Intelligent Retail: The Future of Stationary Retail 3658383151, 9783658383152

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Gerrit Heinemann

Intelligent Retail The Future of Stationary Retail

Intelligent Retail

Gerrit Heinemann

Intelligent Retail The Future of Stationary Retail

Gerrit Heinemann eWeb Research Center Hochschule Niederrhein Mönchengladbach, Germany

ISBN 978-3-658-38315-2    ISBN 978-3-658-38316-9 (eBook) https://doi.org/10.1007/978-3-658-38316-9 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This book is a translation of the original German edition “Intelligent Retail” by Heinemann, Gerrit, published by Springer Fachmedien Wiesbaden GmbH in 2021. The translation was done with the help of artificial intelligence (machine translation by the service DeepL.com). A subsequent human revision was done primarily in terms of content, so that the book will read stylistically differently from a conventional translation. Springer Nature works continuously to further the development of tools for the production of books and on the related technologies to support the authors. This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Preface

The Corona crisis divides developments into a “before, during and after” – according to the FAZ on August 19, 2020. What it will look like for stationary retail after the pandemic can only be guessed at (Schubert, 2020). However, it is becoming increasingly clear that the forecasts for structural changes in the next ten years will have already occurred by the time the pandemic ends at the end of 2021. One thing is clear: no one wants stationary retail to disappear and inner cities to become deserted. However, citizens1 vote with their feet and increasingly with their thumbs. They are the ones who determine the life and death of retail. If they decide against inner-city retail, there are good reasons for it. There is no doubt that dying formats such as department stores have little chance of survival. And local retailers who suffer from a digital allergy and the majority of whom do not even meet the requirements for online business will not be able to survive either. According to estimates by DHL, 250,000 retailers are still not online and the majority of them do not even have the necessary and sufficient conditions to do so. But stationary retail should by no means be written off completely. It just has to reinvent itself. Last year, for example, Microsoft CEO Satya Nadella demonstrated what it can do with the term “Intelligent Retail” (NRF Satya Nadella, 2020). This is primarily associated with Artificial Intelligence (AI), but goes far beyond that. Artificial Intelligence in retail is not just about automation and robots taking over tasks, but about instruments and machines being able to learn and draw conclusions themselves. A customer shopping in a store should be able to make intelligent recommendations based on what they are looking for. This involves product recommendations based on the customer’s interests, previous purchases or search behaviour. Google is also working on this, and locally. That’s how our shopping and search behavior is changing. And if a retailer doesn’t do that, they will lose customers. The big online marketplaces have been using these methods successfully for a very long time. The stationary retail trade has not been able to do this so far. That’s why the eWeb Research Center at the Niederrhein University of Applied Sciences is currently researching a strategy in a project with several participating institutions, including the Jülich Research

 In this work, the generic masculine is used for better readability. Female and other gender identities are explicitly included as far as it is necessary for the statement. 1

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Preface

Center, and retailers that aims to merge online and offline shopping using artificial intelligence. At its core, it is about saving retail in city centers. The research project is called “ON4OFF” and is funded by the NRW Ministry of Economics and the European Regional Development Fund. The first results are expected in 2021. In addition to Microsoft CEO Satya Nadella at the NRF in New York in January 2020, “ON4OFF” in particular provided the impetus for this work, which is to be understood as a further development of my book “The Reinvention of Stationary Retail”. It deals with the central issues that will shape the retail of the future, namely that we need intelligent systems in retail that we do not have yet. If retailers do use systems, they tend to be non-­ intelligent ones. Today, stationary retail also has to work in a data-based way, which has not been a big issue so far. The aim of the book is therefore above all to shake up stationary retail once again and to show it a way to reinvent itself after Corona in order to survive against the brutal online competition. I would like to thank Barbara Roscher and Birgit Borstelmann from Springer Gabler-­ Verlag for the “motivation” for this book and the excellent cooperation so far. Finally, I would like to point out that my most urgent concern with this book was again to build a bridge between theory and practice and to make it user-friendly. However, if I have not met this requirement, I ask for your indulgence, but also for appropriate feedback. Mönchengladbach, Germany

Gerrit Heinemann

Contents

1 From  Stationary Retail to Intelligent Retail   1 1.1 Status of Stationary Retailing in the Wheel of Retailing������������������������������   1 1.2 Online Versus Offline and Food Versus Non-food����������������������������������������   6 1.3 Stationary Retail Before, During and After Corona��������������������������������������   9 1.4 Structures and Size Classes of the Stationary Retail Trade��������������������������  12 1.5 Location Development City Centre Versus Shopping Centre����������������������  14 1.6 Intelligent Retail Instead of Residence Principle������������������������������������������  17 2 Threat to Stationary Trade  21 2.1 Shift from Offline to Online��������������������������������������������������������������������������  22 2.1.1 Systemic Relevance of Online Trade������������������������������������������������  22 2.1.2 Frequency Losses in Stationary Trade����������������������������������������������  25 2.1.3 Erosion of Inner Cities����������������������������������������������������������������������  27 2.1.4 Effects on Shopping Centres and Greenfield Sites ��������������������������  31 2.1.5 Dominance of Online Marketing������������������������������������������������������  34 2.2 Digitalisation of Consumer Behaviour and Customer Expectations������������  37 2.2.1 Total Penetration of Internet Use������������������������������������������������������  38 2.2.2 Changing Customer Expectations Through Amazonization������������  39 2.2.3 Increasing ROPO Effects for Stationary Purchases��������������������������  41 2.2.4 Showrooming Versus Webrooming in Stationary Retailing��������������  43 2.2.5 SoLoMo as a Key Issue for Stationary Formats ������������������������������  46 2.3 Scenario for the Internationalisation of Retail Trade������������������������������������  48 2.3.1 International Players in German Online Retailing����������������������������  49 2.3.2 Internationalisation of Stationary Trade�������������������������������������������  51 2.3.3 Cross Border Commerce������������������������������������������������������������������  52 2.3.4 GAFA-TAB Economy and Hidden Champions��������������������������������  54 2.3.5 New Social Commerce ��������������������������������������������������������������������  56 2.4 Changing Value Chains and Loss of Customer Relationships����������������������  57 2.4.1 Importance of Portals and Shopping Platforms��������������������������������  57 2.4.2 Change in Value-Added Structures ��������������������������������������������������  59 2.4.3 Verticalisation Versus Specialisation������������������������������������������������  62 vii

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2.4.4 From Point of Sale to Point of Decision ������������������������������������������  64 2.4.5 Increasing Importance of Data-Based Performance Marketing��������  66 2.5 Change of Experience Orientation and Service��������������������������������������������  68 2.5.1 New Disruptive Factors for Customers��������������������������������������������  69 2.5.2 From Experience Trade to Retailtainment����������������������������������������  70 2.5.3 Role Change of Personal Counselling����������������������������������������������  72 2.5.4 Location-Based Services������������������������������������������������������������������  75 2.5.5 Digital Services and Services�����������������������������������������������������������  77 2.6 Refusal of Digital Transformation����������������������������������������������������������������  79 2.6.1 Hardly Any Digital Jolt in Germany ������������������������������������������������  80 2.6.2 Digital Resistance in the Retail Sector���������������������������������������������  81 2.6.3 Risk Averse and Visionless Standard Digitisation����������������������������  83 2.6.4 Lack of a Digital Strategy ����������������������������������������������������������������  85 2.6.5 Slow Digital Adoption and Transformation��������������������������������������  88 2.7 Change of Use of City Centres ��������������������������������������������������������������������  91 2.7.1 Critical Size: Major Centres Versus Small and Medium Cities��������  92 2.7.2 Changing Roles: Sleeping City Versus Shopping City ��������������������  95 2.7.3 Retail Real Estate: Polarisation and Trading Down��������������������������  97 2.7.4 Overstretched Local Politics: Lack of Ideas and Concepts��������������  99 2.7.5 Lack of Initiative: Not Everyone on Board Including Landlords ���� 102 2.8 Customer Centricity Misunderstood as a Business Principle ���������������������� 106 3 Intelligent Retail 109 3.1 Basic Requirements for Intelligent Retail���������������������������������������������������� 110 3.1.1 Intelligent Situation Assessment: Digital Evolution Stage �������������� 110 3.1.2 Digital Leadership���������������������������������������������������������������������������� 114 3.1.3 Digital Culture: Digital Culture Fit�������������������������������������������������� 117 3.1.4 Digital Organisational Requirements������������������������������������������������ 119 3.1.5 System Technical Requirements: API First�������������������������������������� 121 3.2 Intelligent and Customer Data-Based One-to-One Marketing �������������������� 125 3.2.1 AI Versus Machine Learning in the Retail Sector���������������������������� 125 3.2.2 Intelligent One-to-One Marketing and Hyperpersonalization���������� 130 3.2.3 Intelligent Assortment and Sales Planning �������������������������������������� 132 3.2.4 Intelligent Pricing in the Retail Sector���������������������������������������������� 135 3.2.5 Intelligent Communication and Customer Services in the Retail Sector������������������������������������������������������������������������������������������������ 137 3.3 Smart Stores and Channel Linking �������������������������������������������������������������� 140 3.3.1 Online Versus Offline and Onsite Versus Offsite Options���������������� 140 3.3.2 Multi-Channeling Versus Omni-Channeling Options���������������������� 145 3.3.3 Web-to-Store and Store-to-Web Digitisation������������������������������������ 153 3.3.4 Digital-in-Store and Web-in-Store Digitisation�������������������������������� 162 3.3.5 Smart Stores and Smart Business Models as a Freestyle������������������ 176

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3.4 Intelligent Supply Chain ������������������������������������������������������������������������������ 181 3.4.1 Customer-Centric Supply Chain and Quick Response �������������������� 181 3.4.2 Two-Sided Supply Chain as Ecosystem������������������������������������������� 185 3.4.3 Use and Potential of AI in the Supply Chain������������������������������������ 187 3.4.4 Self-Learning Supply Chain ������������������������������������������������������������ 188 3.4.5 Blockchain Technology in the Supply Chain������������������������������������ 191 3.5 Intelligent Employee Qualification and Recruitment ���������������������������������� 193 3.5.1 Addressing the Skills Shortage in the Retail Sector ������������������������ 194 3.5.2 Repositioning of the “Retail” Employer Brand�������������������������������� 195 3.5.3 New Digital Attractiveness as an Employer�������������������������������������� 198 3.5.4 Personnel Sourcing and Employee Loyalty�������������������������������������� 201 3.5.5 Strategies for the “War for IT Talents” in the Retail Sector������������� 203 3.6 Intelligent Online Marketplace Sales������������������������������������������������������������ 205 3.6.1 Online Marketplaces Versus Platforms �������������������������������������������� 206 3.6.2 Own Online Marketplace Versus Selling on External Marketplaces��������������������������������������������������������������������������������� 209 3.6.3 Online Marketplace Forms and Their Market Significance�������������� 215 3.6.4 Regional and Local Online Marketplaces���������������������������������������� 218 3.6.5 SaaS-Enabled Marketplaces (SEM)�������������������������������������������������� 222 3.7 Channel Egal and Connected Retail as the Highest Stage of Evolution������ 225 4 Examples  for the Stationary Retail Trade of the Future 231 4.1 Future Formats of the Stationary Retail Trade���������������������������������������������� 232 4.1.1 Future Specialist and Supermarkets: The Example of Hema/ Alibaba���������������������������������������������������������������������������������������������� 232 4.1.2 Showroom Stores: The Example of b8ta and Vaund������������������������ 234 4.1.3 D2C Mono-Label Stores: The Example of Warby Parker and Nike ��������������������������������������������������������������������������������������� 237 4.1.4 Online Retailer Stores: The Example of Amazon and JD.com�������� 242 4.1.5 Efficient Transparent Stores: The Example of Everlane and Glossier �������������������������������������������������������������������������������������������� 247 4.2 Machine Learning in Stationary Retail: Project Example ON4OFF������������ 250 4.2.1 ON4OFF Initial Situation, AI Problem and Project Consortium������ 250 4.2.2 ON4OFF Project Content, AI Applications and AI Innovations������ 253 4.2.3 Technical AI Concept and ON4OFF Reference Model�������������������� 257 4.2.4 ON4OFF Work Packages and Project Phases���������������������������������� 260 4.2.5 ON4OFF Milestone Planning and Overall Objective ���������������������� 264 4.3 Retail Digitization Projects: Lessons Learned���������������������������������������������� 267 4.3.1 Project MG.Retail2020 to Strengthen Stationary Retail Trade�������� 267 4.3.2 Mönchengladbach on eBay�������������������������������������������������������������� 276 4.3.3 Digital City Centre as an Initiative of HDE and eBay���������������������� 280

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4.3.4 Diepholz on eBay������������������������������������������������������������������������������ 283 4.3.5 OCW/Online City Wuppertal and Atalanda�������������������������������������� 285 4.4 Digital Retail Initiatives and Promotion ������������������������������������������������������ 288 4.4.1 eBay City Initiative and eBay Your City������������������������������������������ 288 4.4.2 HDE-Google-Initiative Future Trade������������������������������������������������ 290 4.4.3 Amazon SME Impact������������������������������������������������������������������������ 292 4.4.4 State Support for SME Digital and Digital Coaches������������������������ 294 4.4.5 Digital Erfa and Self-Help Groups �������������������������������������������������� 295 4.5 Smart City of the Future ������������������������������������������������������������������������������ 298 4.5.1 Smart City Concept�������������������������������������������������������������������������� 299 4.5.2 Digital Governance and Smart City Index���������������������������������������� 302 4.5.3 Intelligent Mobility and Traffic Management���������������������������������� 304 4.5.4 Urban Logistics of the Future ���������������������������������������������������������� 307 4.5.5 Future Project “Vital City Centre”���������������������������������������������������� 312 4.6 Intelligent Shopping Centers of the Future�������������������������������������������������� 314 4.6.1 Customer Journey in Shopping Centers�������������������������������������������� 315 4.6.2 Revitalisation of Shopping Centres�������������������������������������������������� 317 4.6.3 Evolution of Shopping Centres into Service and Lifestyle Hubs ���� 320 4.6.4 Digitisation of Shopping Centres������������������������������������������������������ 324 4.6.5 Shopping Centres as City Centres: The Example of Bad Münstereifel�������������������������������������������������������������������������������������� 326 4.7 Metropolises of the Future���������������������������������������������������������������������������� 328 5 Risks  for Intelligent Retail 331 5.1 Legal Risks in Distance Selling�������������������������������������������������������������������� 331 5.2 DSGVO: Basic Data Protection Regulation ������������������������������������������������ 334 5.3 Geoblocking Regulation ������������������������������������������������������������������������������ 337 5.4 Silo Controlling Instead of Network Management�������������������������������������� 339 5.5 Myths and Prejudices������������������������������������������������������������������������������������ 341 References

345

About the Author

Gerrit Heinemann  is Professor of Business Administration, Management and Commerce at the Niederrhein University of Applied Sciences and heads the eWeb Research Center there.

xi

Abbreviations

ACM Adaptive Case Management Adm Administration AGB General terms and conditions of business AGOF Online Research Team AI Artificial Intelligence AMD Age-related Macular Degeneration API Application Programming Interface App Application AR Augmented Reality AWS Amazon Web Services B2B Business-to-Business B2C Business-to-Consumer bevh Federal Association of the German E-Commerce and Mail Order Trade e. V. BGB Civil Code BGG Disability Equality Act BGH Federal Court BID Business Improvement District BITKOM Federal Association for Information Technology, Telecommunications and New Media BMI Federal Ministry of the Interior, for Building and Home Affairs BMWi Federal Ministry of Economics and Technology bn Billion BVH German E-Commerce and Distance Selling Trade Association B2B Business to Business B2C Business to Consumer CAGR Cumulated Average Growth Rate CBC Customer Buying Cycle CCG Centre for Co-organisation CD Computer Disc xiii

xiv

CDO CeBIT

Abbreviations

Chief Digital Officer Centre for Information Technology, Office Telecommunications CEO Chief Executive Officer CES Consumer Electronics Show CGA Customer Generated Advertising CI Corporate Identity CIC Customer Interaction Center CM Category Management CMS Content Management System CNC Costs New Customer CPO Costs Per Order CRM Customer Relationship Management CS Customer Service CTR Click Through Rate CU Corporate Units i.e. viz. D2C Direct-to-Consumer DAX German share index DIY Do It Yourself DLT Distributed Ledger Technology DOB Womenswear dpa German Press Agency DPDHL German Post DHL GDPR General Data Protection Regulation DSL Digital Subscriber Line DSS Data Security DWH Datawarehouse e Expected E Electronic EAN European Article Numbering EBIT Earnings before Tax and Interests EBITDA Earnings Before Taxes, Interests, Depreciation Amortization EC Electronic Cash ECC E-Commerce Center ECR Efficient Consumer Response EDGE Enhanced Data Rates for GSM Evolution ETUC Introductory Act to the German Civil Code EH Retail EHI Euro Trade Institute EKZ Shopping Centre

and

and

Abbreviations

xv

ERP Enterprise Resource Planning ESL Electronic Price Labels (Electronic Shelf Label) et al. et alia EU European Union EVP End User Price EEA European Economic Area EZL Electronic Shelf Label FernAbsG Distance Selling Act ff. Following FMCG Fast Moving Consumer Goods G Generation GAFA Google, Amazon, Facebook, Apple GCSC German Center of Shopping Center GCSP German Council of Shopping Places GfK Society for Consumer Research if necessary if applicable GMA Society for market and sales research Ltd Limited Liability Company GMV Gross Merchandise Value (or Volume) GPRS General Packet Radio Service GPS Global Positioning System GPU Graphics Processing Unit GSM Global System for Mobile Communications GUI Graphical User Interface HAKA Menswear HDE German Retail Federation HHL Leipzig Graduate School of Management HML High Medium Low HMWVL Hessian Ministry of Economics, Transport and Regional Development HSDPA High Speed Downlink Packet Access HSPA+ High Speed Packet Access+ HTML Hypertext Markup Language http Hyper Text Transfer Protocol IFA International Electronics Fair IFH Institute for Retail Research IHK Chamber of Industry and Commerce ICT Information and Communication Technologies IMN International Marketplace Network IMS IP Multimedia Subsystem Inc. Incorporation IoT Internet of Things

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Abbreviations

IP Internet Protocol IPO Initial Purchasing Offer IPTV Internet Protocol Television ISDN Integrated Services Digital Network ISG Real estate and location community ISI Strong inner city initiative IT Information Technology ITCS Intermodal Transport Control Systems JSC Jülich Supercomputing Centre KB Kilobyte kBit/s Kilobits per second CEP Courier, express and parcel services AI Artificial intelligence SME Small and Medium-Sized Enterprises KNN Artificial Neural Networks KPI Key Performance Indicator KRW Buyer Reach KSK Cost Special LBS Location-Based Services LEED® Leadership in Energy and Environmental Design, voluntary certification program LEH Food Retail LTE Long Term Evolution LUG Inventory turnover rate m Million M Mobile Max Maximum MB Megabyte mCRM Mobile Customer Relationship Management m. Million WITH Massachusetts Institute of Technology ML Machine Learning billion Billion MST Marketplace Interface Tool MW Mean value NBA Next-Best-Action-Marketing NFC Near Field Communications NOS Never Out of Stock NRF National Retail Federation NRW North Rhine-Westphalia OCW Online City Wuppertal OECD Organisation for Economic Co-operation and Development

Abbreviations

PUBLIC TRANSPORT Local public transport OMS Order Management System OS Operating System OZG Online Access Act p. a. per annum PCI Peripheral Component Interconnect PDA Personal Digital Assistant PDF Portable Document Format PIM Product Information Management PIMS Product Information System POD Point-of-Decision POS Point of Sale POSH Point-of-Shopping ProdHaftG Product Liability Act P&L Profit & Loss QR Quick Response RaaS Retail-as-a-Service RBL Computerised Operations Control System RCE Recommendation Engine System RFID Radio Frequency Identification ROI Return of Investments ROMPO Research Online – Purchase Mobile – Offline ROPO Research Online – Purchase Offline RP Rhenish Post RSS Really Simple Syndication RTC Real Time Clock RTL Radio Television Luxembourg S. Page SaaS Software as a Service SB Self-service SDD Same Day Delivery SDIL Smart Data Innovation Lab SEA Search Engine Advertising Sec Seconds SEM Search Engine Marketing SEO Search Engine Optimization SHK Sanitary, heating, air conditioning SKU Stock Keeping Unit SMS Short Message Service SoLoMo Socialization – Localization – Mobilization hrs. Hour

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Abbreviations

SU Service Units SZ South German Newspaper TAB Tencent, Alibaba, Baidu TCP Transmission Transport Protocol TK Telecommunications CPM Thousand-Contact-Price TMG Telemedia Act amongst others inter alia USSR Union of Soviet Socialist Republics UE Consumer electronics UGC User-Generated Content UK United Kingdom UMTS Universal Mobile Telecommunications System UrhG Copyright Act URL Uniform Resource Locator US United States USP Unique Selling Proposition USP Revenue Protection Program uvm and much more VC Venture Capital VDA German Association of the Automotive Industry cf. Compare VIP Very Important Person UK Sale UK Selling price VLC Visible Light Communication VR Virtual Reality VUCA Volatility, Uncertainty, Complexity, Ambiguity WAMS Welt am Sonntag WAP Wireless Application Protocol WAT Web Analytics Tool WAVE Web Automatic Verification Enrollment WFMG Economic Development of the City of Mönchengladbach WIK Scientific Institute for Infrastructure and Communication Services WIMAX Worldwide Interoperability for Microwave Access WiWo Business Week WLAN Wireless Local Area Network WWS Merchandise management system WWW World Wide Web W3C World Wide Web Consortium

Abbreviations

ZAW z. B. z. T.

