced it would host the Lord & Taylor department store on its site).

The Walgreens–Rite Aid deal collapsed. CVS Health announced it would purchase insurance giant Aetna. This re- vealed the different approaches of the two biggest health care retailers. Meantime, companies of all kinds saw the opportunity in health and wellness. Lots of innovation emerged in retail, products and services: mostly in unusual places and from surprising sources.

Even department stores got into the game. Nordstrom featured Gwyneth Paltrow’s Goop brand in its Pop-In store with Sex Dust and The Mother Load supplements and vitamins, amongst yoga gear, beauty and more. Saks Fifth Avenue introduced The Wellery, a four-month pop-up on the second floor of its NYC flagship.

Who would have thought to give someone the gift of genetic testing for Christmas? 23andMe did. And who would have thought that Amazon might get into the prescription drug delivery business? Word is it has purchased several pharmacy licenses. So stay tuned.

“Companies must understand how to reach shoppers who now buy ‘in the moment.’ Intercepting their path to purchase is now critical.” HOME DELIVERY BECOMES AN EVERYDAY SERVICE 70% Home delivery of everything grew. Food, fashion, beauty, health, mattresses, of shoppers have changed everything. Traditional retailers, such as Kroger and Walmart, followed compa- their shopping routines nies like Blue Apron and Hello Fresh, to deliver meal kits to your door. Stitch- Fix expanded its door-to-door subscription of women’s fashion to include men and kids. Beauty products and services, health care prescriptions and services say they buy also expanded to doorsteps. Nordstrom opened its firstNordstrom Local so what they shoppers no longer have to go to the full-line store. Here they can pick up what need wherever they’ve ordered online, have it altered or returned hassle free. And Amazon will % they see it deliver just about anything inside the house if you have Amazon Key service. 80 (The ubiquitous son-of-a-gun!) GOODBYE SHOPPING ROUTINES It’s no surprise that in our recent How America Shops® research, 70% of shoppers tell us they have changed how they shop over the last five years.

One of the main reasons is that most now shop whenever, wherever: 80% say they buy what they need wherever they see it. And they see “it” in lots of places. An increasing number use new shopping services disrupting age-old routines in obvious and less obvious ways. For example, of the one-in-six who order online and pick up at the store, four-in-10 then go into the store. Casper Subway Campaign All this means that companies must understand how to reach shoppers who now buy “in the moment”. Intercepting their path to purchase is now critical. WSL 5 BEST LIST Who got it right in 2017? Here’s our Top 5 for the year. All have made great strides. But all still have challenges.

CASPER: The mattress company continues to win on many levels. It offers so- lutions for sleep (one of the biggest health issues Americans have). It solves the stress of buying a mattress (home delivery, in a box, 100 night’s satisfaction guar- antee or free return). It expanded from the initial one perfect mattress to now offer the new “curve” for humans and a pet mattress for pooch. You can also buy Casper Subway Campaign healthy (breathable) bed linens and pillows.

It expanded the number of places to actually try out the mattress (Target, West Elm, American Airlines). Its humorous marketing is continually re- freshed. (Check out the new subway campaign.)

Challenges: Other companies are fast entering this space. How many va- rieties of mattresses does it need before it gets complicated, stressful?

NORDSTROM: Its decision not to take the company private hasn’t stopped management from experimenting on many fronts. Beyond new stores (can’t wait for the NYC store), its pop-in shops and retail partner- ships create lots of reasons to drop in. So too the new eating and drink- ing options (e.g., Michigan Avenue, Chicago has a great bar in the Men’s Nordstrom Men’s Department, Chicago Department). The introduction of the LA Local small format is a fascinating attempt to deliver digital shopping and physical services (pick up online purchases, stylist-support, a tailor, nail bar, coffee bar) without shoppers having to trudge through the mall to get to the regular store.

Challenges: How many full-line stores does it need? Is the Local worth the overhead?

SEPHORA: The beauty (r)evolution continues here. Physical stores are now digitally ramped-up playgrounds where shoppers can educate them- selves or the well-trained staff can help. The variety of formats meet different shoppers needs at different times. Nordstrom Local, LA TIP (Teach, Inspire, Play) is the highly immersive full-line store where shoppers sign up for classes or use a wide range of digital tools to DIY. Small format Sephora Studio is where shoppers run in and out fast. There’s Sephora at JC Penney. And Flash, the European prototype where shoppers try product, then order online for home delivery. The Sephora digital offer is just a seamless delivery of the community and brand.

Last but not least, the many new brands (many developed in the Sephora incubator program) constantly add freshness and uniqueness to the mix, and capitalize on younger shoppers’ passionate interest in brands that no one has ever heard of before.

Challenges: It’s had very little US competition until now. However, as Sephora Beauty Studio, Boston Ulta Beauty expands its premium brands (MAC, Lançome, etc.) will this erode the retailer’s uniqueness?

WALMART: Who would have thought that the largest retailer in the world would be a hot property again? We would and told you so. It wasn’t until it got out of its own head and understood what its shoppers wanted that it all turned around.

It first sorted out its basics (right product, right price, right now). Without that nothing mattered. It recognized lower-income shoppers now have lots of competitive options (Aldi and dollar retailers), so improved pricing, store experience and service (from fresh food to electronics). It aggressively expanded its convenience options (from Neighborhood Market to click and Sephora Flash, Paris

collect and added “personal shoppers” to support it). It finally realized its heft and bought into dot com to compete more effectively against the “Big A.” And it recognized the need be a nicer company (better wages, more training for employees, etc.).

Challenges: Lower-income shoppers have many more convenient afford- able options and are more inclined to shop physical stores. Can Walmart make them feel welcome as it puts more emphasis on higher priced digital brands, ModCloth, Bonobos, Lord & Taylor? How long will sharehold- ers tolerate high investment levels?

AMAZON [BOOKS+]: The Amazon Bookstore experience reveals the Walmart Grocery Pickup, Oklahoma company knows how to build a physical experience with an ecosys- tem (digital and physical) that embraces shoppers. Each store is better than the last. The new one in Herald Square, NYC features Stumptown Roasters coffee shop. The online experience comes to life here with reviews and referrals. There are Alexas, Echos, Dots, and other AI-en- hanced electronics, Prime benefits, service, and paper books to smell and touch. Between this rollout and Whole Foods, it’s been a full year.

Challenges: Mmmm? LAST WORD: “YES” Amazon Herald Square, NYC The new Nordstrom Local has a sign on its wall that should inform and inspire how we think about shoppers in 2018. “Yes. The last word you hear before you get WENDY SPEAKS AT: exactly what you want.” Path to Purchase Summit 2018 Re-Imagining the Future Happy Holidays & Happy New Year to all. And as always, thanks. March 12 - 14, 2018 // Chicago, IL

NEW REPORT RELEASE! See you from the EDGE,

WENDY LIEBMANN, CEO & CHIEF SHOPPER

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