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Central Association of the German Advertising Industry for instance in part

1

From Stationary Retail to Intelligent Retail

Abstract

Since COVID-19, all predictions about the future of stationary retail have become invalid. All forecasts about structural changes in retail are becoming reality faster than experts were previously able to predict. Like a fire accelerator, the virus makes it clear that it is not subsidies that can save the retail trade, but intelligent action. Whether stationary retail still has a chance at all is currently a matter of debate. In any case, stationary forms of operation embody the older formats in the wheel of retailing. In contrast, e-commerce and online retailing are seen more as innovators.

Since COVID-19, all predictions about the future of stationary retail have become invalid. All forecasts about structural changes in retail are becoming reality faster than experts were previously able to predict. Like a fire accelerator, the virus makes it clear that it is not subsidies that can save the retail trade, but intelligent action. Whether stationary retail still has a chance at all is currently a matter of debate. In any case, stationary forms of operation embody the older formats in the wheel of retailing. In contrast, e-commerce and online retailing are seen more as innovators.

1.1 Status of Stationary Retailing in the Wheel of Retailing The retail trade occupies a significant position in Germany and, with net sales of around EUR 543 billion and 3.1 million employees, represents the third largest economic sector. Adding the VAT that end customers have to pay in the retail sector, it accounts for more than one third of private consumption in Germany (Statista EH, 2020; HDE Fakten, 2020) © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 G. Heinemann, Intelligent Retail, https://doi.org/10.1007/978-3-658-38316-9_1

1

2

1  From Stationary Retail to Intelligent Retail Retail stand 2019 Economic performance

Employment Together around 3, 1 million Full-time 1.171k

Part-time

Low level of employment

3.444 billion euros

1.089k

GDP in Germany 1.793 billion euros

804k

Private consumption 52,06% On GDP

507,9 euro goods (+3,1%)

543,6 billion euros Retail sales

*Per end 2018 **Per end 2019

Fig. 1.1  Retail in Germany 2019. (Source: Own representation based on HDE Fakten, 2020; Statista EH, 2020)

(cf. Fig. 1.1). The retail trade represents the interface between producers and consumers and has always been subject to constant change. The change of the operational formats of retailing over time is mainly explained by Malcolm McNair’s Wheel of Retailing from 1931 as a scientific construct (McNair, 1931; Zentes et al., 2017). According to this, each format in retailing goes through a life cycle according to three phases, namely emergence and rise, trading-­up, and decline and retreat. In this process, pricing policies and other instruments change over time. The emergence and upswing phase tends to be characterized by an aggressive pricing policy, while the approach phase focuses on other instruments and involves a so-called trading-up (Ahlert et  al., 2009). Behind this is a higher-quality positioning with an enlarged range of services. In the decline and retreat phase, on the other hand, innovative and disruptive forms of operation with aggressive pricing policies enter the market, displacing old forms of operation (Wirtschaftslexikon24. com Wheel, 2020). In the Wheel of Retailing, a fundamental distinction should be made between stationary and non-stationary retailing. Across all operating forms, it can be seen in recent years that stationary retailing, with a few exceptions, has passed its zenith, while non-stationary retailing is still growing strongly (Heinemann OH, 2021). Accordingly, the entry phase is dominated by online formats, while offline formats are almost exclusively in the trading-up or vulnerability phase (see Fig. 1.2). Offline: Stationary Trade Stationary trade is the collective term for forms of retailing in which the sale of goods and services takes place in open sales outlets and at fixed locations. These are retail stores or

1.1  Status of Stationary Retailing in the Wheel of Retailing Innovation Retailer - top heavies - higher prices - conversation management - Declining ROI

Department Stores

App Commerce

Vulnerability Phase

CategoryKillers

traditional retailer - elaborate facilities - expected, essential services - higher rent locations - fashion-orientation - higher prices - extended product offerings

Innovation Retailer - low status - low price - mimimal service - poor facilities - limited product offering

Voice Commerce

CatalogueMail orders

SpecialtyStores

3

Entry Phase Online Shops

Trading-Up Phase

Discount Stores

Mono-LabelStores

Fig. 1.2  Wheel of retailing. (Source: McNair, 1931; Zentes et al., 2017)

other location-specific fixed shopping locations (such as kiosks, trade from the warehouse, vending machine sales or petrol station markets). Stationary retailing includes all retail establishments that have furnished sales premises at a fixed location. Customers visit these premises in order to make purchases and thus obtain the goods (pick-up principle) (cf. Fig. 1.3). This is store sales to final consumers on a designated sales area, which should be distinguished from stationary sales to retailers and other commercial customers (wholesalers) (Wikipedia Verkaufsfläche, 2021). The sales area is only the part of the sales premises where sales regularly take place. In a narrower sense, it includes only the areas where goods are presented and customers have direct access to the goods (stand areas for goods carriers, consumption areas, etc.). The checkout zone, where the purchase transaction takes place in the legal sense, is also included. Areas that are not directly related to the initiation of purchase contracts (areas for shopping trolleys, areas beyond the checkout zones such as entrances and exits, packing zones, shop windows, etc.) are usually not counted as sales floor space. In a broader sense – in accordance with the case law of the Federal Administrative Court on questions of interpretation of public law of 24 November 2005 – the area behind the cash registers belonging to a sales outlet can also be counted as part of the sales area, which has far-reaching consequences for stationary retail trade, as the size of the sales area is a decisive criterion for the permissibility and design of sales outlets (Wikipedia Verkaufsfläche, 2021). These are to be distinguished from showrooms or exhibition rooms, in which there is usually no sale or take-away of goods (Wikipedia

4

1  From Stationary Retail to Intelligent Retail

Stationary Trade

Trading business

Online Trade

Central warehouse

Amazon/ Platforms

Multi-channel trade*

Collection

Customer

Next-Day-Delivery

Parcel service

On-site Stock

Instant Delivery

Courier service

Trading business

Instant Delivery

Courier service

*with decentralized delivery from the store (“ship from store”)

Fig. 1.3  Pick-up and drop-off principles in the retail sector. (Source: Steinmüller, 2021)

Ausstellungsraum, 2021). The extent to which showrooms are to be assigned to stationary retail or merely represent touchpoints also of non-stationary retailers is still a commonly unresolved question that also needs to be clarified in the context of app-based shopping (Heinemann App, 2018). Without a doubt, department stores, with their over 150 year old tradition, are considered “dinosaurs” in stationary retail. It has actually been clear for a long time that they are doomed to die. Despite all of the certainly serious declarations for a strategic reorientation, even the last remaining department store company Karstadt-Kaufhof will ultimately always remain on the defensive against online retailers and category killers. Basically, the conceptual approaches have been more or less repeating themselves for 30 years, and actually the department store operators have only ever reacted with new cost-cutting measures, as a result of which the controlling functions (central, purchasing, personnel, store controlling, etc.) have gained dominance in addition to central purchasing up to now. What remained was ultimately the rather passive strategy of cutting costs in the individual department stores locally, to which the oversized business system at headquarters contributed. Apart from a new Karstadt opening in 2018 in the Gropius-Passagen in Berlin, but which was more of a relocation because of another Berlin Karstadt closure, no new department stores have been opened for years. Every retail manager knows perfectly well that any format that can no longer be multiplied has reached the end of its life cycle (“wheel of retailing”). An essential characteristic of the stationary retail trade is that it has so far been able to work independently of data processing systems and, at best, indirectly coupled with them,

1.1  Status of Stationary Retailing in the Wheel of Retailing

5

in a decentralised manner. In its traditional form, it is not connected to the data network or the Internet. For this reason, stationary retail is increasingly referred to as offline retail in distinction to online retail (Wikipedia Offline, 2021). However, this belongs to the past and is the main motivation for this book. Online: Non-stationary Trade In contrast to offline or stationary trade, online also always refers to working in direct connection with the data processing system and being directly coupled with it (Wikipedia Online, 2021). Online retailing is thus always connected to the data network or Internet and brings the goods to the customer via parcel or messenger services (bring principle) (cf. Fig.  1.3). Today, it makes up the largest part of non-stationary trade, which also describes other offline forms of operation that are essentially geared towards sales without branches with a fixed location (Enzyklo.de, 2021). These include, for example, doorstep selling, teleshopping and catalogue-based mail order. Since many retail companies are active in both stationary and non-stationary business, the principle of focus plays a decisive role in their classification. According to this, stationary trade is exclusively or predominantly organised from a fixed location (Handelswissen Stationärer Handel, 2016), whereas the location in online trade is at most relevant for the central warehouse (Heinemann OH, 2021). This includes several variants within the bring principle – depending on how short or long the distances to the parcel or messenger service are. For example, central warehouses predominantly enable next-day delivery, while on-site warehouses already enable instant delivery or same-day delivery. The same applies to the case where a stationary retailer also sells online in a multichannel approach and delivers to its customers from the retail store (cf. Fig. 1.3). All in all, the mass shift of social relationships to the Internet and the continued strong increase in the use of the World Wide Web as an information medium will continue to drive up e-commerce sales. Online retailing already accounts for 13.3% in Germany and is already around 17.5% worldwide, and even over 30% in relation to non-­food (eMarketer, 2020; bevh, 2021; HDE Prognose, 2020; ECC-Club, 2021). This value does not take into account hybrid sales figures. These come primarily from the preparation of stationary purchases online and reach at least one third of retail sales (Zukunftdeseinkaufens, 2018). According to this, sooner or later more than 50% of non-­food retail sales will be web-based, of which at least four-fifths will be online-only sales. Online retail will thus take more and more sales away from traditional retail in the coming years, and at an ever faster pace (HDE Online Monitor, 2020; t3n OnlineUmsätze, 2019). In the process, online retail is also increasingly taking over the supply function in smaller and medium-sized cities or in the countryside. Stationary retail will thus probably take place mainly in attractive locations in larger cities in the future. The rest will increasingly be taken over by online retail (IFH Köln NRW, 2019).

6

1  From Stationary Retail to Intelligent Retail

1.2 Online Versus Offline and Food Versus Non-food Globally, online retail sales also continue to develop rapidly, increasing by 18.4% year-on-­ year to US$4.10 trillion in 2020 (eMarketer, 2019, 2020) (see Fig. 1.4). In view of the current digital hype and the high competitive pressure, questions keep coming up as to when the end of the online boom has been reached. Obviously, however, we are only at the beginning of the digital revolution, as only around one-third of retailers and not even 2% of manufacturing companies or wholesalers in Germany also sell directly online. The Corona crisis in particular is giving online retailing another considerable boost. In this respect, the end of the online boom is far from in sight in online retailing (Heinemann OH, 2021). The development of the retail trade in the direction of “online versus offline” varies greatly depending on the product group. Basically, food retailing is lagging behind online development, even if the Corona crisis has given the topic of e-food a strong boost. For years, the German grocery trade has still been fearing in vain that Amazon, after its previous attempts, will also succeed in turning the meat, fruit and vegetable trade upside down. The Internet giant has so far barely been able to gain a foothold in the food sector. Now, Amazon Fresh has been more closely integrated with the rest of Amazon’s business as part of new logistics structures, in a fresh attempt. However, although the new Amazon Fresh has been more integrated and is expected to be faster as a result, Amazon will continue to stick with PrimeNow (Amazon Fresh Exciting, 2020). There is no doubt that a huge market is at stake, as German citizens spent more than EUR 200 billion excluding VAT (net) on food in 2020, of which a good EUR 180 billion was spent in institutional grocery retailing (see Fig. 1.5). However, while online retailers have long since secured a large slice of the cake in the case of books or clothing, e-commerce still hardly plays a systemically relevant role in food retailing, despite Corona. Only around 1.2% of food retail sales are Global retail sales, in $trillions of USD

E-Commerce sales

Total retail sales

$24,50

Web penetration

$23,36 -5,7%

$3.54 2019

+18,4%

17,5%

$4.10

2020

2020 2019

2020

Fig. 1.4  Global retail sales in trillions of USD. (Source: eMarketer, 2020)

Non-Food > 30%

1.2  Online Versus Offline and Food Versus Non-food

577.4 billion including services (+5,7%)

536.8 Total Net goods 252,2 Food/ +9,6% FMCG

7

Retail as of 2020 billion euros 182

Food organized LEH

32

Drugstores/Perfumeries Rest* (pet supplies, tobacco, etc.) 284,6 non-food +2,4%

25,1% online

11,2

252,2 6,7 online

Clothing/Shoes (8)

43

Electronics (CE/PC/HH/Games)

57

Furniture/Kitchens/Decoration/Heimtex

45

+ 9.8%

DIY/garden supplies

48

+14,2%

Hobby/Leisure/Sports/Games

35 13

Media/Books/Pictures Rest (jeweler, optics, newspaper, etc.)

2020

+ 9,6%

24

Food non-organised LEH

43,6

-24,6%

284,6 64,8 online

Pharmacies ~50

Fig. 1.5  Product group structure of the German retail trade. (Source: Own presentation based on HDE Fakten, 2020; Factbook Einzelhandel, 2019)

accounted for by the internet. There is no doubt that online food retailing is a growth market (bevh, 2020), but the opportunities here are still limited. It is true that in 2020, EUR 2.5 billion net of groceries were purchased via mouse click and Corona was without question a catalyst for online grocery retailing. However, online – at least in Germany – will remain predominantly a non-food topic for the foreseeable future (SZ Interview GH, 2020). Food shipping will by no means displace supermarkets, but will remain a niche for the time being. With fresh produce, it is simply an enormous logistical effort to maintain the cold chain all the way to the front door. And the customer also has to be at home when the goods arrive. In the summer, delivery services can’t leave the cheese on the doorstep unrefrigerated or give it to a neighbor whose refrigerator might not have room for it either. Home office workers could certainly be potential customers, but not the masses. Due to these challenges, most companies only deliver to large cities anyway in order to keep transport distances as short as possible. In this respect, e-food is overall a very urban proposition that clearly disadvantages the rural population (SZ Interview GH, 2020). Shipping shelf-stable food is also only profitable to a limited extent. Profit margins in the food industry are already relatively low without shipping costs. Many customers are also not willing to pay correspondingly higher prices. Germans are extremely price-oriented when buying food. It is no coincidence that the food discount was invented in this country with ALDI and Lidl. In the meantime, higher-quality supermarkets from Edeka or Rewe are also emerging, but so far this is only a supplement. The majority of basic foodstuffs are still bought from discounters.

8

1  From Stationary Retail to Intelligent Retail

There is no doubt that delivery services are more established in other countries. While according to the figures, around 1.2% of grocery sales were generated online in Germany in 2020, France and the UK, in contrast, achieved more than 6% (bevh, 2020). On the other hand, no other country has such a dense network of supermarkets as Germany. Shopping facilities are distributed throughout the country, even in rural areas. This is different in France, for example. And in the UK, customers have always been more online-savvy than in this country. It would therefore be surprising if this were to turn around quickly in the case of food. Nevertheless, online food retailing will continue to grow in this country, but it will not dominate. 10% market share is likely to be the maximum in the next ten years. That would already be a gigantic volume of around EUR 20 billion. There is no doubt that a few delivery services are doing well, but there are not that many consumers in this country who are prepared to pay a premium for milk, yoghurt and bread to be delivered to their homes. That may work for non-food, but not for groceries. There, the margins are already so exhausted due to strong price competition that delivery without a surcharge is not economically viable in the majority of cases. In food retailing, the average purchase is just over twelve euros. Only a few customers would accept a high minimum order value and this clientele is increasing, but at a relatively low level (SZ Interview GH, 2020). As can be seen from Fig. 1.5 as well as Fig. 2.13, other FMCG product groups are further along. The drugstore, cosmetics and perfumery product group, for example, has online sales of almost EUR 3 billion and thus an online share of 9.3%. Pet supplies even surpass the 23% mark and contribute to the fact that FMCG as a whole has online revenues of EUR 6.7 billion. But even this is “only” a 2.7% online share and a fraction compared with non-food. Those who sell food often also have non-food items in their assortment and rely on the fact that customers – once they are on the website – will also buy other goods. However, before going on the offensive on the customer front, a food-friendly logistics system must be set up. This costs billions and takes years, because the distances to the customer’s door are long. By their own admission, specialist suppliers of wine or unrefrigerated delicacies, for example, are very successful in selling their goods via the Internet. As soon as the online retailer sells fresh goods in need of refrigeration, he has a logistical problem as such: he has to ensure that the cold chain is not interrupted and he has to make sure that he reaches the customer. After all, no neighbor is going to accept such sensitive goods and store them temporarily in his refrigerator. This is different for wine and selected delicacies. What’s more, the order values for these products are much higher than for everyday items. The limit of 100 € is quickly exceeded here. And the customers are often not particularly price-sensitive (SZ 21 February, 2014; LZ interview 28 February, 2014; SZ interview GH, 2020). Nevertheless, even after three years of “trial and error”, many industry experts still believe that Amazon can change this, at the expense of the top dogs Edeka, Rewe or Aldi. However, conquering the grocery market is not likely to be easy for Amazon either. In the beginning, non-food online retailers were always able to steal customers away from bricks-and-mortar retailers with the help of lower prices. This is unlikely to work in the grocery trade, where there is already strong price competition. Anyone who wants to top this on the Internet will most likely burn a lot of money (Die Welt, 2016;

1.3  Stationary Retail Before, During and After Corona

9

Heinemann OH, 2020). Above all, the price sensitivity of customers and the high density of supermarkets and discounters have made life difficult for online grocers in Germany so far. And more than three quarters of consumers are satisfied with the supermarkets in their neighbourhood and therefore see little point in buying groceries online so far (Ibid.). The high delivery fees and minimum order quantities of the delivery services meet with little understanding among them. On the other hand, the minimum order volume would have to be 100 euros to make the business reasonably profitable. Industry experts therefore believe that the newcomer Picnic, with its milkman principle, is most likely to find a way out of this double dilemma, due to its free delivery and low minimum order value of €35. Nevertheless, Rewe is continuously working on preparing the Cologne retail giant for the hour X and now offers the possibility of online grocery shopping in around 75 cities. This makes the Cologne-based company a pioneer among the established supermarket chains in Germany. There is no doubt that online retailing of groceries will gain in importance in the future, but it will probably never gain the significance it has with electronic goods or books. This is also due to the following schizophrenia: Where it would offer the greatest added value – in rural areas – it cannot work because logistics costs explode there. In the urban areas, however, where it could pay off, such as Berlin, there is a supermarket on every corner.

1.3 Stationary Retail Before, During and After Corona Does brick-and-mortar retail in Germany still have a future at all in light of the rapid development of online retail? This question is currently occupying retail experts and e-­commerce researchers like no other. First, however, we must not speak sweepingly about retail. The winner of the pandemic is undoubtedly online retail. But grocery retailing, including drugstore supplies, was also in clear positive territory in 2020. Home improvement stores are also among the winners. They posted double-digit gains in the first Corona year, helping to ensure that overall retail was actually up in 2020. By contrast, inner-city non-food retail, which accounts for around one-fifth of retail, has a huge problem, particularly perfumeries, leather goods, accessories and, above all, clothing. Here, the first shutdown from March to May 2020 already led to irrecoverable sales losses (HDE Prognose, 2020). Added to this were the supply chain problems in the clothing sector: deliveries from China failed to materialise at the start of the season and since then the merchandise management for clothing has been virtually impossible to plan. Many retailers were still able to cancel orders for subsequent seasons, but as a result there was often a shortage of new goods (TW, 2020). According to the “Standortmonitor 2021” of the HDE, the stationary non-food retailers lost significantly in nominal terms in the first half of 2020, while online retail was able to make enormous gains in the same period (HDE Standortmonitor, 2021). Above all, the sharp decline in shopping frequency was the biggest challenge for stationary retail; however, this has also already declined sharply in the past six years (Handelsblatt Lockdown, 2020).

10

1  From Stationary Retail to Intelligent Retail

Especially in comparison to online retail, there is no denying that times have become difficult, or at least more difficult, for stationary retail: Stationary retailers are increasingly struggling with a declining number of customers and stagnating sales. As Fig. 1.6 shows, online growth rates have been significantly higher than the nominal growth rates of stationary retail for years (bevh, 2021; HDE Fakten, 2020; HDE, 2021; ECC-Club, 2021). However, the development of retail in the direction of “online versus offline” is contrasted by an expansion of the sales areas that physically embody bricks-and-mortar retail. Despite the huge market share gains of online retail, retail space has, if anything, continued to grow (Statista EH-Fläche, 2021). For example, between 1970 and 2019, the total area of all retail space increased from 39 to 125.1 million square metres, and even grew by 11.5% between 2000 and 2010 during the initial online boom. The space statistics with the year-­ specific figures are shown in Fig. 1.7. However, the development of sales space conceals considerable structural shifts. In particular, the trend towards larger stores in the food trade has so far led to an expansion of space, which in some cases has compensated for considerable declines in space in the non-food trade. The ongoing new development of space in shopping and specialist retail centres, the unbroken demand from foreign retailers, the expansion of large spaces in the furniture and DIY sector, the continued strong expansion of drugstores and the development of shopping centres also fuelled the growth in space. Shopping centre space alone has grown by at least a fifth in this country over the last ten years (GfK, 2015; Statista SC, 2019), although it has stagnated since 2016.

Net sales of the stationary retail trade in Germany * in billion euros

433,2

398,5

440,1

403,0

453,7

462,8

482,2

493,1

507,9

536,8

Gesamt

+5,7%

412,0

418,1

432,6

439,8

448,7

465,3

Stationär/ Rest

+3,7%

34,7

37,1

41,7

2013

2014

2015

44,3

49,6

53,3

2016

2017

2018

59,2

71,5

+ 20,7% 2019

Online (13,3% Anteil)

2020e

Fig. 1.6  Net retail sales in Germany. (Source: bevh, 2021; HDE Fakten, 2020; HDE, 2021; ECC-­ Club, 2021)

1.3  Stationary Retail Before, During and After Corona 130

11

Sales area in million square meters

125 120

121,5

122,4 122,1

2010

2011

123,1 123,1

123,7

2013

2015

124,0 124.0 125,1 125,1

115 109

110 105 100 95 90 85 80 75

39 1970 2000

2012

2014

2016

2017

2018

2019

Fig. 1.7  Sales area development of the stationary retail trade in Germany. (Source: Ahrens, 2020; Statista EH-Fläche, 2021)

With around 1.45 square metres of retail space per capita, Germany ranks sixth behind Belgium with 1.66, Austria with 1.62, the Netherlands with 1.6 square metres, Switzerland with 1.5 and Luxembourg with 1.47 square metres (Statista EW, 2019). Accordingly, experts predict that there will be 510–550  million square metres of retail space left in Europe in 2030, a reduction of around 10%. This reduction is likely to be even higher given the relatively high retail space penetration in Germany (Haufe, 2016). Retail parks and discounters in non-integrated locations are likely to be particularly affected by this development. Only pop-up stores and full-range grocery stores may be able to expand. Rural areas in particular will come under increasing pressure, while major centres will remain stable. However, their character will change away from the inner-city marketplace to the focal point of urban life, whereby the role of retail for the city will be completely different (Haufe Catella, 2016; RP Interview GH, 2020). However, we can only guess what will happen with and after Corona. In any case, the stationary retail sector expects dramatic consequences, especially in the city centres. This is shown by surveys among retailers conducted by the HDE in December 2020 and early 2021. According to the results, the average drop in sales in the city centres on the third Advent weekend was almost 20%, and the drop in customer frequency was almost 30%. Sales and customer numbers in 2020 fell far short of the previous year’s levels, meaning that Christmas business was lost for most city centre retailers. Around 55% of city centre

12

1  From Stationary Retail to Intelligent Retail

retailers currently saw their existence threatened as of mid-December 2020, and in clothing retail the figure was as high as 65%. Around 80% of retailers believe that government relief measures will not be enough to secure their livelihoods. According to the surveys, more than 60% of the retail businesses in the city centres are on the verge of going out of business without further state aid (Handelsblatt Lockdown, 2020; SAZSport, 2021). Accordingly, the HDE’s Standortmonitor 2021 shows a clear shift in the retail sector. With shopping frequency in brick-and-mortar stores declining sharply, the focus is therefore increasingly on multi-channel solutions. Thus, the trend of recent years from offline to online is continuing at an accelerated pace and will probably continue after the Corona crisis (Handelsblatt Lockdown, 2020; HDE Standortmonitor, 2021).

1.4 Structures and Size Classes of the Stationary Retail Trade The development of stationary trade must be viewed in a differentiated manner and differs significantly according to size and degree of concentration. The conditions of larger retail chains and chain stores tend to be better than those of smaller and local retailers. Local retailers in particular have a lot of catching up to do, as they often fail to meet even the basic requirements for professional business operations (DHL 250k NO, 2020). These are generally fully met by all large, nationally active chain stores. While 49% of all retailers sell exclusively stationary, in this context at least the large chain stores in Germany are continuing to upgrade digitally and offer their customers more convenience on their websites by displaying the availability of goods in the nearest store (ibi Handelsstudie, 2020). Especially in the course of the second shutdown, “Click and Collect” experienced a real boom, as online sales for self-pickup were allowed in most federal states. The perfumery chain Douglas, for example, advertised with the slogan “Despite lockdown: Pick up in the store” on its homepage. Galeria Karstadt Kaufhof also promised “Christmas presents until the end”. Both retailers offered their customers the opportunity to reserve goods online at short notice and then collect them contactless at the pick-up stations in the stores. A number of DIY stores also used this concept in order to make some sales before Christmas (ZDF CC, 2020). But as an answer to Amazon & Co. this might not be sufficient by far and also some of the provided functions can still be improved significantly. Item availabilities in the store are often only displayed if a location has been selected beforehand. Reserve & Collect is also not prioritised by many providers. The functions are therefore often difficult to find. In this respect, even the large retailers still have a lot of room for improvement when it comes to product availability and the topic of Click & Collect. Small and medium-sized companies should not be put off by the large chain stores in the retail sector, but should learn from them in order not to lose out. They need to make their assortment visible on the Internet and especially on mobiles. This does not necessarily require their own online store. Offering and displaying products on high-reach platforms such as Instagram, for example, can be much more efficient. Here, digital merchandise management systems and

1.4  Structures and Size Classes of the Stationary Retail Trade

13

modern checkout systems can be used without much effort. Findability online is undoubtedly essential for survival in order to be visible to customers (RP Interview GH, 2020). This can be done, for example, by having an Instagram account, by presenting your phone number everywhere you can show it, by being reachable day and night, by using all social channels and by delivering it yourself. In the first shutdown, retailers managed to make up for much of their lost brick-and-mortar sales with a strategy like this. And it’s important to say that they would not have generated these sales with their own online shop or on marketplaces such as Amazon and eBay. This doesn’t require an initiative that spends hours explaining to retailers how to do it. What is needed is initiative, as demonstrated by the “mobile retailers” (Rheinische Post HMM, 2020). With digital adoption and transformation, the wheat will most likely be separated from the chaff in stationary retail. Accordingly, digitalization will play a significant role in determining further concentration and consolidation in retail. Already today, the concentration in stationary retail is above average. In food retailing, the five largest suppliers already have a market share of more than 75% (Handelsblatt Real, 2020). In a number of non-food sectors, the stationary market leaders alone already have a market share of well over 20%, such as MediaMarkt-Saturn in electronics or Douglas in perfumeries. Concentration will increasingly be accompanied by consolidation in the future, as highly developed retail markets with a high number of sales areas per inhabitant and at the same time relatively low sales area productivity harbour a high risk of shrinkage processes. Local retailers, which still account for 94% of all retail businesses, are particularly at risk. However, as Fig.  1.8 shows, they now only account for around one fifth of retail sales

94% of the companies (~310,000) with 21%. Market share (a´ < 360 TEUR

retail company 330,000 retail businesses registered with the HDE of (> 500,000 shops) which 35,000 are food retailers + 15.000 petrol stations + 7.000 car dealers + 15.000 pharmacy owners + 80.000 hairdressing establishments + 120,000 online shops, 20,000 of them multi-channel 46%

79% 1-2

6% of the companies (~20,000) with 79% Market share (a´ > 21 million EUR) 26% 12% 5%

6-19 >20

22%

4%

3-5

6%

Employees

Number Turnover Quantity Turnover Number Turnover Number Turnover

Fig. 1.8  Structures of the stationary retail trade. (Source: Own representation based on ZDF, 2020; HDE Fakten, 2020)

14

1  From Stationary Retail to Intelligent Retail

(ZDF, 2020). As of the end of 2020, the sector is already completely down and will have to completely reinvent itself. However, the textile and clothing retail sector had immense problems even before Corona. Even major chains had to go into receivership. And due to the shutdown in March, many classic multi-label clothing retailers have become restructuring cases from one moment to the next. As early as April 2020, management consultants Hachmeister und Partner predicted that the industry would see a 28.5% drop in sales in the best-case scenario. In 2020, it was “only” minus 24.6%, but in the stationary fashion trade it was minus around 30%. The big problem of the industry is the extreme merchandise risks of the retailers, which are caused by the preorders. Seasonal goods have to be ordered six months in advance. After that, the point of no return is reached, then the merchandise arrives, sits in the warehouse, has to be financed. If retailers can’t sell anything then, they have to close down. In order to preserve their liquidity, retailers not only suspended their rental payments during the first shutdown – which, by the way, according to market studies, 78% of retailers did – and immediately put their employees on short-­time work, but also cancelled the pre-orders for the fall/winter season. This, of course, is now also causing difficulties for suppliers, because they cannot get rid of their goods and are also waiting for payments from their dealers. This downward spiral will continue throughout 2021 and will have an impact on the following years. The fact that the government is taking measures based on the number of cases means that it is almost impossible to plan for the coming year. Many dealers no longer know what and how much they should order. The only possible solution – and this is also an appeal to the industry – is to abolish the system of pre-orders and to reorganise the industry along the lines of vertical retail groups such as Inditex/Zara (Internetworld Interview GH, 2021).

1.5 Location Development City Centre Versus Shopping Centre To this day, the stationary retail trade represents a central function of the inner city, which is, however, changing more and more. Accordingly, both the stability and the quality of inner-city retail locations are increasingly changing. This development is not only caused by online retailing, but was already significantly initiated with the decline of department stores, which were long considered magnets for the inner city (Heinemann, 2010). Thus, the number of department store locations has more than halved in the last 25 years. Accordingly, department stores have lost about 42.5% of their real sales from 1999 to 2019. Stationary retail, on the other hand, has been able to increase its real sales by 11.2%, while mail-order and online retail, in turn, has more than doubled its sales (Statistisches Bundesamt WH, 2020). The turnover of flagship stores (“world city houses”) such as KaDeWe, where the new owners like to cavort, is also likely to be significantly below the figures of past years today. And attempts to multiply individual department store departments as “stand-alone” specialty stores have also failed miserably due to the lack of assortment depth. The clear winners among the forms of retail operation, apart from the price-aggressive discounters,

1.5  Location Development City Centre Versus Shopping Centre

15

are manufacturer-owned retail – own stores of Adidas, Nike, Puma, Boss & Co – as well as online retail. And above all, the fast verticals, which are likely to continue to grow disproportionately in the future: H&M and IKEA, with their vertical structures and an increasing use of “click & mortar”, have almost overtaken the two “department store dinosaurs” in Germany, not only in their specific merchandise segments, but – with sales of around four billion euros each – also in terms of their sales significance. In the meantime, there is hardly a business segment that is not occupied by the “category killers”. Such chain stores as Deichmann (shoes), MediaMarkt-Saturn (electronics), Peek & Cloppenburg (fashion), Douglas (perfumery), Thalia (books) and DM (drugstore products) are already achieving store sizes in their inner-city flagship stores, even with their highly specialized product groups, that were previously the exclusive preserve of department stores. Accordingly, the chain stores have been able to steadily gain market share from the department stores in particular and lay the foundation for further growth primarily through format multiplications (“many speedboats instead of one big tanker”). Because expansion was possible more quickly in shopping centers than in city centers, the large retail chains fueled another trend, namely the triumph of shopping centers. These have also replaced department stores. It is true that the main success factor of department stores in earlier times was the idea of “one stop shopping”. However, in today’s world, this can be implemented much more consistently by gigantic shopping centers on greenfield sites and, above all, by online platforms. It is not without reason that the sales areas in shopping centers have grown at an above-average rate and have thus put additional pressure on the city centers. In this respect, these are not only threatened by online retailing, but are also literally being squeezed by it together with the shopping centers. Basically, shopping centres can even be seen as “the consistent consumer-oriented continuation of pedestrian zones” (Stepper, 2016; Roth, 2018). In this respect, shopping centres not only take the place of department stores, but also spatially replace the city centre with a new stationary retail location, provided they are located on greenfield sites or in the periphery. However, around half of them are located in city centres (ECE, 2016, 2020), although most of them are not centrally located. According to EHI surveys, 483 large-area shopping centres, each with more than 15,000 square metres of total floor space, will be operating in Germany by the end of 2019 (Erhardt, 2020) (cf. Fig.  1.9). From 2015 to 2016, the total area of shopping centres increased by 2.3% or 340,000 square metres to around 15.2  million square metres and has since settled at this level (Handelsdaten Shoppingcenter, 2016; Roth, 2018). With around 125.1 million square metres of total retail space in Germany, the share of shopping centre space is therefore a good 12%. From the perspective of the chain stores, the locations in large shopping centres are considered to be the better prime locations and are therefore being pushed (ECE, 2016, 2020). The majority (76.7%) of shopping centre tenants assume that the importance of centres for their success will increase or at least remain the same (Wikipedia Einkaufszentrum, 2020). The development of shopping centres is contrasted by the abandonment of smaller, regionally operating furniture stores and textile suppliers in rural, less agglomerated areas.

16

600 550

1  From Stationary Retail to Intelligent Retail Large shopping centers > 15.000 Quadratmeter

500 450 400

435

444

453

460

463

476

479

479

483

2018

2019

350 300

384

250 200 150 100 2011

2012

2013

2014

2015

2016

2017

Fig. 1.9  Development of shopping centers in Germany. (Source: Statista 2020 on the basis of EHI, 2019; Erhardt, 2020)

Market adjustments also affected department store closures and the widespread downsizing of consumer electronics stores and bookstore branches (Busch & Heinemann, 2016; Onlinehändler News, 2019). Structural shifts are also evidenced by trends in retail space by city size, where there has been outright polarization. For example, before the Corona crisis, sales areas in central urban shopping locations were increasingly among the growth drivers in bricks-and-mortar retail, while small and medium-sized towns lost out significantly. Accordingly, inner-city retail space increased significantly since 2010, particularly in the major centres with over 100,000 inhabitants or even metropolitan locations, which – with a relatively unchanged total area – may have led to a space adjustment of at least 10% in the remaining cities and municipalities in the republic (Heinemann, 2017). Taking into account the expansion of shopping centre space, the decline may even have been closer to 15%. Overall, the increase in space due to new projects has so far predominantly compensated for the loss of space due to store closures or insolvencies. Whereas shopping centres used to be built exclusively on greenfield sites, since the 1980s they have increasingly been planned and built in city centres. For some years now, a crowding-out competition has been observed due to an ever-increasing density of spatially close shopping centres with a simultaneous loss of consumer purchasing power, which has put small-area centres in particular under pressure. This development is

1.6  Intelligent Retail Instead of Residence Principle

17

accelerated by the Corona crisis (WiWo Shopping Center, 2014; FAZ SC, 2020). This is because while the number of shopping centres will remain for the time being, sales in stationary non-food retail are declining. In this respect, fierce predatory competition is brewing, as in many places the old shopping centres are no longer the best locations for retailers. Increasing vacancies or obstructive landlord interests are the result. Nevertheless, a lot of money is still being invested in the shopping center market, especially for revitalizations. Lack of investment could otherwise trigger a negative spiral of poor sales performance, tenants moving out, vacancies, rent losses and loss of value (Ibid.). The renovation measures in shopping centers are usually very costly. Small embellishments are no longer enough to attract customers. Instead, the entire format often has to be changed and the tenants replaced. Therefore, shopping centres also face the challenge of reinventing themselves (Ibid.).

1.6 Intelligent Retail Instead of Residence Principle The way in which stationary retail companies and customers interact with each other can be very differentiated nowadays. Classically, four principles of contact initiation are distinguished, namely the residence, domicile, meeting point and distance principle (cf. Fig. 1.10). In the course of Internet use, however, the hybrid principle in particular has become widespread and is being addressed here for the first time (Wegener, 2004; Heinemann OH, 2020): The residence principle characterizes classic stationary retail in its pure form and means that customers come into contact with the retailer on the retailer’s sales floor. This is the physical sale in stationary sales outlets (for example branch sales).

Provider

Consumer

Residence principle: stationary retail trade/offline retail trade Domicile principle: doorstep selling Meeting principle: Market place Distance principle: catalogue dispatch, online trade Hybrid principle: multi-channel retailing or no-line retailing

Fig. 1.10  Contact principles in retail. (Source: Own representation based on Wegener, 2004)

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1  From Stationary Retail to Intelligent Retail

A domiciliary principle exists when the supplier comes into contact with customers in or at their homes, which characterises itinerant retailing (for example, doorstep selling). The meeting principle is used when sales take place at a third location independent of domicile and residence (for example weekly markets or e-marketplaces). The distance principle stands for interactive trade, in which retailers and buyers do not come into physical contact. The spatial separation is bridged by media such as a catalogue or the Internet (for example, catalogue mail order or online retailing). The hybrid principle represents a mixed form resulting from the use of the Internet to prepare or support stationary purchases (for example, multi-channel retailing or no-line experience). According to the residence principle, the essential criterion of stationary trade is a real existing store. Sales and payment take place in this “provider’s residence”, for which customers have to visit the store or branch and usually take the goods with them. Thus, at a fixed location, a physical offer of the products and services takes place, so that it is considered a decisive factor for the choice of the store from the consumer’s point of view (Heinemann, 2017). The real presence of the goods, which the customer can then physically examine and test (“touch and feel”), is thus critical to the success of the choice of shopping location. The type of store determines the extent to which service is offered or whether the customer has to help himself or at least make a preliminary selection. In addition, in stationary retailing there is an immediate, direct handover of the purchased articles. In this respect, the fixed shop opening hours and the considerable loss of time due to the journey, search for a parking space etc. certainly have a limiting effect. An unrecognized problem of these contact principles is that hybrid retail sales, which occur both online and offline, are growing rapidly. They are also referred to as ROPO sales (“research online and purchase offline”) and result from the possibility that customers prepare their stationary purchase on the Internet or buy the goods there after their visit to the store. Stationary retailers can accommodate this development by enabling their customers to make this type of purchase through an online shop or through multi-channel services (Heinemann, 2017; Heinemann et al., 2019). According to estimates by DHL, 250,000 retailers are still not online and the majority of them do not even have the necessary and sufficient conditions for this. But stationary retail should by no means be completely written off. It just has to reinvent itself. Last year, for example, Microsoft CEO Satya Nadella demonstrated what it can do with the term “Intelligent Retail” (NRF Satya Nadella, 2020). This is primarily associated with Artificial Intelligence (AI), but goes far beyond that. Artificial Intelligence in retail is not just about automation and robots taking over tasks, but about instruments and machines being able to learn and draw conclusions themselves. A customer shopping in a store should be able to make intelligent recommendations based on what they are looking for. These are product recommendations based on the customer’s interests, previous purchases and search behaviour. Google is also working on this, and locally. That’s how our shopping and search behavior is changing. And if a retailer doesn’t do that, they will lose customers. The large

1.6  Intelligent Retail Instead of Residence Principle

19

online marketplaces have been working successfully with these methods for a very long time. The stationary retail trade has not been able to do this so far. That’s why the eWeb Research Center at the Niederrhein University of Applied Sciences is currently researching a strategy in a project with several participating institutions, including the Jülich Research Center, and retailers that aims to merge online and offline shopping using artificial intelligence. At its core, it is about saving retail in city centers. The research project is called “ON4OFF” and is funded by the NRW Ministry of Economics and the European Regional Development Fund. First results are expected in 2021 (Heinemann FAZ, 2021). Even if many hardly believe it anymore: the stationary retail trade definitely has a chance for the future! It just has to reinvent itself and get rid of the rigid residence principle and use intelligent systems. But for which retailers are such technologies actually interesting? Such recommendations based on AI methods work primarily in specialist retail that requires a lot of advice. And that is practically the entire non-food sector: electronics, furniture, cosmetics, even book sales – everything that has to do with advice. So do small, highly specialized shopkeepers, who used to read customers’ wishes from their eyes, have to be able to know what the customer wants before he enters the shop in the future? That will hardly work. Owner-operated stores are unlikely to save the Citys and generally cannot make such data-based recommendations because they hardly collect any customer data. But chain stores, which already trade online and therefore work with customer data, are in a position to do so (Ibid.).

2

Threat to Stationary Trade

Abstract

Especially in comparison to online retail, there is no denying that times have become more difficult for stationary retail: Stationary retailers are increasingly struggling with declining customer footfall and stagnating sales, while online retail has been able to grow enormously and become a growth driver for the entire retail industry. The unchecked shift from offline to online poses a central threat to stationary retail. This results from the increasing digitalization, which already determines a large part of everyday life and thus consumer behavior and customer expectations. It is also changing the demands on experience orientation and service. But the internationalization and “platformization” of retail is also putting considerable pressure on traditional retailers, especially since many of them are still refusing to undergo a digital transformation. To make matters worse, in the wake of increasing vacancies as well as changing mobility, the role of city centers is also changing, making them less dependent on retail. The new survival formula is called “customer centricity”, which, however, only works digitally based.

Especially in comparison to online retail, there is no denying that times have become more difficult for stationary retail: Stationary retailers are increasingly struggling with declining customer footfall and stagnating sales, while online retail has been able to grow enormously and become a growth driver for the entire retail industry. The unchecked shift from offline to online poses a central threat to stationary retail. This results from the increasing digitalization, which already determines a large part of everyday life and thus consumer behavior and customer expectations. It is also changing the demands on experience orientation and service. But the internationalization and “platformization” of retail is also © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 G. Heinemann, Intelligent Retail, https://doi.org/10.1007/978-3-658-38316-9_2

21

22

2  Threat to Stationary Trade

putting considerable pressure on traditional retailers, especially since many of them are still refusing to undergo a digital transformation. To make matters worse, in the wake of increasing vacancies as well as changing mobility, the role of city centers is also changing, making them less dependent on retail. The new survival formula is called “customer centricity”, which, however, only works digitally based.

2.1 Shift from Offline to Online The triumph of online retailing continues unabated. For the time being, this still remains a non-food topic. Stationary retail is disproportionately affected by this development, especially in the areas of toys, media/books, consumer electronics and clothing. In these areas, there have already been considerable reductions in floor space, format downsizing and store closures. Particularly in small and medium-sized towns, vacancy rates are rising enormously. It can be assumed that the sales areas of the stationary trade will decrease significantly in the next few years, especially in the non-food segment.

2.1.1 Systemic Relevance of Online Trade It is highly probable that the substitution effect “online versus offline” will continue in the next few years and will affect bricks-and-mortar retail in the long term. This is also shown by a forecast of the IFH Cologne (cf. Fig. 2.1) (IFH Prognose, 2020; ECC-Club, 2021). The IFH industry report presents three scenarios for the development from 2020 to 2024, each of which is based on different dynamics. After 2020, it can be said that an increasing dynamic can be observed, so that an average growth of 15.2% p.a. can be assumed until 2024. Accordingly, 141 billion B2C online sales will already be generated in this country in 2024 (cf. Fig.  2.1). Even if media, books, electronics and toys have had the highest online shares for years, every product group can now be regarded as internet-savvy. In particular, the high-volume product groups of furniture, DIY/construction supplies and, above all, food are confirmed to have high growth potential that will be leveraged in the coming years and additionally fuel online retailing (bevh, 2020). It became apparent early on in the Corona crisis that online retail is already systemically relevant for large sections of the population, as non-food ranges and, in quarantine situations, food could only be purchased online during the shutdowns. As Die Welt reported in April 2020, this systemic relevance relates above all to Amazon. While the online market leader had long been merely the Germans’ favourite supplier, the Corona crisis made it completely indispensable. It seems as if the US company is moving in a kind of parallel universe compared to its competitors. Taking this special development at Amazon into account, the results of a survey conducted by the Cologne-based retail research institute IFH in April 2020 can be reconciled with the sales declines complained about by industry representatives. According to this, online shopping is becoming

2.1  Shift from Offline to Online Forecast 2020-2024 in 3 scenarios

150 140 130 120 110 100 90

23

Online sales (incl. FMCG; in billion euros gross) Online growth rate in 3 scenarios (CAGR 2019 - 2024).

103

99

70

70 58

60

80

63

52 47

50 40

120

Increasing momentum + 15,2% p.a. Trend: + 11,5% p.a. Decreasing momentum: + 8,2% p.a.

80

141

42 INFO

Data 2014-2019 based on HDE Online-Monitor 2020; shown are the gross values converted by IFH COLOGNE; consumer goods B2C at retail prices, excluding services; (P) Forecast

2014

2015

2016

2017

2018

2019 2020p 2021p 2022p 2023p 2024p

Fig. 2.1  IFH forecast online retail 2020–2024. (Source: IFH Prognose, 2020; ECC-Club, 2021)

increasingly popular in the Corona crisis (Welt Systemrelevanz, 2020). As many as 22% of consumers surveyed said they had made purchases online that they would actually make offline. A month earlier, just 13% had answered positively to this question. Whereas even before Corona around half of all German online trade was conducted via the marketplace or the US company’s own retail outlets, the market share is likely to have increased significantly again, as Amazon is likely to be the sole source of most of the additional demand. Even before the pandemic, the US platform had shown that it could cope better with growth spurts and bottlenecks than other providers. However, the Corona crisis was no longer just about volume growth, but also about a qualitatively new role: even if many people don’t like it and retail experts almost don’t dare say it: since Corona at the latest, Amazon has been systemically relevant. During the shutdown, being able to buy items beyond the grocery assortment that you couldn’t get anywhere else clearly tested Amazon’s unique selling proposition (Welt Systemrelevanz, 2020). After a veritable near-death experience at the hands of Amazon, which booksellers had already experienced years ago, and the initial shock of the massive restriction of public life due to the Corona pandemic, retailers are desperately looking for new solutions for the distribution of goods. One of these is undoubtedly opening their own online store. Overall, an increased demand for online stores indicates that retailers are moving their sales platform online after the initial shock. The outbreak of the virus indirectly robbed many retailers of their livelihoods and showed them in no uncertain terms that online trading had thus become systemically relevant for them as well.

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2  Threat to Stationary Trade

As can be seen in Fig. 2.2, the classic product ranges in particular – and above all textiles and clothing – have already found a high level of acceptance in online retail even before Corona. With almost EUR 18 billion in net sales, fashion is by far the largest product group in online retailing (bevh, 2021; HDE Online Monitor, 2020; HDE, 2021; ECC-­ Club, 2021). However, clothing/shoes are “only” in fourth place in the “digital ranking” in terms of online share. The top places are occupied by media/books and the electronics goods groups including PCs/accessories and household appliances, each with an online share of over 40%. Electronics will undoubtedly continue to expand its top position in the online share ranking, while hobby/collectibles/leisure articles including sports are still likely to achieve a below-average “non-food online share” of around 13.3%. Furniture/ Decoration/Home Textiles comes in at around 13% online share. DIY/gardening/home improvement already falls significantly with an online share of 6.5% and is already well behind drugstore/cosmetics/perfume, which come to 9.3% (bevh, 2021; HDE Online Monitor, 2020; HDE, 2021; ECC-Club, 2021) (Fig. 2.2). Stationary sales are also often online sales, namely so-called multi-channel or hybrid sales, which are not included in the online figures reported by bevh. These are generated by purchases made in bricks-and-mortar stores but originating on the internet.

“FMCG goods groups in particular have seen above-average growth online” Online EUR bn (total 2020e)

Online shares and growth** by product group 2020e (in %) Media/Image/sound carriers

Fiction > 50%

50,2% 45,7 %

UE/Electronics/TK/Mobiles

44,3%

Accessories/Games/Software Schuhe 4,1 Mrd.

Clothing/Shoes Household goods/ appliances Spielwaren Pet food/pet supplies Jewellery/Watches

Hobby/Collectibles/Leisure items* Furniture, Deco, Home Textile Drugstore/Cosmetics/Perfume DIY/garden/do-it-yourself Food/Delicacies/Wine

43,4% 42,2%

+ 12,1% +15,5%

+15,4% +15,6%

+23,6%

5,59 (12,6) 17.82 (41,0) 6,08 (14,4) 1,40

37,8% +19,1%

(3,7)

1,21 (5,1)

23,7% +22,1% 20,4%

6,02 (12,0) 12,34 (27,0)

1,00 (4,9)

+ 13,8% Sport > 40%

3,73 (28,0)

13,0% +19,5% Home Textile > 40%

4,61 (35,5)

13,3% +19,1% 9,3% +49,5% 6,5% +19,3% 1,2% +67,2%

Without kitchens

2,98 (32,0) 3,06 (47,0) 2,49 (204,1)

*Hobby: Estimated, thereof music, bicycle, sports approx. 9.0 bn **Based on HDE with 20.7% and ECC Club 2021

Fig. 2.2  Online shares of product groups in Germany in 2019. (Source: Own presentation based on bevh, 2021; HDE Fakten, 2020, 2021; ECC-Club, 2021)

2.1  Shift from Offline to Online

25

2.1.2 Frequency Losses in Stationary Trade In this respect, online retailing threatens to become a shop killer once again and will continue to take more and more sales away from traditional retail in the coming years (Heinemann OH, 2021). Many – especially weak – retailers will probably have to close their stores or reinvent themselves as quickly as possible. The HDE speaks of 50,000 shop closures in 2020. The forecasts of the HDE are still from the time before the second shutdown. Therefore, 64,000 retailers are more likely to be affected – according to the original IFH forecast until 2030. However, the actual effects will only become visible after the Corona crisis (Internetworld interview GH, 2021). Those most threatened are the small, non-store retail businesses with average sales of less than €320,000 per year (ZDF, 2020). However, even if the 200,000 smallest of these local retailers with average sales of only around €250,000 were no longer to exist, only around 10% of total retail sales would be affected. Corona or online retailing are not the only ones to blame for this structural shakeout. The structural problems had been looming for some time and were accelerated by the crisis. According to earlier surveys by the Cologne Institute for Retail Research (IFH), five years ago one in three consumers had already reduced the number of trips to the city centre and instead shopped more often online (Die Welt, 2015). According to the German Retail Association (HDE), more than 60% of “normal” retailers were already complaining at the time about falling visitor numbers in their stores (Süddeutsche.de, 2014; dpa, 2014). According to this, even before the pandemic, the retail sector was struggling with falling frequencies and the changed shopping behaviour of consumers. And also in 2018, a representative study proved that these developments towards empty city centres are more than threatening, especially in a European comparison (Blickpunktjuwelier, 2018). The study examined frequency trends in nine European countries, namely France, Great Britain, Ireland, Italy, Poland, Portugal, Switzerland and Spain, in addition to Germany. The result was that frequency in the fourth quarter of 2017 in Germany fell by 6.7% compared to the previous year’s value, which was by far the sharpest decline of the countries examined. However, frequency developed strongly negatively in all of the markets mentioned. Figure  2.3 shows how frequency performed in Germany in the two years up to 2017, and more recent studies from 2019 by IIHD-­ Research once again show a significant deterioration in city centre frequencies between 2017 and 2019. According to this, even before Corona, pedestrian frequency was already declining in almost 50% of the strongest shopping streets. Not without reason, the loss of attractiveness of the city centre was the top issue for 47% of German retailers because of this (after 42% in 2017). As Fig.  2.4 shows, shopping and window shopping declined sharply as a leisure activity from the consumer perspective between 2015 and 2018. The decline in footfall undoubtedly worsened as a result of COVID-19. As the HDE “Standortmonitor 2021” shows, shopping frequency in stationary retail is declining more sharply than ever before, while expenditure per purchase in the online segment is making strong gains (HDE, 2021). This trend also continued in the second half of 2020, even

26

2  Threat to Stationary Trade

In your estimation, how has the company developed in the past two years of customer traffic? 41%

25% 17%

15%

2% Significantly

Higher

Sinking

Higher Consistent

Significantly declining

Results of a representative survey among German retailers 2017

Fig. 2.3  Development of inner city frequency in Germany in the two years up to 2017. (Source: Blickpunktjuwelier, 2018) Declining development of city centre shopping burdens stationary retail trade Loss of attractiveness of the inner city top issue for the retail trade

Shopping as a leisure activity is losing importance

For how many of the German retailers is loss of attractiveness of the city center the Top issue?

Trends in the frequency of shopping and window shopping during leisure time from 2015-2018.

47%

Several times a month

-2,3%

42%

Once monthly

-1,0% Rarer than once monthly

2017

2019

Declining pedestrian frequency in almost 50 % of the strongest shopping streets in Germany

Nie

+1,9% +1,4%

Fig. 2.4  Declining trend in downtown shopping prior to Corona. (Source: IIHD, 2019)

though there was an increase in visits to bricks-and-mortar stores in the summer, which led to a slight stabilisation of city centre frequencies by the autumn. However, in September, 39% of the shoppers surveyed again confirmed that they were less likely to go shopping in the city centres. This was also due to concerns about a second Corona wave. Overall, the location monitor shows the steady loss of importance of the shopping trip to the city centre. Accordingly, in October 2020, around 80% of shoppers said they only visited

2.1  Shift from Offline to Online

27

stationary stores in search of specific products. Only 22% of consumers simply wanted to browse and just 4% still attached importance to detailed advice in the store. In this respect, it is not surprising that the inner city frequency in 2020 compared to 2019 in the shopping streets of Germany’s major centres fell between 20% (e.g. Darmstadt  – Ernst-LudwigStrasse) and 48% (e.g. Munich – Neuhauser-Strasse) (TW, 2021). The sharp decline in shopping frequency remains the greatest challenge for stationary retail even after Corona, as this has not only already declined significantly in the past six years, but will also be affected by the “decade of the home” (Rose, 2020).

2.1.3 Erosion of Inner Cities Both declining population figures in some regions and the continuing online growth set in motion a downward spiral for stationary retail even before Corona. With a shrinking population, retail sales are also falling, according to the IFH Cologne (IFH Prognose, 2020). However, if more and more shops close in the city centres and these then become unattractive due to a lack of variety, this will further fuel the already increasing online sales and force more shop owners to give up. Smaller cities in particular have the greatest need for action here (ibi, 2020; ZDF, 2020). A trend reversal is not in sight for the time being, even if sales via the internet are no longer growing as fast as before. As a “young topic”, the spatial effects of online retailing have only been systematically investigated in isolated cases to date (mg.retail2020, 2015; IFH Prognose, 2020). Nevertheless, there are numerous empirical findings on the goods group-specific, spatial orientation of consumers taking into account the online and mail-order share, both on the part of specialised consultants and among other research and consulting actors, which can be differentiated spatially and temporally (IFH Prognose, 2020). The same applies to the spatially differentiated supply structures in the cities. Likewise, data on the relationship between online shops and stationary availability is continuously collected and evaluated by retailers. The provision of such data for spatial impact research is of great importance for the quality of the results. A challenge here is also the classification of the causality of developments in online retailing and spatial findings. However, the differentiation from other influences on the structure and function of the centres is indispensable for targeted recommendations for action. Figure  2.5 shows the basic causal relationship. Technological development has already changed consumer and shopping behaviour to a large extent. The main drivers of this change in consumer behaviour are the rapid development of new and powerful information and communication technologies and, above all, the penetration of the stationary and mobile Internet. At the same time, lower barriers to market entry are creating a completely new competitive landscape, including an international one. Stationary retailing is therefore facing fundamental challenges that will lead to a fundamental change in the forms of operation hitherto familiar from retail management theory. These developments apply in particular to the stationary retail trade, which on the one hand is particularly hard hit and on the other hand has meanwhile taken on a pioneering role for other sectors.

28

2  Threat to Stationary Trade Technological progress

Changed buyer behaviour

business administration Change in trade + Implication for the Trade

Specifically: effects on the stationary Trade Conclusion: Potential threats to the Inner cities

Front end

General: Effects on Shares of operating forms

Outside-In

Inside-Out

Backend

Changes in Trade structures

Expectations & Requirements of the Customers to the Trade

What can the city centre do? What will the retail of the future look like in city centres? What do city centres need to do?

Fig. 2.5  Impact of the internet on inner cities. (Source: Heinemann, 2017)

It is therefore of central importance, in a dual approach, both to examine and expand the theories of buyer behaviour under the new possibilities and framework conditions and to examine the changes in the forms of retailing and to review the institutional retailing theory in this respect. As a result, this leads to a modified, possibly even new buyer behaviour model and at the same time to a further development of the theory of the dynamics of operational forms or the “wheel of retailing”. This is continuously turning and not without reason it has always been said: “Retail is change” (Ahlert et al., 2009). The (re)action of retail with stationary offers is also changing. (Former) pure players like Zalando or JakoO operate store locations. Business models of showrooming with exclusively online purchases in the store, for example, open up new economic scope for furniture retailers to occupy inner-city locations. Customizing, for example for sports and fashion retail, is developing dynamically and offers ambivalent approaches for forecasting the spatial implications for medium-sized cities. Overall, however, a considerable potential threat to city centres has already arisen. This can currently be seen in the rising vacancy rates of retail properties. Unfortunately, there are still hardly any reliable figures on vacancy rates in Germany. CIMA Beratung und Management GmbH last published median vacancy figures for 113 small and medium-­ sized towns in 2009, which ranged between 10.5% and 11.5% (CIMA, 2009). Since then, these figures have probably at least doubled or tripled and are now closer to 20–30%. For example, a survey of 62 cities conducted by the Hanover Chamber of Commerce and Industry in 2010 found vacancy rates of more than 20% in just under half of the municipalities, and these are probably closer to 40% today (IHK-Hannover, 2010). The all-­ important questions are what retail will look like in city centres in the future and what

2.1  Shift from Offline to Online

29

cities and municipalities can and should best do in relation to this development. Linking with processes such as the White Paper on Inner Cities and Innovations in Inner Cities is also very important. For example, it is necessary to identify which functions correspond precisely to the “frequency-significant” core of the guiding retail function and in what respect. With regard to the opportunities and possible courses of action, it is also necessary to find out which aspects can flank, equivalently replace or supplement the retail trade, and which urban planning and, if applicable, spatial planning developments are of significance for this in the context of the urbanity models of the European city (mg.retail2020, 2015). Investment and development strategies to be taken into account in the real estate industry are, in particular, the (international) shifts caused by the real estate crisis and the differences in the real estate markets in the national economies of Europe, which have been growing – in some cases sharply – since then. Of no less importance is the consideration of the handling in the implementation of regional planning and building regulations and related urban development concepts in the municipalities, especially since the well-known topic of shop deaths in German city centres will continue to gain relevance. This is also stated in the study “Retail Scenario 2030” by the IFH Cologne, which was published shortly before the Corona crisis. An ever decreasing (inner city) location attractiveness as well as intra-city and urban competition are fuelled by an increasing number of store closures. The question is whether the inner-city retail trade can succeed at all in breaking out of the vicious circle of fewer inner-city visitors and shop closures. In any case, however, bricks-and-mortar retail is required to reposition itself in the area of tension between convenience, experience, local and digital offerings and to increasingly redefine itself as a leisure element (IFH Prognose, 2020). The Shutdown Light in November 2020 finally hit the trade to the core, because the frequency in the city centres had practically halved already in October 2020. On the one hand, this was due to the fear of customers, who are now contact-traumatized. On the other hand, customers also turned away when they saw queues forming in front of the shops because there were capacity problems in the shops due to hygiene regulations. This caused a paradoxical situation: on the one hand, politicians wanted to save the stationary retail trade, but at the same time they had to warn against contacts. In addition, the Corona crisis also failed to digitally shake up the industry, revealing a dilemma with foreseeable fatal consequences. Despite the threat, only a few merchants were willing to enter the supposed “new territory of the Internet”. Those who already had a digital allergy before COVID-19 could not be helped during the Corona crisis. Accordingly, specialty stores have been dying like flies since the second shutdown. There won’t be many left after Corona, as the pandemic acts as a fire accelerant and hardcore remediation program on retailers. The damage done with the hard shutdown just before Christmas 2020 will not be so easily repaired (World store deaths, 2020). How can inner-city retail and with it the inner cities themselves be saved? This question is very complex and cannot be answered easily (RP Interview GH, 2020), because it addresses two problems that can hardly be solved: First, many inner cities have been planned past the needs of the citizens, which is also related to the fact that the position of

30

2  Threat to Stationary Trade

city manager has been abolished and replaced by the elected mayor/lord mayor. There is often a simple lack of expertise there. On the other hand, real estate that is rented out commercially brings in high returns. In top city centre locations such as Hohe Straße in Cologne, rents of over €300 and up to €500 per square metre per month are easily paid. This is why the idea of the shopping city is so strongly adhered to. One has to ask oneself whether this still makes sense. The role of the inner city must therefore be redefined together with the citizens. Should it be family-friendly, age-friendly, green, quiet, with a high quality of life? A beautiful dormitory town? The revitalisation of city centres is usually accompanied by hullabaloo. Do the citizens even want that? The city must then make decisions and, if necessary, focus on residential use. Whether retail in the inner cities should be abandoned in the process cannot be answered across the board (Ibid.). There is no doubt that the specialist markets far from the city centre can also be brought back into the city: DIY stores, furniture stores and, above all, grocery stores. Large areas for such offers are available again due to the vacancies. But in return, cities will have to abandon the idea of a car-free city centre. The crucial question is: Do we really want to stick to the vision of a shopping city or not? But that is probably only possible in a car-­ friendly way. However, a number of medium-sized centres have already passed the “point of no return”. In many cases, they are no longer shopping cities. This can be seen in the vacancy rate and also in the fact that there are often no more chain stores, no more C&A, no more Saturn and no more department stores like Karstadt. But there are still classic upper centres that can be strengthened. Cities can try to concentrate trade on a central main shopping street. Beauty is important for a city. Many NRW cities can spend another 50 years on urban repair and never be as beautiful as historic cities that were not destroyed in the war. At the same time, the cities in NRW have more possibilities to set guidelines and requirements than they often admit themselves. They can not only determine the size of the advertising signs, as in the design statutes, but they can also stipulate the uses to which they are to be put. The Dutch cities are leading the way: They regulate more, crack down on uses, and have more beautiful and vibrant downtowns. The magic word is “revitalisation of city centres through customer centricity” (IFH Prognose, 2020). In this context, retail is challenged more than ever to undertake a paradigm shift: “The age of perfection of processes around procurement and sales optimization is followed by a new age that must focus on personal proximity. In the future, it will be a matter of understanding trade more and more as a leisure good and thus creating a completely different world of values and a new value proposition in the industry,” sums up Boris Hedde, Managing Director of IFH Cologne (IFH Prognose, 2020). In line with this, the IFH study “Retail Scenario” shows four different scenarios for the development of German retail (Ibid.). This takes into account the different needs of customers in the area of conflict between stationary touchpoints and the general propensity to consume (cf. Fig.  2.6). For all scenarios, drastic declines can be derived for the retail landscape and its stationary stores: A loss of between just under 26,000 and 64,000 retail companies in the overall sector can be assumed.

2.1  Shift from Offline to Online

31

Low 0.8% Supply and discount in focus

High 1.8% Experience and added value orientation

Retail growth

Scenario IV “Local Retail” Vital city centres Number of stationary Shops -8.6 thousand

Scenario I “Functional Retail”

Scenario III “Relaxed Retail” Emotionalization Online trading Number of stationary Shops -30.2 thousand

Scenario II “Convenient Retail”

Discounting of the stationary trade

Online trade and platforms as a supply and discount channel

Number of stationary Shops -19.7 thousand

Number of stationary Shops -36.6 thousand

high

low

need for stationary Touchpoints

Fig. 2.6  Retail scenarios: overview of sectors relevant to the city centre. (Source: IFH Handless Scenario, 2020)

The growing tendency of German citizens to buy online is primarily affecting stationary retailers with non-food ranges, i.e. inner-city retailers, as food retailing is mainly carried out on the periphery.

2.1.4 Effects on Shopping Centres and Greenfield Sites The development of “online versus offline” is also likely to have an impact on shopping centres that live from bricks-and-mortar retail. In successful shopping and specialist retail centres, proactive centre management should be able to keep the influx and outflow of stationary providers in balance, while in B and city district locations the decline in sales will also be directly noticeable in the reduction of space (GfK, 2015; FAZ SC, 2020; Wikipedia Einkaufszentrum, 2020). Certainly, shopping centres have better conditions than city centres, as they are professionally managed and not exposed to the decision-­ making quagmire of local politics. However, the triumph of online retailing and the structural changes induced by it are undoubtedly changing the quality and type of shopping centres, which need to be differentiated according to size and orientation (Wikipedia Einkaufszentrum, 2020). The following shopping centre types can be fundamentally distinguished:

32

2  Threat to Stationary Trade

The large-scale shopping center between 20,000 and 40,000 square meters is considered the classic shopping center typical of ECE Projektmanagement GmbH & Co. KG (ECE, 2016, 2020). It follows the operational concept of a few magnet businesses (anchor tenants) and numerous other specialist retail, gastronomy and service businesses. Large-scale magnet businesses in the form of large specialist stores, consumer or hypermarkets, and department stores serve as frequency drivers that attract customers to the center. The other tenants profit from the customer frequencies. Overall, large-­ area shopping centers continue to have a positive development, with a minimum size of 30,000 square meters emerging to be able to generate enough frequency (ECE, 2016, 2020; Wikipedia Einkaufszentrum, 2020). The small-scale shopping center does not actually have any anchor tenants, as these would often require more space than the center itself. As a rule, they do not have more than 10,000 square metres of retail space. The tenant mix is predominantly limited to specialty stores and specialty shops. Such shopping centers are also frequently found in the form of shopping galleries or shopping arcades in inner-city locations as well as small specialty shopping centers in suburban locations. They are not infrequently problem solutions for vacant department store properties or are combined with hypermarkets or large consumer markets. They are less and less able to generate sufficient frequency and are therefore also considered to be a discontinued model. In factory outlet centers, brand manufacturers or verticals rent store space to sell their own products directly to consumers, usually at reduced prices. A factory outlet is therefore not a classic retail trade in the narrower sense, but a direct sale from manufacturers to end consumers. As a rule, remnants or goods from production surpluses are sold. The clothing industry in particular is usually strongly represented. Factory outlet centers are currently considered to be particularly successful shopping centers because they also conform to the trend towards verticalization. However, they also pose an increasing threat to inner-city retail, especially if they are located close to the city. Power centers are large-scale retail parks that are currently mainly found in the USA and generally have more than 100,000 square meters. Magnet tenants dominate here with shares of 60–90%. As a rule, these are discount-oriented specialist stores that offer a wide range of products at aggressive prices and are referred to as “category killers”. In the USA, these formats with their peripheral locations on highly frequented road networks have already become serious competitors for regional shopping centers. It cannot be ruled out that existing shopping centers in Germany will be rededicated in this direction through expansion. A prime example is CentrO Oberhausen, which was last expanded in 2014 by 6000 to a total of 125,000 square metres of retail space (Centro, 2021; Wikipedia Centro, 2021). Theme centers are retail and service outlets that specialize in certain product groups (for example, designer furniture) or that offer goods and services related to a specific theme. In Germany, for example, Stilwerk operates five theme centers that give renowned manufacturers from the fields of furnishings and home design the opportunity to present themselves in their own high-quality shops. Stilwerk also regularly presents

2.1  Shift from Offline to Online

33

exhibitions and events, such as lectures, that focus on the cultural context and personalities behind the people on offer (Stilwerk, 2016) These formats are likely to increase, especially in inner-city locations. Urban entertainment centres are more oriented towards entertainment, leisure and experience. While retail takes a back seat, it is a complement that serves as a frequency user. The term “urban” does not mean that these centers are only found in downtown locations. “Urban” is more synonymous with an urban atmosphere. Typical examples are multiplex cinemas, musical theatres, discotheques or theatres in combination with fast food and experience and themed gastronomy and themed retail such as in theme centres. Additional offers can be sports, games, fitness, casino or even galleries and museums. The urban entertainment center is usually attached to a shopping center or structurally integrated into a center, in which case there is an “entertainment zone” in the center. It serves as a kind of extension and upgrading of existing centers, such as in the Ruhr Park near Bochum with the UCI cinema world, the fitness station and the “Via Bartolo” gastronomy mile with its own opening hours. Overall, it is becoming apparent that the boom in large shopping centres is also over. The market is saturated and new shopping centres are opening in small towns at most. The industry is facing cut-throat competition and the operating companies are already looking for the last white spots on the map. It is noticeable that the new centers are smaller than in the past. Well over half of the new openings are between 10,000 and 20,000 square metres in size (Wiwo, 2014; FAZ SC, 2020). In many cases, smaller cities also had an interest in a shopping centre in order to prevent even more purchasing power from being lost to the larger neighbouring cities. However, this only worked well as long as no other centre was opened in the neighbouring city (Ibid.). This is because it is difficult for shopping centers to survive on the clientele of a medium-sized city alone. It becomes even more problematic when two inner-city centers are operated directly in the same city. A negative example is Hagen, where the Rathaus Galerie is operated only a few hundred metres away from the Volme Galerie as the crow flies. The effects on the already structurally weak inner city are devastating (Wiwo, 2014; Hagen.de, 2021). In this respect, it should come as no surprise that the effects of shopping centres on inner-city retail as well as the overall urban fabric are repeatedly discussed controversially and examined in studies (Stepper, 2016; Erhardt, 2020). Especially the local politicians of smaller cities have so far generally viewed the establishment of shopping centres as a replacement for the classic department stores that have been eliminated as a source of frequency or use of problem properties positively. Not infrequently, the agglomeration of modern sales areas and attractive product ranges is seen as the means of choice to make inner cities more attractive and to prevent the outflow of local purchasing power to the larger neighbouring cities. Retail experts, however, fear that the establishment of shopping centres will tend to increase vacancies and trading-down effects in existing shopping locations as well as a loss or decline in the importance of public space (Ibid.). Whether shopping centres are more of a curse or a blessing for a city centre certainly depends on the individual case. In any case, the concepts and formats of shopping centres also represent significant success factors. The establishment of shopping

34

2  Threat to Stationary Trade

centers can only be a success for a city if they are able to create additional centrality. This in turn requires a minimum size, which today is more likely to be 30,000 square meters than 10,000. Nevertheless, inner-city shopping centres are increasingly shaping the cityscape and should therefore pay attention to an environmentally compatible design in terms of dimensioning, product range, traffic volume etc. when planning new developments (Ibid.). It could also make sense to oblige the management of a shopping centre to also manage the rest of the city centre. The example of Bad Münstereifel, where virtually the entire city centre was handed over to a factory outlet centre operator, certainly has a pilot character in this respect. Overall, it can be said that the era of shopping centers has also passed its zenith. These were previously regarded as a model for urban developers, but are probably no longer so. A study by the Cologne-based EHI Retail Research Institute using shopping centers as an example shows that the market is saturated here as well. Even before Corona, more and more retailers in the centers felt that their sales were falling rather than rising. When it comes to pure shopping, the center business can obviously hardly keep up with online retail. Today, it is increasingly about lingering, which is why interior design is becoming more and more important. In the past, this was rather subordinate (Erhardt, 2020). The trend is towards district solutions, i.e. centres in which shopping does not play the main role. They are increasingly being mixed with offices, fitness studios, entertainment and housing. At the same time, many shops in shopping centers are now much smaller than in the past. There is a tendency for vacant spaces to be taken over by gastronomy providers (Ibid.). This also applies to the inner cities of small and medium-sized centres. There, too, the number of retailers and the required sales area are tending to decline. At the same time, people’s need to linger and enjoy quality of life is increasing. That’s why even smaller communities would do well to design their city centers accordingly. Be it with cafés or parks or even “family-friendly zones” where the focus is on leisure rather than shopping. This also means more green spaces, playground equipment or fitness facilities, libraries or a citizens’ office. In this way, vacant spaces can be used and opportunities created for more people to meet in the city again (Ibid.).

2.1.5 Dominance of Online Marketing The digitalization of consumer behavior and the breakthrough of digital forms of advertising are also disrupting classic retail marketing. A major challenge in marketing is likely to be that the effect of existing communication channels and the suitability of new ones are unclear. Previous marketing approaches tend to focus on the contact points (customer touchpoints) of the company’s own sphere, which the company itself “looks after” and controls. This involves contacts with the salesperson or with employees in the customer service center. Flyers, catalogues, inserts, invoices and packaging represent classic offline touchpoints. However, in recent years, online touchpoints such as emails, e-newsletters,

2.1  Shift from Offline to Online

35

advertising banners, corporate blogs, the company’s own homepage, its own apps, its own YouTube channel or brand presences in social media have increasingly emerged. These too, as contact points of the company’s own sphere, have so far been managed and largely controlled by the company itself. In addition, however, contact points of the non-corporate sphere have increasingly been added in recent years, which are beyond direct control and influence, especially in the new online sphere (Kreutzer AFM, 2018). This relates to exchanges in social networks, engagement with companies and their offerings on the Internet, such as in blogs, communities and fan groups, as well as rating platforms. Such contact points already have an enormous influence on the decision-making behavior of prospects and customers. Accordingly, customers ascribe greater credibility to reviews and statements in online forums and on rating platforms than to the content of corporate communications itself. In this respect, marketing should integrate opinion statements from other customers or users (Esch, 2015; Esch & Knörle, 2016; Kreutzer AFM, 2018). This, however, requires a reorientation of marketing in a direction that is already familiar to large e-commerce players such as Amazon, Zalando & Co. However, already the online marketing budget in stationary retail often does not match the usage intensities of digital media (Kreutzer, 2016; Wolter, 2012; Wirtz, 2013; Adzine, 2018). It is not uncommon that the social media budget is still completely neglected. But this is a cause for concern, because overall spending on digital advertising channels has already risen to around EUR 8.5 billion in 2019. This means that they have significantly overtaken advertising spend in print media. As a result, the market for digital advertising has practically doubled since 2011 and, taken together, comes close to a 40% share of total advertising spending. In addition, the revenues of US providers Google and Facebook, which do not report their German revenues, should be estimated as accurately as possible and included. Corresponding forecasts often only show half as high values as in reality. The forecast market figures also vary enormously. For example, in February 2018, the Online-Vermarkterkreis (OVK) forecast an increase from EUR 2 billion to EUR 2.2 billion for digital advertising, while Nielsen came to EUR 3.7 billion for Germany (Adzine, 2018; OVK, 2018). If Nielsen comes to a market share of 11.5% for digital advertising, the network advertising figures show a share of almost 25.8% of the advertising pie. Reasons for the enormous spread are the lack of consideration of search engine marketing, social and programmatic. As a rough guideline, at least around a quarter of the media budget should be spent on digital advertising and the following developments should be taken into account (Netzwerkreklame, 2017; Adzine, 2018, 2019; Statista Spendings, 2020) (cf. Fig. 2.7): • Banner advertising is still growing, but weakly. Mobile displays are developing disproportionately. However, mobile advertising is still heavily undervalued, even though the mobile usage share for most websites is already over 50%. In contrast, the market share of mobile advertising in the display market is still not even 10% (Netzwerkreklame, 2017; Adzine, 2018, 2019; Statista Spendings, 2020).

36

2  Threat to Stationary Trade Mio. EUR

Percentage of total expenditure by medium

TV

Newspapers Magazines

Radio Cinema OHH

Digital

2015

32,8

14,6

12,5

5,2

0,5

4,1

2016

32,7

13,6

11,8

5,3

0,5

4,1

32,1

2017

32,4

12,5

10,7

5,3

0,5

4,4

34,4

2018

31,5

12,0

9,9

5,3

0,4

4,2

36,7

2019

30,5

11,4

9,0

5,4

0,4

4,2

39,1

2020e 29,1

10,8

8,4

5,4

0,3

4,3

41,8

30,5

8.507

8.745

7.725

2018

2019

2020e

1.196

1.286

1.264

772

849

849

Search Engine Advertising

3.635

3.987

4.230

Social media advertising

1.170

1.410

1.489

952

975

913

Banner advertising Video advertising

Classifieds

Fig. 2.7  Digital advertising spend in Germany 2010–2018 in billion euros. (Source: Adzine, 2019; Statista Spendings, 2020)

• Social media comes in at EUR 1.41 billion in 2019 and is likely driven by the increasing monetization of Facebook and Instagram users in Germany. Advertising spend per user continues to increase significantly, while reach is barely growing (Ibid.). • Digital video advertising accounts for a volume of around EUR 0.85 billion in 2019. Revenue here is obviously driven by the continued strong use of YouTube. New formats such as InRead videos are also supporting the growth of online editorial offerings (Adzine, 2018, 2019; Statista Spendings, 2020). • Search engine marketing was the largest budget block. Within the digital advertising spendings, search clearly holds its own with a volume of around EUR 3.98 billion in Germany. In the next few years, the market potential for search engine marketing in e-commerce is likely to shift more and more towards dynamic shopping ads, which experience shows also have better conversion. It remains an exciting question whether there will be a shift in market share between Google and Amazon. For most providers, however, search engines remain the basic medium (Netzwerkreklame, 2017; Adzine, 2018, 2019; Statista Spendings, 2020). Affiliate advertising tends to play a minor role. Purely performance-based advertising presence is likely to be increasingly replaced by real-time advertising on long-tail websites (Netzwerkreklame, 2017; Adzine, 2018). Digital advertising continues to gain in importance compared to the other media genres. Digital channels already account for more than a quarter of total advertising spend. Additional growth is likely to come at the expense of TV advertising in the future, as Millennials are increasingly turning to non-linear offerings such as Netflix or Amazon Prime.

2.2  Digitalisation of Consumer Behaviour and Customer Expectations

37

Adequate Social Media Budget Social media is playing an increasingly important role in online advertising. No wonder that spending on it is increasing significantly. In 2019, these already came to a share of around 16.5% of the total online marketing budget in Germany, finally reaching the level of social media spending in the USA, which comes to a share of just under 16.8% (Forrester, 2014, 2017; Netzwerkreklame, 2017; Adzine, 2018; BVDW, 2018). Moreover, many retailers are planning to increase their spending on social media. Nevertheless, activities on Facebook, Twitter and Co. can hardly be compared to classic marketing measures. Especially the lasting dialogue with the masses, which is necessary for social media, is still difficult for many companies (BVDW, 2015; Buggisch, 2017). The BVDW study “Social Media in Unternehmen” already showed for 2014 that there are still many reasons listed for not using social media activities (BVDW, 2015). In contrast, however, the BVDW study “Digital Usage in Germany 2018” shows that customers are already much further ahead (BVDW, 2018). As many as 24% of companies state that this is not relevant for their target group. However, with 50 million social accounts and around 40 million social networkers in Germany, this raises the question of which target groups the companies are working with at all (Buggisch, 2017). Or what products they are selling, if social media is supposedly not relevant to the category in 18% of cases. Even 16% of all companies reject social media in principle and 14% allegedly do not have time for it. For another 14% it does not correspond to the company’s orientation and in 8% of all cases there is no budget available (BVDW, 2015). It should be countered that it is not that expensive to start with social media. According to all experience, an average of around EUR 50,000 per year must be spent to integrate social media functions into the website and update it for one year (Kreutzer, 2018).

2.2 Digitalisation of Consumer Behaviour and Customer Expectations In the meantime, total penetration of the Internet can be assumed. Compared with other countries, Germany is still lagging behind in terms of usage intensity. However, in the course of the progressive expansion of broadband, it can be assumed that Internet use will continue to increase in this country as well. The Corona crisis has undoubtedly accelerated this development. In addition, the digital universe is increasingly being shaped by mobile Internet use, which is also significantly changing customer orientation. In particular, the smartphone has also become an indispensable medium for stationary purchases in the wake of ROPO (“research online and purchase offline”) behavior. Since Amazon is considered a product search engine, the “Amazonization of retail” is also having an ever greater influence on stationary retailers. They are therefore confronted with the aspects of showrooming, webrooming and SoLoMo (“Social, Local, Mobile”).

38

2  Threat to Stationary Trade

2.2.1 Total Penetration of Internet Use As of the end of 2020, around 94% of the German-speaking population aged 14 and over use the internet, which corresponds to 66.5 of the total of 70.6 million people aged 14 and over in Germany. Probably due to Corona, the number of Internet users rose again in 2020, by 3.5 million. The older target groups aged 60 and over in particular contributed to this growth. It can be assumed that by the end of 2021 at the latest, almost all citizens over the age of 14 will be using the Internet and that total penetration of Internet use will have been achieved. Currently, the Internet is used for an average of almost 3.5 hours a day (ARD-­ ZDF-­Online, 2020). The mass shift of social relationships to the Internet and the rapidly increasing use of the “World Wide Web” as an information medium are also causing sales in online retailing to continue to rise rapidly. Not only is the number of online shoppers growing, but also the number of orders. Even 93% of the so-called silver surfers, i.e. the 65 plus generation, regularly shop online. Almost 4 out of 10 online shoppers (37%) buy goods or services on the Internet at least once a week, and 4% even do so daily. This trend continues even beyond the Corona pandemic: Some 84% of those who have shopped online more since Corona plan to continue doing so after the pandemic. Clearly, many people who have once enjoyed the benefits of online retailing do not want to do without it in the future (Bitkom, 2020). After all, for one in three online shoppers (33%), one of the most important benefits is that shopping online is hygienic. For most online shoppers, however, comfort and convenience play the biggest role. Accordingly, three quarters (74%) welcome delivery directly to their home. Almost as many (73%) appreciate the independence from opening hours. Time savings (61%) and the large selection (60%) are also named as the most important advantages, ahead of possible price advantages (45%). Especially for people in rural regions with towns of less than 5,000 inhabitants, online retail is increasingly taking over the supply function (43%). There is no doubt that the mobile Internet will play a key role in future retailing. It will enable simultaneous purchases on all channels – including online in stores. All Internet users, i.e. more than 94% of the German-speaking resident population over the age of 14, also use Internet-enabled mobile devices (see Fig. 2.8). They are also increasingly using their device to search for product information or to make direct online purchases (Heinemann App, 2018). In the course of this development, mobile commerce sales realized directly via smartphones are currently also growing strongly, and disproportionately to online growth (Heinemann OH, 2021). In this context, the implementation of mobile shopping apps has a high potential for success. However, these should be directly connected to the existing online shop and be synchronized. Both can support each other in terms of cross-device use and thus contribute to mutual revenue growth (Heinemann App, 2018; Criteo, 2019). If revenues are generated through the direct use of an app, app commerce without a mobile browser is present. This is becoming increasingly important, as in 2018 47% of mobile commerce sales were in-app sales, an increase of 22% compared to the previous year (Criteo, 2019). In the parallel use of different shopping and information channels – also called omni-channel use – the mobile internet additionally plays an essential feeder role

2.2  Digitalisation of Consumer Behaviour and Customer Expectations

39

“Nine out of ten of the German-speaking resident population over the age of 14 are online”.

> 94%

At 81.43 million total population* = 70,6 Mio.* Adults over 14

Regular Internet users: > 66,5 Mio.*** > 60 Mio. Online-Shopper***

Unique Mobile User/ Apps User (Smartphones/ Tablets) > 94% 2020***

> 85% +312,2% 2012** Purchase per Smartphone: 32.4 million *** > 54%

* ** ***

~ 66,5 Mio.

21,30 Mio. +94,5%

2010**

10,95 Mio.

Countrymeters 2019; Statista Kinder 2018: children aged 14 and over in Germany; ARD-ZDF Online 2020. kaufDA 2013–2018 Chip.de 2020; ARD-ZDF Online 2020; Bitkom 2020

Fig. 2.8  The digital universe in Germany 2020. (Source: Own representation based on ARD-ZDF-­ Online, 2020; Chip.de, 2020; Bitkom, 2020)

for the stationary store. The role of the mobile network for general purchase preparation is becoming more important and has a lasting influence on in-store purchases. The smartphone is increasingly being used for this purpose and has already become the “main access device” for social networks.

2.2.2 Changing Customer Expectations Through Amazonization Amazon in particular is driving the change in consumer behavior and already dominates German online retail. As a product search engine, Amazon is also exerting more and more influence on stationary retailers. Experts are already talking about the Amazonisation of retail (Marquart, 2018; IFH-Köln, 2018; Horizont, 2019). Thus, more and more consumers inform themselves about prices on Amazon before making a purchase – and not only when shopping online, but also in stationary retail. According to a recent study by IFH Cologne, for which the institute evaluated its own market data as well as Amazon purchase histories and surveyed a total of more than 10,000 online shoppers aged 14–69 online between October 2018 and March 2019, consumers research prices on Amazon beforehand for around 60% of online purchases and 27% of all stationary purchases. For “consumer electronics & electricals”, this behaviour is particularly strong with around 67% of online purchases and around 44% of purchases in bricks-and-mortar stores involve checking prices on Amazon in advance. In particular, the Amazon Prime flat-rate shipping

40

2  Threat to Stationary Trade

service is causing the US internet retailer to boom in this country, while at the same time attracting a young user base (IFH-Köln, 2019). Amazon now has over 44 million regular customers in this country, which corresponds to almost three quarters of the 60 million German online shoppers. A key growth driver was and is the introduction of the Prime offer: for an annual fee of €69 or €7.99 per month, Amazon customers in this country receive free next-day delivery on all orders. In addition, they can use all media offers such as Prime Video and Prime Music for free. In Germany, Amazon already has more than 17 million Prime subscribers – that’s about 40% of the user base here. In the US, Amazon Prime customers are already considered lost to the rest of the retail sector (IFH-Köln, 2019; Horizont, 2019). Without question, Amazon in particular has also raised customer expectations for stationary purchases enormously with its dominance. If the online market leader can offer a very large assortment, deliver on the same or the following day and offer suitable product suggestions based on the large number of past purchases, then this claim sets the bar very high for other retailers. The immediate consequence is: tolerance for missing goods, long waiting times or for problems with the integration of the various sales channels has fallen sharply. Today’s customers expect retailers to provide them with a coordinated presence across all channels and process steps. This applies above all to the preparation of stationary purchases, for example through services such as availability queries or click & collect, i.e. ordering goods online and then picking them up in the store. At the same time, these digital services are also a key to shopping in the city center and thus to securing the existence of local retailers. This is because expectations of local communication services from the city centre are rising rapidly (kaufDA, 2018). With 64% agreement, almost two thirds of those surveyed would like to use the service of having currently unavailable goods from downtown stores delivered to their homes free of charge. At 59%, customers express a desire for product availability in stores to be visible online. A good half of respondents (51%) would like all information about stores to be available online. And 47% of consumers would like downtown stores that are of interest to them to have a web shop. The younger target groups in particular expect digital-based, local communication offers, although the majority of those over 50 also do. A retailer website would make it easier for 45% of customers to plan their next purchase, and for a further 39% a manufacturer website would do the same. At 28%, customers would like retailers to be accessible on KaufDA, and as many as 22% of respondents would like retailers to inform them about local offers. This confirms the desire for local communication offers. Fewer and fewer customers are asking for advice in the store. Only just over a third of respondents sought personal advice in-store before their last purchase in 2018. Furthermore, one in five (20%) say they research price/product comparison sites etc. on the internet. Further, of all respondents, 21% are more likely to research price/product comparison sites, blogs and/or test sites before making a purchase in a town centre. From home, a consistent 22% of respondents research a product online via their smartphone/tablet and 19% do so specifically on the retailer’s website. In particular, the under-50 age group uses the Internet to prepare for a purchase, and 14 to 29 year-olds are more likely to do so from home and via mobile

2.2  Digitalisation of Consumer Behaviour and Customer Expectations

41

devices. While 12% of those surveyed did not inform themselves about products before visiting the city centre, 10% asked their retailer and a further 21% obviously do not use any of the usual information channels, a total of 39% research purchase-relevant product information on their smartphone. Of these, 14% do so on the go, 13% in-store, 8% from the workplace and 5% via LBS providers (location-based service). The customer expectations of digital offers in the city are summarised in Fig. 2.9 (kaufDA, 2018).

2.2.3 Increasing ROPO Effects for Stationary Purchases Customer expectations show that the purchase decision process has already been greatly changed by the Internet. It enables customers to obtain almost any product available worldwide relatively quickly and easily. The “World Wide Web” provides comprehensive information to help consumers find the right product. The customer can orientate himself on the Internet not only from a rational point of view, but also with regard to emotional buying motives. He can always find information about the acceptance and popularity of products in social networks, which gives him confidence in his purchase decision. In addition, customers can signal group affiliation by buying a product and use social media tools to make decisions for themselves and their self-expression. This inevitably leads to the fact that nowadays it is impossible to do without online research before making a purchase. Even convinced stationary customers who don’t actually want to shop online increasingly

“The digital universe is radicalizing buying behavior” Customer Expectations 2018 … … the product availability of the shops should be recognizable online …ROPO exemplary…

… digital ancillary...

… all information about business should be available online

51%

… the downtown businesses should have a Have webshop … a City website would mean Facilitate purchasing

…Convenience…

59%

… the dealers should be on KaufDA be available

47%

45%

28%

… goods from shops should be deliverable free of charge to your home Basis: Basis: all respondents, n=1,000; VOTE (FULL and WHOLE) on 4+5, values in percent

Fig. 2.9  Customer expectations of digital offerings in the city. (Source: kaufDA, 2018)

64%

42

2  Threat to Stationary Trade

want to get an overview online in advance and prepare their purchase. Online shoppers are not the only ones who appreciate receiving all the information they need about product details, availability and prices quickly and clearly. That’s why no stationary retailer can do without an online presence and professional online and mobile marketing today. The goal should be to translate these digital measures into increasing customer frequency and higher sales for brick-and-mortar stores (Zukunftdeseinkaufens, 2018). As numerous studies have shown, finding the right information for the customer offers the greatest benefit and thus becomes the most valuable part of the value chain. Almost half of all brick-andmortar purchases (45%) are preceded by a visit to online stores. This ROPO effect (research online, purchase offline) is further reinforced by the smartphone. The threat to brick-andmortar retail is that, despite the obvious advantages, many retailers fail to exploit the ROPO effect for themselves. They lose stationary sales without generating online sales. In this respect, no retailer can manage without online sales channels anymore (Heinemann, 2017; Hudetz Otto, 2019). The change in shopping behaviour will not regress and has led to a new ROPO buying process. This is illustrated in Fig. 2.10. Even if the product is not purchased from an online shop but (still) from a brick-and-mortar retailer, the Internet is the most credible medium for most of its users in connection with purchasing decisions. Studies show that 97% of all German households with an Internet connection first research on the Web before making a purchase decision. In this respect, it should not come as a surprise that already today buyers start their shopping in majority on the web (Gehrckens and Boersma, 2013; Heinemann OH, 2021). With the increasing shift of communication to the Internet, the relevance of individual sources of information is also shifting for Internet users: Meanwhile, reviews by other Internet users are among the most trustworthy sources. Purchasing decisions are increasingly product-related, and the choice of supplier

„old“ purchase process: customer visits supplier, selects a product and buys there Vendor selection Product overview

Product selection Product informationen

Product purchasing Product selection

„New“ purchasing process through the Internet: Customer selects product, visits supplier and buys. Search engines, comparisons and networks play an important role in the purchase decision

Postponement Product selection Product overview

Product informationen

Supplier selection

Product purchasing

Product selection

Fig. 2.10  The new ROPO purchase process. (Source: Gehrckens & Boersma, 2013; Heinemann OH, 2021)

2.2  Digitalisation of Consumer Behaviour and Customer Expectations

43

is becoming more and more fact-based. Depending on accessibility, price, availability and service, the point of sale is only selected once the product has already been found on the web. No direct customer relationship is necessary for this, and the increasing spread of smartphones – coupled with the rising use of fast, mobile Internet connections – means that the right information can be found immediately everywhere. The 94% of adults over 14 who use smartphones are doing so more and more intensively (ARD-ZDF-Online, 2020). The majority of them expect a digital presence of stationary retailers on their devices. Above all, information about the store, current offers, product availability and delivery services are important to them. The digital presence of retailers is of outstanding importance for customer satisfaction. For example, half of those surveyed find it easier to shop if the retailer offers them the information they want via a website. Around one-third of customers also expect retailers to provide them with this information via LBS or local communication platforms. In the latest kaufDA study, the trend that consumers increasingly expect personalized information and offers also emerges in this context (kaufDA, 2018). This is precisely where there is a great opportunity for bricks-and-mortar retail: from the customer’s point of view, its very own strength is knowing it because of the personal contact and being able to serve it in a curated way. Both actually enable the retailer to respond precisely to the customer and to satisfy the customer’s desire for individuality. However, this usually only works on the basis of data. However, many retailers do not have any customer data or see “Big Data” as an unsolved problem. This is exactly where Bonial comes in, for example, with its ability to target local offer communication in a data-driven and personalized way. This requires no knowledge of location-based services, although the number of respondents who are aware of location-­ based services is quite high at 44%. The supported level of awareness of kaufDA is nevertheless 46%. Around 33% of the Internet users surveyed regularly use the KaufDa app and 24% use the KaufDA website (at least once a month).

2.2.4 Showrooming Versus Webrooming in Stationary Retailing It is not only the ROPO effect that shows that, from the customer’s point of view, thinking in terms of channels is outdated. “Channel doesn’t matter” sums up the customer opinion here (Sinnschrader, 2015; kaufDA, 2018). Customers want to distinguish less and less between the channels of a provider. Through the use of mobile internet in stationary stores, it is also no longer possible for many shoppers to distinguish whether the purchase took place online or offline. More and more customers will also buy online in the store and even have the goods delivered to the store, which is why a significant increase in hybrid sales is to be expected. Customers not only expect to be able to prepare their stationary purchases in the retailer’s online shop, but also to be able to complete them in the online shop at home after their visit to the store. In around 14% of all online purchases, the consumer has obtained information in advance in at least one brick-and-mortar store (Hudetz Otto, 2019). In this respect, the distribution between online and offline research is becoming

44

2  Threat to Stationary Trade Webrooming

Showrooming 16% of purchases on the Internet are made Information search in advance in the shop

16 %

?

Communication from everywhere

High level of consulting competence

Simple search

Personal call

Clear Shopping carts

Individual Address

Delivery

Offline World

Online World

45 %

45% of purchases in the store goes to a Information search on the Internet ahead

Fig. 2.11  Showrooming versus webrooming. (Source: Xu, 2020; Hudetz Otto, 2019)

increasingly blurred, leading to new formats with a “no-line experience” (Heinemann, 2013a; Sinnschrader, 2015). In this respect, entirely new retail approaches are emerging that vie for customers’ favour with a high degree of touchpoint integration. These include the increasingly discussed showrooming approaches, in which the customer prepares in-­ store and then buys online. At the same time, customers also expect ultimate usability of mobile and interactive technologies. This gives rise to two types of behaviour that directly affect stationary retail in particular, namely showrooming on the one hand and webrooming on the other (cf. Fig. 2.11). Showrooming The showroom refers to the physical store. Showrooming represents a buying behaviour where customers seek advice in a brick-and-mortar store but buy the goods later in an online shop. Provided it is the online store of the same brick-and-mortar retailer, this pattern is also referred to as “store-to-web” (Heinemann, 2017). It is concerning for a brick-­ and-­mortar retailer if it does not have an online store and then advice theft takes place. This type of showrooming is becoming more of a challenge for brick-and-mortar retailers as online retailing becomes more accepted. In this case, the customer then takes the opportunity to get advice and touch the product in the physical store, but then leaves the store and buys the product somewhere else on the internet. This buying behavior, while good for online retailers, is a thorn in the side of brick-and-mortar retailers (Talin, 2019). However, if the retailer in question has an online shop, but comparable products are available at lower prices in other online shops, such opportunistic buying behaviour in a multi-channel context cannot be ruled out either (Schneider, 2019). This is precisely why retailers with

2.2  Digitalisation of Consumer Behaviour and Customer Expectations

45

interchangeable assortments and services have bad cards. However, the fact that non-­ comparable and unique offers fundamentally offer better opportunities is actually not new, nor is it an Internet-specific experience. Webrooming In webrooming – also known as reverse showrooming – customers first research online and find out about products, read customer reviews and compare product alternatives. Unlike with showrooming, however, they then buy the goods in a brick-and-mortar store. Up to 78% of shoppers describe themselves as webroomers and are thus typical ROPOS who practice “web-to-store”. This buying behavior has been on the rise in recent years. One reason is probably that the variety of information, reviews and ratings on the social web have increased. Additionally, trust in these online portals is increasing, which in turn fuels the webrooming trend (Talin, 2019). Not without reason, Amazon, Alibaba, Zalando & Co. are also opening their own stores. As before, many purchases are linked to the desire for a physical shopping experience. Customers want to feel products and also try them on, but this is only possible in stationary stores. In this respect, the strict separation between online and offline no longer makes sense. That is why the trend towards multi- and omni-­ channel shopping continues. Conclusion Stationary B2C retailers with a “classic” small shop in a B or C location will be particularly threatened in the context of the emerging structural change because they have so far predominantly given the internet a wide berth or joined a network group solution that does not promise success. Many shops in the city centres, especially in small and medium-sized centres, will no longer exist and some of these towns will become deserted. To prevent sales from collapsing, sooner or later every stationary retailer will need an online shop. However, this requires a reorientation in investment decisions (Heinemann, 2017) and means: investment stop in area expansion and “step on the gas” in online systems. But also the stationary formats will have to look different in retail, partly as showroom or with showroom spaces, pop-up spaces, partly automated or even operated downsized (Ibid.). In no other way will stationary non-food retailers be able to escape the fixed cost trap due to dwindling sales on the floor space. The first fully automated stores with robots already exist. The stationary store will increasingly have to transform itself into a showroom where products can only be experienced and tried out haptically without the need for specialist advice. In view of dwindling sales, the cost-intensive provision of merchandise and sales personnel will probably no longer be feasible. Consequently, after visiting the showroom, it will often only be possible to place an order online. After all, shopping via QR codes is already possible today. And despite the fact that in many cases the item is still available, more and more customers are ordering it online during or after a visit to a store. By no means are price advantages the sole reason for this, however, customers do want to be able to compare prices on site (Heinemann, 2017; kaufDA, 2018). In the context of showrooming, it therefore makes sense to give customers the opportunity to compare prices directly

46

2  Threat to Stationary Trade

on site. These can be enabled directly via augmented reality on mobile, for example. Customers also welcome it when new offers or additional services are shown. Here, the required information such as ratings, test reports or product details can be displayed on small screens, so-called digital signage. Such digital fixtures help to better engage customers in the store and deliver an online as well as offline experience. One thing for sure is here to stay: Consumers are used to being able to move across all sales channels. This trend will continue in the coming years. Accordingly, it is advisable for brick-and-mortar retailers to provide their customers with an online as well as offline experience that will help lead the customer to a decision more easily (Talin, 2019).

2.2.5 SoLoMo as a Key Issue for Stationary Formats The different use of online and offline channels is less and less isolated, but increasingly combined. In addition, localization and thus location-based services are playing an increasingly important role in the context of mobile Internet use. They form the basis for the “synergies of SoLoMo”, which result from social, local and mobile networking and allow completely new possibilities for marketing efficiency. This arises primarily from the nature of internet use and the possibilities of social media (Heinemann App, 2018). Above all, mobile or app-based use of the internet has led to a change in shopping behaviour. It has become normal for customers to get information on the go, discuss on social platforms, rate products via smartphone and make price comparisons online. Smartphones make communication possible at any place and at any time. Increasingly, users share information about their location and local offers. These are exchanged in real time with the network, which is why the social network has become a companion in all life situations. This changes the definition of privacy and makes a larger part of one’s life public. According to Facebook founder Marc Zuckerberg, people are comfortable sharing information about themselves with others. Privacy is an “old convention,” he said in interviews back in 2010 (TAZ, 2010). Although the intensity of Internet use in Germany still has room for improvement in a country comparison, at least more than 80% of 14–49 year-­ olds in this country use social networks. WhatsApp, for example, has around 58 million users in Germany and its parent Facebook around 26 million (ARD-ZDF-Online, 2020). Globally, Facebook already comes as the most-used network in the first quarter of 2020 with 2.45  billion “monthly active users” plus around 2.0  billion YouTube, 1.6  billion WhatsApp, around 1.3 billion FB Messenger as well as 1.0 billion Instagram users in addition to the Facebook community. WeChat already has 1.15 billion and the “shooting star” TikTok 0.8 billion users (Global Digital Report, 2020). Add to this the roughly 0.7 billion QQ and 0.5 billion QZone users (Global Digital Report, 2020). This enormous number of social networkers spends an increasingly large part of their free time on the Internet. In the course of this “social networking” among the more than 3.80 billion social media users, the exchange of information is developing an increasing dynamic, which goes hand in hand with a strong increase in information searches to prepare purchases (Global Digital Report, 2020; ARD-ZDF-Online, 2020). This is giving rise to a new type of online

2.2  Digitalisation of Consumer Behaviour and Customer Expectations Internet users 59

SoLoMo –Always-on in millions (m)/share of the population as a percentage No. 1: Mobile

China 843

77

100% of Internet

No. 2: Social

50 India 682

47

= 92,8% Mobile

No. 3: Local

Mobile* Internet user world ~4.83 billion (DACH 100) Social-Mediausers World ~3.80 billion (DACH > 60)

Local LB Snutzer World ~3.3 billion (DACH > 55)

87 USA 321

Facebook 2.45 billion

64

Europa 15,1% Worldwide 06/2020

4,83 Mrd. Nutzer (+ 10% to 03/2019)

Indonesien 172

53

*Mobile phone users 5.19 billion (Global Digital Report 2020).

7377

Brasilien 151

77 93 77

Japan 117

81

Russland 116

9477

42

Nigeria

85

D

77

96

UK

64

Fig. 2.12  Number of Internet users and largest Internet nations. (Source: Global Digital Report, 2020; Internetworldstats.com, 2020)

purchasing behavior, which is also increasingly characterized by mobile Internet use, messenger, chat apps and VoIP, as well as the search for local information (Fig. 2.12). After all, Germany is the ninth largest internet nation in terms of user numbers (Global Digital Report, 2020). Every day, Internet users in Germany spend an average of 4:52 hours online. As both the intensity of use and the number of intensive smartphone users in Germany will continue to grow, SoLoMo networking is also likely to continue to increase to the same extent. The SoLoMo networking that accompanies smartphone penetration results from the interplay of the following issues: • Social: How do fans navigate social media platforms and what do they expect from their retailers and their favorite brands there? • Local: What opportunities does the localization of customers offer for local and stationary forms of supply? • Mobile: What opportunities does mobile marketing or mobile commerce offer and how can companies pick up their “mobile” fans/consumers? The majority of Germans already regard the smartphone as a natural part of their shopping processes (Heinemann, 2017; Heinemann App, 2018). They expect a far greater range of services on their smartphone than they are familiar with from stationary internet use. Local functions in particular are increasingly being used and are fuelling the so-called SoLoMo phenomenon. This is especially true for smart natives, for whom permanent access to the digital data stream is normal. They expect mobile offers that keep them permanently up to

48

2  Threat to Stationary Trade

date and with which they can exchange information with their network. In this respect, local real-time offers create faster reaction speeds and real-time information as well as augmented reality create more interesting mobile added value for SoLoMo users. From the customer’s point of view, optional online shopping also represents added value, as it is convenient, diverse and possible 24 hours a day, regardless of location. Nevertheless, experts do not expect stationary shops to disappear completely, quite the opposite (Heinemann, 2017). Customers do not want to buy everything online “without touch & feel”, but they also do not want to have to forego the advantages of one channel just because they are using another channel. For this reason, more and more companies are enabling their customers to shop in parallel (Heinemann et al., 2019). But an online shop alone is not enough, because it is also about its functionality. This is why brick-and-mortar retail must not lose touch, because otherwise this will inevitably lead to customer migration (Heinemann, 2017; Heinemann et al., 2019). That’s why stationary retailers in particular should get to grips with “SoLoMo” mobile commerce. However, if you as a retailer already give the online topic a wide berth, you should do the same for the mobile topic. Because there must be an optimization to mobile-­ friendly content and format-appropriate website. Mobile services and applications or killer apps also need to be added to the offering. The situational and lifestyle-oriented adaptation of the offers to the individual shopping habits of the customers is certainly the high school of mobile commerce. This is the only way to exploit the synergies that arise from social, local and mobile networking. This also includes customizable virtual shelves and the use of augmented reality in all conceivable facets. The mobile-oriented implementation of social media instruments with networking to Facebook, Twitter & Co. is standard. In mobile commerce, much more attention must be paid to a maximum of mobile navigation and mobile usability than in the online shop. A flexible format design that enables the use of different device types, including tablet PCs, also helps here. Speed in page layout and accessibility must also be implemented in the best possible way, especially with regard to transmission problems. Websites that are too heavy and take minutes to load scare customers away and drive them to competitors who are just a click away. Above all, the new smartphone generations enable a completely new shopping experience, which suppliers can take advantage of, for example, by steering consumers to their stores primarily with a professional and informative mobile website.

2.3 Scenario for the Internationalisation of Retail Trade Whereas for many years retail was considered a local business, today large international competitors can be found in all product groups. While two-thirds of German online retail is already dominated by foreign companies such as Amazon, eBay, Apple, Vepe and Asos, the market shares of non-German providers in stationary retail are comparatively manageable. Nevertheless, depending on the product group, they have a market share of up to

2.3  Scenario for the Internationalisation of Retail Trade

49

20%. Cross-border commerce is also playing an increasingly important role, especially from the east. In this respect, the TABs (Tencent, Alibaba, Baidu) but also the GAFAs (Google, Amazon, Facebook and Apple) will increasingly influence retail trade in Germany in the coming years.

2.3.1 International Players in German Online Retailing More and more online retailers from abroad are entering the German retail market. In addition to European shops, competitors are increasingly coming from the Far East. In addition to Amazon, the ranking of the largest online shops for the first time includes three other shops with foreign roots, namely the British fashion mail order company Asos, the Chinese fashion provider Shein and the home electronics specialist AO, also from the UK (Hell, 2019). Amazon was undoubtedly the forerunner and has so far overrun the German retail sector like a fiery roller. Not without reason, this online pioneer and Born Global already accounts for around 50% of all online retail sales in Germany. With a trade volume of more than EUR 30 billion in 2020, Amazon’s uninterrupted growth of more than 20% – and probably closer to 25% per year due to the expansion of its marketplace business in 2020 – is sufficient to take more than 1% of the market share from the entire non-food retail sector in Germany in just one year (Amazon, 2020; Heinemann OH, 2021). If growth rates remain stable, this figure will increase progressively as the sockle effect begins to take effect disproportionately. Amazon has not only literally chopped up the German book trade, but has already taken a dominant position in the fiction and specialist book ranges with a market share of more than 40% in each case. Figure  2.13 shows the 15 largest e-commerce providers in the German retail market in 2019. With sales increasing by 30% to EUR 158 million in 2019, AO.de is also likely to soon appear in the ranking of the largest online retailers in Germany. Without question, the electronics shipper has yet to prove that it can survive in the German market. However, the sales volume that AO has penetrated in a relatively short time shows that the German market is definitely open to new providers from abroad, who are eating more and more of the German sales pie (Hell, 2019). In this context, it is to be expected that there will be more and more entrants from China in Germany. Shein, in particular, is an example of how manufacturers in China are becoming distributors themselves and serving the international market directly as vertically integrated providers. In doing so, Shein benefits from its mobile strategy. For example, the vendor has been appearing among the top 10 shopping apps for years. In doing so, it transfers its experience from China, where online business is conducted in a much more interactive way – see at Wechat and Co. Shein transfers this principle to platforms such as Instagram and Facebook, among others. Although Shein is currently the only provider to appear in the rankings, there are also dozens of Chinese providers that have also made strong gains, such as Globalegrow with Gearbest and Zaful (Ibid.). The e-commerce expert Jochen Krisch assumes that especially the business with

50

2  Threat to Stationary Trade

item goods and no-name products will sooner or later go to Chinese suppliers and producers who can sell directly (Excitingcommerce Wish, 2019). After all, Shein is expected to have quadrupled its sales to around US$10 billion in 2020. But Wish and Aliexpress have also been popping up at the top of shopping app rankings for years. The Chinese players show that aggressive pricing is a guarantee of success. Therefore, it can be assumed that the internationalization of the online market in this country will continue. Providers such as the e-food delivery company Picnic, which is entering the market via an innovative service approach, are also developing very well (Ibid.). In contrast, Shein is an example of how Chinese providers could scale very quickly after appropriate market tests and roll out a concept globally, often still via marketplaces such as Amazon, eBay, Wish or Ali Express, but increasingly also directly. Already today, online retailers from abroad together account for more than two thirds of online retail sales, of which more than two thirds are accounted for by three US providers, namely Amazon, eBay and Apple Retail. In contrast, the international development of German online retailers varies greatly. While Zalando already generates more than 70% of its sales abroad, Otto is increasingly withdrawing from foreign markets and only generates a good third of its sales in the retail business (Otto Group, 2020; Zalando, 2020).

„Amazon has a market share of just under 50 % in Germany in the online“ E-commerce platforms in Germany 2019 Internet (2019)*** Rang 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Website

Unique User million

E-commerce Website

Google.com Amazon** 62 Youtube.com eBay** 55 Google.com Otto* 49 Amazon.com Zalando** 41 eBay.com Apple/iTunes** 36 Wikipedia.org MediaMarkt 41 Reddit.com Lidl 35 eBay Kleinanz. Notebooksbilliger* 32 Facebook.com Bonprix* 30 Livejasmin.com Cyberport* 28 Twitch.tv hm (H&M)** 27 Real2.d7e Web.com Conrad* ~ Top 18 Gmx.net Saturn (500 million GMV) Netflix.com Alternate** Vk.com Tchibo**

MV* Mrd. Euro 27.998 11.770 3.200 1.729 1.400 1.116 .850 .832 .680 .575 .511 .500 .499 .495 .480

Davon rund 64% Marktplatzanteil ( = 18 Mrd.)

Davon rund 80% Marktplatzanteil ( = 9,4 Mrd.)

*Estimated based on Statista/Internetworld 2019; **Estimated based on IfH Cologne 2018 and EHI 2018, eBay D without B4F, among others; ***Alexa.com 2020.

Fig. 2.13  Ranking of the largest online retailers in Germany in 2019. (Source: Own representation based on Amazon, 2020; eBay, 2020; Internetworld Statista, 2019; Internetworld EHI, 2019; estimated on Internetworld EHI, 2019, among others)

2.3  Scenario for the Internationalisation of Retail Trade

51

2.3.2 Internationalisation of Stationary Trade Stationary retail is a typical in-situ service that cannot actually be traded internationally. Therefore, most of the value creation takes place locally, i.e. close to the customer (Wortmann, 2010; Heinemann, 2017; Zentes et  al., 2017). Even if stationary retailers expand, they are forced to open and operate local stores in the respective markets. Nevertheless, international competitors are increasingly found in stationary retail in Germany as well, mainly based on vertical forms of supply such as IKEA, H&M or Zara/ Inditex. While food retailing is almost exclusively in German hands, foreign retailers already have a market share of up to 20% in non-food retailing. In addition to the vertical retailers just mentioned, they include names such as C&A, Charles Vögele, Orsay/Pimkie, Inditex/Zara, XXXLutz, Dänisches Bettenlager and Apollo-Optik. In the opposite direction, the internationalisation of the German retail trade has also increased significantly since the 1980s. However, this still affects a relatively small number of large companies, such as MediaMarkt-Saturn, the Douglas Group, the Tengelmann Group including OBI, the Lidl-Kaufland Group, the two Aldi groups as well as DM and also Fressnapf. Aldi and Lidl introduced the discount format for the first time in many countries, while the internationalization of the other German discounters is significantly weaker or even declining. The fact that private labels play an extremely important role in the assortment of both foreign chain stores in Germany and German discounters abroad suggests that the foreign expansion of these more vertical companies is essentially product-driven (Wortmann, 2010; Heinemann, 2017). In this respect, it is to be expected that vertical chains from abroad in particular will increasingly push into German retail locations and put additional pressure on German retailers in city centres. Germany, for example, ranks among the top destinations worldwide for expansion by internationally operating retailers (cf. Fig. 2.11). Around 50% of all international retail brands are present in Germany (Quantum, 2015). In the opposite direction, quite a few German retail groups are successful abroad. And for almost all large German retail groups, foreign business continues to gain in importance. This mainly concerns discounters such as Aldi, Lidl and Kik, but also other retailers such as Obi, Hornbach, Fressnapf, DM or Rossmann. DM and Rossmann in particular show that internationalisation in e-commerce can also make sense for stationary retailers. DM and Rossmann are already present with online shops in China and Australia (Wiwo, 2017). The apparent boundlessness of the web makes the step to internationalization via online shop quite obvious for stationary retailers. However, a multitude of aspects must be considered in this regard. In order to be able to successfully internationalize a business model in online retail, a number of basic requirements should be met in addition to the language diversity and international compatibility of the systems used. These include sufficient demand in the target market as well as positive legal and regulatory framework conditions (Mahr, 2019; Heinemann OH, 2021). Business models may have characteristics that lead to legal or regulatory problems and conflicts in different countries, thus hindering internationalization. The central prerequisite for foreign expansion is, above all, a sufficient online and offline infrastructure. What plays only a minor role in the home market can

52

2  Threat to Stationary Trade

become a problem when internationalizing in less developed markets. This applies in particular to payment systems, which must have sufficient penetration, or fine distribution or final logistics, for which professional service providers should at least be available (Mahr, 2019; Heinemann OH, 2021). Even though there are a number of possibilities when implementing internationalization, the Internet today especially enables a strong centralization of several country organizations at one location. This represents an advantageous alternative to decentralized foreign expansion, which tends to be incompatible with the principle of scalability due to high resource requirements and complex processes (Leybold, 2010; Mahr, 2019). The more centralized the internationalizability can be, the higher the degree of automation and the less complexity the system landscape has, the more scalable the business model is. This is especially critical for profitability due to the high intensity of fixed costs in e-commerce (Heinemann OH, 2021). It is not only in foreign expansion that scalability tends to require centralized systems and organizations, but that is where it is most effective. In internationalization, for example, locating country functions in a single headquarters saves costs primarily by sharing resources such as administration and IT. In addition, partial tasks can be covered, which would not be possible in a decentralized organization and would lead to an increased coordination effort. Thus, resources can generally be better utilized in centralized systems and thus scaling advantages are more likely to be realized (Leybold, 2010; Mahr, 2019; Heinemann OH, 2021). Despite all the opportunities, there are a variety of factors that can prevent internationalization or at least make it more difficult. In this respect, the reluctance of some companies is quite understandable. A 2018 survey by Stripe shows that it is primarily the factors of taxes (38%), regulatory obstacles/regulations (36%) as well as customs duties (34%) and, more generally, excessive costs (34%) that stand in the way of e-commerce-driving companies internationalizing (Mahr, 2019). Increasing protectionism also plays a role alongside cultural barriers, which still account for 23% (cf. Fig. 2.14).

2.3.3 Cross Border Commerce For years, retail experts have been warning that online sales in Germany, an export nation, are increasingly being imported and thus more and more of the retail sales pie is flowing abroad. For years, figures and data from various sources have shown that the importance of foreign retailers is much greater than many assume. At Amazon alone, for example, only 53% of the approximately 55,000 active marketplace merchants are from Germany. Around 9% of them come from Asia – in other words, around 5000 merchants. Of these, however, only just under 400 are registered with the relevant tax office in Berlin-Neukölln (Fuchs t3n, 2017). In this respect, cross-border commerce on marketplaces not only generates billions in sales for Amazon, eBay & Co. but also tears billions of holes in our tax system. It can be assumed that many merchants do not pay domestic sales tax, even though customers do. For unregistered merchants on the Amazon marketplace alone, the lost sales tax in 2017 is likely to have amounted to as much as EUR 800 million. The number of

2.3  Scenario for the Internationalisation of Retail Trade

53

Barriers to internationalization via online trade 38

Taxes

36

Regulatory barriers

34

Duties

34

Costs too high

29

Rising protectionism Lack of funding/capital

27

skills shortage

26 25

Inadequate infrastructures Cultural/linguistic barriers

23

Mentors/advisors on site

22

Lack of education/training

22 0%

10%

20%

30%

40%

50%

Fig. 2.14  Risks and barriers to internationalisation in e-commerce. (Source: Mahr, 2019)

unreported cases is probably much higher. However, the German government has recognized this and is now hunting down Chinese tax cheats in online commerce quite successfully. However, EU partners account for the majority of cross-border commerce. But especially in Europe and within the EU, cross-border commerce represents an economic factor that can no longer be ignored. According to this, the volume of cross-border online trade in the 16 largest EU countries (EU 16), based on the 500 largest online shops, amounted to around EUR 95 billion in 2018 (Webdata-Solutions, 2019). European companies accounted for 55% of this turnover, while non-EU retailers generated 45%. Including travel industry sales, cross-border commerce sales were EUR 137  billion in 2018 and are expected to grow to EUR 245 billion by 2022 (see Fig. 2.15). The complex legal situation has so far discouraged small and medium-sized traders in particular from engaging in cross-border activities. This was also fraught with legal pitfalls in the EU, due in particular to the fragmentation of consumer contract law in the EU.  In addition, there were still significant reservations among e-commerce customers about buying goods from online retailers in other European countries (Ibid.). Only half of European customers have so far trusted sellers from other European Union countries. However, trust is significantly stronger if Internet use is also widespread in a country. Overall, the EU has recognised that cross-border online trade is becoming a major economic factor. It hopes that by implementing the digitisation strategy for the digital single market, it will be possible to achieve annual economic growth of EUR 415 billion per year. That’s why new rules for cross-border parcel deliveries have already come into force. Revised consumer protection rules will take effect from 2020 (Webdata-Solutions, 2019).

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22.8% Cross-border

B2C Cross-Border eCommerce EU16

Total CB turnover EU16: 95 bn EuroEU16

Non EU16 sellers 42,75 bn (45%)

EU16 sellers 52,25 bn (45%)

EU16 sellers

CB turnover will nearly double over the next 4 years

+79% 2022

245 bn Euro

2020

163 bn Euro

2018

137 bn Euro

+50% Top 500 sellers 36 bn (69%)

Outside Top 500 sellers 16,25 bn (31%)

+19%

EU 16 Countries

Fig. 2.15  B2C cross-border commerce sales EU 16. (Source: Webdata-Solutions, 2019 based on cross-border commerce Europe)

For brick-and-mortar retailers, this means a significant increase in competition in the future, unless they also manage to participate in cross-border commerce.

2.3.4 GAFA-TAB Economy and Hidden Champions Cross-border commerce is mainly driven by the GAFA-TAB economy. The “GAFA group” (Google, Amazon, Facebook, Apple) has a combined trading volume of more than US$ 1000 billion in 2020. This US group is contrasted in the eastern hemisphere by the TAB community, namely Tencent (including WeChat), Alibaba (including T-Mall and Taobao), Baidu and JD.com, which already have a combined trading volume of more than US$ 2000 billion. According to experts, these TABs are in no way inferior to the GAFAs and are currently practicing “Chinese leapfrogging” in an impressive manner (Locationinsider, 2018). In this respect, it is permissible to ask which group Europe will have to field. So far, this question cannot be answered, so “Zero”. Therefore, at first glance, the digital battle of the triad is probably more of a “GAFA-TAB-Zero” (Fig. 2.16). What is the answer to the scenario outlined? Two things the GAFAE TAB’s undoubtedly teach (iBusiness GAFA, 2017; Carpathia, 2018; Heinemann OH, 2021): 1. “Know your customers” because GAFA-TAB’s are really doing everything they can to collect customer data and create movement profiles. Users can post what they are doing, are allowed to use free navigation solutions or register for benefits. There are no limits to the data collection mania.

2.3  Scenario for the Internationalisation of Retail Trade

55

„The Triad at the end of 2020: what is the response in Europe? „*. US Players D ~ 33 bn. Euro (> 21 MP) GAFA

Amazon > $500 bn. GMV* (>300 MP)

Alibaba > $ 1,300 bn. GMV*

Triad

G Google A Apple F Facebook A Amazon

>$1,000 bn. MV

Asian Pacific Players

?

European Players

Singles-Day Singles Day 38,4 bn bn turnover turnover >74 (11.11.19) (11.11.20)

TABJ T Tencent/ Wechat A Alibaba/Taobao/T-Mall B Baidu (J JD.com $333 bn.)

>$2,000 bn. MV

*Figures estimated on the basis of the Annual Reports for 2020

Fig. 2.16  Battle of the Triad – a “GAFAE-TAB-Zero”

2. “Bind the customers”, because customer retention is cheaper than customer acquisition. Amazon Prime shows the way, and Google and Facebook also try to find out with unwavering persistence what users like, only to offer it to them. But what can be the German answer to Amazon & Co. Local retail in particular has a lot of catching up to do, as even the basic requirements for professional business operations are often not met here (Heinemann, 2017; Scholz, 2018; DHL, 2020; ibi, 2020). With digital adoption and transformation, the wheat will most likely be separated from the chaff in stationary retail. Accordingly, digitalization will play a significant role in determining further concentration and consolidation in retail. Findability online is undoubtedly essential for survival in order to be visible to customers (Heinemann, 2019). However, the Corona crisis is proving to be a catalyst for digitalization. In fact, 97% of corporate decision makers believe that COVID-19 has advanced digital transformation within their organization (One-to-One, 2020; Twillo, 2020). Hidden Champions in Online Retailing The fundamental question is whether Germany or Europe needs its own GAFAs or TABs. Germany is the country of medium-sized companies that are global market and innovation leaders in their niche. Why should the idea of hidden champions not also be transferred to the retail sector (Bodmeier, 2019)? In this country, in addition to the big online players such as Zalando, Otto and About You, there are already smaller speedboats and thus hidden champions of online retail. Like Cardmaking, which makes over 40 million in sales a

56

2  Threat to Stationary Trade

year in its niche of wedding cards. The online retailer is still 100% family-owned and is now taking off with Better Ventures as its own “family office” (Bodmeier, 2019). Similar hidden champions in online retail and genuine family businesses and SMEs include Reuter-Badshop, Gartenmoebel.de or Rosebikes. These digital SMEs have financed their growth themselves. Of course, they don’t turn over billions now. But with 40 or 50 million EUR turnover – and profitable to boot – it’s easy to live. That is precisely my appeal: companies must realistically make a decision as to whether they want to take the growth “whatever the cost”, as they just might, or whether they want to forego part of the growth because they want to continue to be independent. In the 250-year history of the Industrial Revolution, the cardinal mistake has always been for companies to build up growth-related capacity, which they have too much of when bad times come again. And that is why these companies no longer exist today. In this respect, it is definitely worthwhile to refrain from quick fixes and instead to do some solid business planning. To answer the initial question: Of course, Germany can build a new, highly innovative, primarily digitally founded SME sector that remains in the hands of founders and increasingly digitises this location.

2.3.5 New Social Commerce Currently, established platforms such as Instagram in particular are pushing a new form of social shopping, similar to apps such as Pinduoduo or Meesho, which originated in Asia (iBusiness Trends, 2020). Social commerce, from its basic approach, represents the ability to buy products directly through social media platforms. This makes the shopping experience more pleasant and easier for many users. Accordingly, many online retailers work via Instagram with “shoppable posts”. These shorten the customer journey and thus increase the number of spontaneous purchases (Büttner, 2020). So far, this is where contextual commerce comes in by placing buy buttons, in environments outside of online shops or marketplaces. This allows products to be purchased directly where the consumer has seen them online. Buy buttons can thus enable casual online shopping “on-the-go” (Erez, 2019; Kingstone, 2019). In the process, online commerce is detaching itself from the online store and becoming a universal companion in everyday life, which is why it is considered to have great potential (Erez, 2019). There is no doubt that the share of contextual commerce in Germany is still relatively low. However, it is likely to become an important part of e-commerce in the next few years, generating retail sales at the expense of the retail pie. Especially if the customer is guaranteed the best price and the product that suits him is curated, which is a prerequisite. Otherwise, the lack of price transparency, comparability as well as choice tend to have a counterproductive effect (Kunz, 2018). Facebook has recognized this. Accordingly, the Internet giant is constantly introducing new shopping functions. The Instagram platform plays a key role here, on which around 160  million companies are active. For most consumer goods companies, Instagram is already indispensable and represents a kind of shop window. In addition, retailers are now also being given the opportunity to sell directly through the platform. Without a doubt, the

2.4  Changing Value Chains and Loss of Customer Relationships

57

Corona crisis has also contributed to the fact that local retailers without an online shop in particular are using Instagram as a marketing medium for themselves. The corporate parent Facebook has already reacted to this and announced new functions for social shopping opportunities (Gardt, 2020). In the process, Instagram is considered Facebook’s secret weapon. Both are to be expanded into leading marketplaces in the mobile world. For example, Facebook has presented its shops that feature live shopping and chat functions (excitingcommerce FB, 2020). Product upload is to be handled by Shopify & Co. These are well positioned especially with influencers and small labels. This is reinventing the social commerce theme (“New Social Commerce”). What is new is how Facebook and Instagram integrate the shops and products feed-based into their streams and thus also make them a showcase for social media stars (Ibid.). In particular, the planned “Instagram Explore Feed” will catapult social commerce into a new age by enabling more targeted and interest-based targeting (Mc Laggen, 2020). Also, the short video feature “Reels” is likely to be pertinent as it allows for relatively easy, 15 s long and amusing short videos to be created and shared. The concepts are reminiscent of the TikTok platform. The first companies in Germany are already using Reels to create short promotional videos, such as the company Oatsome, which markets smoothie bowl products (Rinsum, 2020). All in all, Instagram is increasingly influencing shopping habits, which should also boost “inspirational shopping”. Users receive outfit inspirations, for example, and can then buy parts of them or the entire set (eTailment Key Trends, 2019; Heinemann OH, 2021).

2.4 Changing Value Chains and Loss of Customer Relationships Already today, more than half of online trade is conducted via marketplaces. Price and comparison portals are also being used more and more as an entry point into the buying process. In this way, platforms are increasingly grabbing hold of customer relationships and shaking up established value chains. As a result, there is a danger that traditional providers will lose contact with the customer and increasingly become vicarious agents for large platforms. The answer can only be to implement a customer relationship management or to professionalize and push an existing CRM system. It is a matter of retaining customers with data-based marketing and at the same time escaping the exchangeability trap through verticalization.

2.4.1 Importance of Portals and Shopping Platforms Portals and marketplaces are considered the “winners of online retail”. As all studies show, they are generally used to start the purchasing process (kaufDA, 2018). Of high relevance for product searches are undoubtedly search engines – first and foremost Google – and the major shopping platforms such as Amazon and eBay, as well as price comparators. On portals and e-marketplaces, it is not uncommon for the product to be ordered as soon as it

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is found. For this reason, they already account for more than a third of the market share in online retailing in Germany and even cover up to 50% of the total market in sub-segments (Heinemann OH, 2021). A distinction should be made between price comparison portals such as idealo.de, brokerage portals such as meinauto.de, my-hammer.de, the taxi app “mytaxi” or the taxi replacement app “Uber” as well as rental portals such as rbnb.com, tolooma.de or renttherunaway.com. Above all, travel portals such as expedia.com, booking.com, trivago.com or fluege.de are experiencing a huge boom. The danger for large travel providers is that they could increasingly lose the first contact to the end customer due to the trend towards travel portals and develop into regular vicarious agents with “pure fulfilment status”. In this respect, it is obvious that the large e-commerce providers are also discovering the marketplace model or intermediary portals for themselves. Amazon is the role model. It is mainly about “subletting” customer frequency to cooperation partners, so to speak. The open platforms such as eBay are thus gaining new competitors in the form of shopping portals. In Germany, Zalando and the Otto Group in particular are pushing the marketplace business. In the American retail market, WalMart also integrates external retailers on its website for the sale of goods. Similar to the marketplace models of Amazon and eBay, the merchants pay a monthly fee and a commission for this. The “third-party listings” of cooperating retailers appear in format and layout as items from WalMart with the small tag “marketplace merchant.” Similar to eBay and Amazon, sellers receive ratings and feedback via customer reviews (Heinemann, 2017; Heinemann OH, 2021). Marketplaces on a company’s own website are a particularly good way to expand offerings “without risky infrastructure construction” when visit frequency is high. Moreover, they are able to fuel the own business and also to make the own online shop profitable. This is arguably why Zalando offers a similar model with its affiliate program, although it is more closed in nature and is primarily intended to prevent aggressive pricing offers (Zalando, 2020; Heinemann OH, 2021). While in the early years the operators of such platforms tended to operate in a legal grey area when carrying out monetary transactions in their intermediary function, BaFin has now adopted clear guidelines on how the transaction management of marketplaces should be handled. Banks have generally set up registration portals so that online traders can enter their contract data easily and quickly (Heinemann et al., 2021). However, setting up marketplaces is difficult. Among incubators, the establishment of marketplace models is consequently considered the most difficult thing to attempt on the Internet. However, if it succeeds, it usually generates disproportionately high value, as Amazon in particular demonstrates. However, without a frequency driver that precedes the marketplace and later complements it – be it in terms of product range or geography – such concepts are considered to have little chance of success. In addition to founding or promoting their own marketplace activities, bricks-and-mortar retailers are also increasingly setting about establishing a presence on third-party marketplaces. However, the objective should be clarified beforehand. It makes a big difference whether, for example, the primary objective is customer acquisition and marketing goals or supplementary sales. Basically, such platforms represent an additional sales channel. Exchange and swap platforms can also be seen as a kind of marketplace, such as the eBay classifieds,

2.4  Changing Value Chains and Loss of Customer Relationships

59

Time series comparison: channels used to search for product information on mobile devices and importance of aspects in product information search Basis: all respondents, n=1,018 2015; n=1,020 in 2016, n=1,024 in 2017, n=1,004 in 2018 Values in percent

Question: “Through what channels did you already once on your Smartphone or tablet PC informed about a product, That they wanted to buy?”

100 90 80 70 60 50 40 30 20 10 0

2013 (n=717) Search engines such as Google large shopping platforms such as eBay, Amazon

Price comparison platforms individual seller websites/shops Browser of the smartphone or tablet PC Consumer portals social networks Applications (Apps)

12,1 78,1 72,9 48,1 44,1 38,4 26,7 22,0 31,6

2014 (n=761) 12,4 79,5 71,8 56,3 47,3 38,9 37,3 23,6 25,7

2015 (n=782)

2016 (n=794)

2017 (n=857)

19,4 82,2 74,1 59,7 52,0 42,9 34,4 27,4 28,1

16,1 85,6 72,8 56,7 47,2 42,2 31,4 30,2 25,9

14,7 82,1 72,2 56,2 50,6 34,5 29,5 24,0 25,2

2018 (n=827) 12,5 80,3 70,4 50,7 45,7 40,0 26,2 26,8 21,2

Basis: only respondents who have already searched specifically on their smartphone or tablet PC for have searched for information on products; values in percent

Fig. 2.17  Information channels used for product search in time series comparison. (Source: KaufDA, 2018)

Tauschticket, Mamikreisel or Tauschgnom swap platforms. They offer customers the opportunity to swap their rather high-priced goods, some of which are brand new or have only been worn once, with other members (Heinemann et al., 2021). As current studies show, the importance of platforms and portals as an entry point into the purchasing process is even increasing (Heinemann App, 2018). Search engines were able to maintain their dominant position (cf. Fig. 2.17). At the same time, the value for own websites and mobile online shops remains stable at a high level. This confirms the need for retailers to have a “digital presence” in this form.

2.4.2 Change in Value-Added Structures With the expansion of portals and platforms, the digital revolution is also driving the decoupling of previous value chains. As a result, traditional providers can no longer perform key value-adding activities as before (Heinemann et al., 2019). In their place – for example at the customer interface  – are infomediaries with an outstanding variety of offers, brokers with an infinitely large selection via longtail, recommendation engines with individual 1:1 recommendations, price and product search engines with an advisory function, and social networks that bundle trustworthy opinions and recommendations from other friends. As a result, previous intermediaries – such as brick-and-mortar retailers – have already lost their unique selling points at the customer interface and in many cases no

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longer play a dominant role in customers’ product selection. They are becoming less and less relevant to Internet users, which in turn leads to a further decline in consumer loyalty and willingness to pay. They are no longer willing to pay a premium for value added that is no longer perceived or claimed. The provision of advice and service thus becomes increasingly less critical to success (Gehrckens & Boersma, 2013; Heinemann et al., 2019; Heinemann OH, 2021). Accordingly, the purchase decision process is decoupled by the Internet, which is analogous to the decoupling of value chains in retail. Traditional retailers are visibly losing their position as “one-stop providers” and degenerating into interchangeable service providers, with all the major financial risks associated with asset-intensive business. Just as this is already becoming apparent in the retail sector with Amazon & Co. “Digital insiders” assume that in the medium to long term no industry will be spared from the disruptive, digital transformation. Every attractive market segment will be fueled by investors until a digital player prevails. In this respect, market disruption is inevitable for every industry. In addition to the travel industry and retail, the media and music industries have practically already been completely transformed. This process of change has certainly been further fuelled by the digitalisation of products, i.e. e-books and music downloads. Even the banking sector is facing a similar paradigm shift due to the emerging platform economy. Even the car industry, which is rather conservative in terms of distribution structures, is already facing similar challenges, as Tesla & Co. are now also selling new cars without branches. The entire used car market already takes place more or less online. In this respect, there is a danger in all sectors for established providers that, like the travel providers with their fixed-cost apparatuses built up in the past, they will tend to become a kind of vicarious agent without a direct customer relationship in the initiation of business. Figure 2.18 shows a comparison of the degree to which the sectors are affected. But what conclusions can be drawn for brick-and-mortar retailers? Retailers are now collecting a great deal of data on markets, customers and competitors, but they often still see this wealth of information as a “big data problem”. However, data-based management of the entire physical value chain is undoubtedly far more manageable. This creates another value chain, namely the virtual value chain (see Fig. 2.19). The virtual value chain thus ideally complements the physical value chain. This includes four opportunities of how information can be used for better value creation in retail (Hollensen, 2020; Heinemann B2B, 2020): 1. Risk management: Improved transparency can improve the quality of work in all functions, such as finance, accounting or controlling. Therefore, IT resources should not be spared, especially in these areas. 2. Cost management: Digital data primarily enables process optimization and more efficient transactions. 3. Assortment and service offerings: The more data-based information is available about customers and their demand, the more likely it is that curated offers can be implemented. 4. Assortment development: Customer data helps to develop assortments that are more likely to be accepted by the customer.

2.4  Changing Value Chains and Loss of Customer Relationships

61

“Platform Economy: The digital revolution will disrupt all industries”

Mobility…………………………………………………………………………… Shaving Home……………………………………………………………………………………... Luxury Yooxgroup Logistics……………………………………………………………… Communication…………………………….... Banking Payment……….................. Music……………………………… Industrybooks…………........ Retail……………… Media………..……. Travel industry..… Source:own based on dgroup 2016

Fig. 2.18  Examples of digital disruption by new information intermediaries. (Source: dgroup, 2016; Heinemann B2B, 2020)

Physical value chain

R&D

Operations

Marketing

Sales& Service

Value

Who is owner of the customer relationship? Organise, Define inSyntheselect and formation size ingather inproblem formation formation

Distribute information

Value

Virtual value chain

Fig. 2.19  Virtual value chain as a complement to the physical value chain. (Source: Hollensen, 2020)

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This requires high-performance systems, such as those used by the large Internet platforms or information intermediaries. Therefore, the type of customer relationship must be supplemented by the “interactive interface” to the market and the following aspects in order to remain relevant (Hollensen, 2020; Heinemann, B2B 2020): 1. Maintaining and defending the customer relationship: Traditional intermediaries  – such as brick-and-mortar retailers – have already lost their unique selling proposition at the customer interface in many cases and often no longer play a dominant role in the customer’s product selection. They are becoming less and less relevant to Internet users, as a result of which consumer loyalty and, consequently, willingness to pay are continuing to decline. 2. Radical improvement of competitiveness through new business models: Today’s customers are also Internet users and expect manufacturers to have an excellent online shop where they can prepare their purchasing decisions. Otherwise, customers will gradually migrate to platforms. Market disruption is therefore inevitable for every industry, as Fig. 2.19 shows. What conclusions can be drawn from this for stationary retailers? Obviously, the majority of companies in this country have still not realised the force with which the digital revolution is hitting. There is not only time pressure. There is more of a sense of alarm, especially as 250,000 retailers are not even online yet (DHL, 2020). Nevertheless, there is one thing they will not be able to avoid: digital mobilisation! And that costs – as merchants in the Lower Rhine region are wont to say – “no end of money” to begin with.

2.4.3 Verticalisation Versus Specialisation Without a doubt, the central interest of every customer is to find a product that optimally satisfies his or her needs in the purchasing process (Meffert et al., 2018). If a retailer helps the prospective buyer to do this and also offers him an acceptable price, the point of sale usually has a high relevance for the customer. As long as they saw a benefit in it, the primary role of retailers for consumers was derived from this so far and the entire value creation of the purchase decision process took place at the retailer The corresponding value creation stages are shown in Fig. 2.20: Procurement, pre-selection and advice etc. were paid to him accordingly. The retailer did not have to share the proceeds with anyone (Heinemann, 2017; Heinemann et al., 2019). However, the internet-induced developments of recent years have led to a complete decoupling of the value creation stages of retail (Heinemann et  al., 2019). As a result, revenues are redistributed to the individual value creation stages and are no longer collected in their entirety by the retailer. Typical examples are the commissions that are eliminated for customer contact on marketplaces and platforms. This leads to a new type of interplay between verticalisation and specialisation, as customers can now also take advantage of direct purchasing opportunities and enjoy new added values. The success of

2.4  Changing Value Chains and Loss of Customer Relationships

Distribution

• Transport of the Products • Split large batches • Distribution • Interim storage

Compilation From Assortments • needs assessment • range selection • product mix • provision of alternatives

Information and Consulting • Creation, Evaluation, distribution of Information - products - customers - Rivals

• • • •

63

Financial Transactions

Composite services

collection credit function pre-finance risk reduction

• guarantees • Installation of Goods • repair service • Exchange • Entertainment • Social Issues

Fig. 2.20  Classic value chain of stationary trade. (Source: Gehrckens & Boersma, 2013)

manufacturer-owned retail and vertical D2C concepts proves this. It also proves that in the long run, customers will not accept encrusted distribution structures that deny them their ability to shop directly or in an uncomplicated and service-oriented manner. In the SHK sector, for example, successful pioneers such as Reuter.de are in the process of breaking up outdated and encrusted distribution channels and offering end customers direct and more service-oriented purchasing options. Previously, wholesalers presented the products here and forced customers to buy and purchase the goods via the tradesman. Price transparency for the end customer was therefore practically non-existent. Hand in hand with the use of the Internet, however, entire value chains are now being completely realigned in an innovative type of verticalization, creating a different type of added value for the customer. This results, among other things, from a reduced number of value creation stages. In the process, so-called disintermediation makes it possible to lower prices and thus leads to increasing price performance. Customers no longer have to pay extra for supposed “services” that are not provided or desired. At the same time, the customer’s added value increases due to the expansion of offers and selection, increasing information transparency and improved processing quality (Heinemann, 2017; Heinemann et al., 2019). A new type of specialization of service providers also makes it possible to offer customers digital time advantages. In this respect, it is about speed, time reliability and situation-­specific offers. Same Day Delivery (SDD) has already been set as the standard and will continue to gain acceptance – driven primarily by the market leader Amazon. Up to now, customers often (still) shop in-store in order to have the goods at home on the same day. However, this is now also offered by SDD. The pioneer here is Liefery (customer. liefery.com), which works with more than 1700 retailers and 25 large retail chains, including Amazon, Zalando, Bringmeister (Edeka), Rewe, HelloFresh. In doing so, the technology platform relies on a large courier network of more than 4500 parcel delivery companies. This reduces the risk of potential bottlenecks in the area of transport capacities, while maximising flexibility, and creates additional added value that did not exist in the past (Heinemann B2B, 2020).

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2  Threat to Stationary Trade

2.4.4 From Point of Sale to Point of Decision The classic buying process learned in stationary retail and based on the traditional value creation structure usually involves the customer first selecting a supplier. At the point of sale, he then decides on the product that best meets his needs. To do this, he must get an overview of the products in the retailer’s assortment, compare products based on product information, and finally make a product selection with subsequent purchase. Thus, the customer must first decide on one or more suppliers and then decide on a product on the spot. Characteristic of the classic buying process is the correspondence between “point of decision” and “point of sale” (Gehrckens & Boersma, 2013). The previous value creation of stationary retail was built on this. The corresponding value creation stages are shown in Fig. 2.20. A threat to stationary trade arises primarily from the fact that the Internet shifts the individual phases in the purchase decision process, thus detaching the point of decision from the point of sale (Gehrckens & Boersma, 2013; Heinemann OH, 2021). The new Internet-based purchasing process is designed in such a way that the customer first selects a product on the Internet that meets his or her needs. With the help of portals, price comparators, online marketplaces, social shopping services or communities, they obtain an overview of the product range. They then compare the products on the basis of product information, for example with the help of test reports, manufacturer pages, opinion portals or social networks, and then decide on a product. Only then does the customer select the provider he considers to be the best, from which he then makes the purchase. In doing so, they decide according to product availability, proximity of the retailer or price-oriented and thus relatively detached from online or offline channels. As a result, brick-and-mortar retailers can lose a great deal of their importance for customers. In extreme cases, they are only perceived as a “point of sale”, but are no longer used to search for information and make decisions. This is also due to the fact that the information required for product selection as well as the product range are available to a much greater extent on the Internet. This is why the Internet is becoming increasingly important as a “point of decision”. The majority of stationary shoppers now start their shopping process by researching on the mobile web and also use local services for this purpose (Heinemann App, 2018). Smartphone owners also use other device types, i.e. desktop, mobile or tablet. However, the information search is predominantly started with mobile, and in idle times such as in traffic jams, in a queue or in a waiting room. It is not uncommon for customers to continue the information process at home on their desktop, where they increasingly make purchases. But even parallel to watching TV, people are increasingly surfing the mobile Internet. More and more frequently, customers are already making purchase decisions that will be executed the next day in a stationary store (kaufDA, 2018; Heinemann OH, 2021). The majority of online purchases also start by searching for information on a smartphone, even if the purchase is often finalized via the desktop. In this respect, smartphones have an outstanding role as a “feeder function” not only for stationary retail, but also for online shops. In this context, the increasing use of the Internet is giving rise to a “new

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type” of location frequency on the Net, which will have an impact on the previous stationary retail locations and increasingly replace or at least supplement them. In this context, the previous order of the purchase decision process is strongly changed by the Internet and this also leads to a radical change in purchasing behaviour (Heinemann OH, 2021). Thus, the Internet opens up the possibility for the customer to be able to procure almost any product available worldwide relatively quickly and easily. In addition, the customer can find all the necessary information on the net to help him find the right product. Due to detailed product information, additional test reports as well as displayed product reviews, the decision-making process of customers is supported much better than with traditional advice from a retailer (Ibid.). Amazon in particular has managed to change the buying process in its favour in recent years. Not only is the product search increasingly dominated by the online market leader, which has now even replaced Google as the product search engine, but the supplier selection also takes place on the Amazon marketplace. This, however, primarily concerns need-based purchases, where the need to buy comes first. However, when it comes to impulse and experience purchases, brick-and-mortar retail has undoubtedly had advantages over most online retailers. In the wake of app-based retailing, with which Wish has invented a new dimension of the shopping experience, shopping as a buying behavior is likely to enter a new evolutionary stage. Wish is a mobile marketplace for non-branded goods that serves its very young target group with extremely low prices via a shopping app and has the orders shipped directly from the manufacturer in China to the end customer (Graf Kassenzone, 2017). The mix of enormously low prices – discounts are at least 80–90% – and long delivery times leads to a very different shopping dynamic, which Wish itself describes as “discovery shopping”. This is not a targeted purchase, but rather an inspirational browsing experience fueled by “endless scrolling à la Pinterest.” The primary motive for purchase is not so much a target purchase as a shopping spree, which is probably the secret of Wish (Ibid.). In this way, the app-based retailer is not so much competing with Amazon & Co. but rather targeting customers with no interest in buying, who are then converted into shoppers. In the past, brick-and-mortar retail was much better at this than most online models (Ibid.), but it is currently being reinvented by app commerce. In this context, ROPO can no longer be seen as “research online and purchase offline”, but must increasingly be defined as “research online and purchase online” in the course of Amazon commerce as well as wish and app commerce. At the same time, app/wish commerce is giving rise to a new type of “point-of-shopping” (POSH). Together with this and the interaction of “point-of-sale” (POS) and “point-of-decision” (POD), the four constellations shown in Fig. 2.21 result. With the increasing shift of communication to the Internet, the relevance of individual sources of information is also shifting for Internet users: Meanwhile, ratings from other Internet users are among the most trustworthy sources. These play a particularly important role in the preparation of purchases. In this respect, the orientation on the last action of the customer before entering the purchase process  – usually by “googling”  – must not be allowed to fade out the so-called customer journey. This is why stationary retail will not be able to avoid being present on the Internet. There are already excellent examples from

66

2  Threat to Stationary Trade Changed purchasing behaviour*

POS = POD Only stationary/ Catalog

Need to buy

Web = POD ROPO

Need to buy

Vendor selection Product overview

POD = POS Amazon Commerce

Need to buy

Shopping experience

Product purchasing

Product selection

Supplier selection Product purchasing

Product information

Product selection

Product selection (purpose) Product filter

POS = POSH App/Wish Browsing

Product information

Product selection Product overview

Product selection

Product recommendation

Product purchase

Product selection

Product selection (impulse)

Product purchase

Shopping/Strolling *POS = Point of Sale; POD = Point of Decision; POSH = Point of Shopping

Fig. 2.21  From point-of-sale to point-of-decision. (Source: Own illustration based on Gehrckens & Boersma, 2013 as well as Graf Kassenzone, 2017; Heinemann OH, 2021)

many sectors showing that an additional online shop is no longer a question of the size of the business, but primarily an entrepreneurial decision by the owner. But it is not only stationary retailers who are affected. Contract suppliers are also increasingly selling directly to customers themselves, transforming them into vertical suppliers. This is already common in fashion and other industries. Manufacturer-owned retail is a great success story and a company like Boss already generates more than 50% of its sales in direct sales to end customers.

2.4.5 Increasing Importance of Data-Based Performance Marketing With the drifting apart of POS and POD, the “ownership of the customer relationship” and thus customer relationship marketing (CRM) is also playing an increasingly important role for stationary retail. The latter should also use the possibilities of the Internet to generate all customer data automatically and promptly in digitalized form. Lidl has undoubtedly recognized this and not without reason has gone on the customer data offensive with Lidl Plus. In contrast to the relatively undifferentiated and push-oriented marketing of the pre-­ Internet age, the new focus is on fulfilling customer wishes as individually and interactively as possible. Customer needs are treated in a highly differentiated manner based on personalized offers. Marketing in online commerce is completely different from offline-­ oriented mass marketing. Moreover, it works data-based without exception, which is why

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the focus here is primarily on customer data management (Heinemann & Zarnik, 2020). All CRM measures serve either customer acquisition or customer retention. Accordingly, new customer marketing as well as the seamlessly following existing customer marketing form the main focus in terms of content. Increasingly, the term performance marketing is used instead of CRM. This should be an essential part of the online media mix and pursue the goal of generating measurable reactions and/or transactions with the user (Ibid.). The following characteristics are essential here (Ibid.): • Measurability: Target group responses are clear, timely and fully measurable. • Modularity: Campaigns break down into many small budget modules that can be booked and evaluated individually. • Optimizability: Using various parameters, the efficiency of the campaign can still be influenced and thus improved during the runtime. • Networking: integration into a classic campaign and interactions with the click rate. The performance-based remuneration of the media within the framework of success-based online marketing models is an essential prerequisite here as a differentiation from the classic marketing methods, whose billing is primarily determined by reach (CPM, thousand-­ contact price). Common performance marketing metrics include pay per click, pay per lead or pay per sale. These are used for customer acquisition, the shaping of customer relationships and the targeted alignment of all processes to customer needs. Loyalty programs and thus the establishment of direct and loyal customer relationships are no longer only relevant for success in online retail. They aim to increase customer value for the company and thus to increase the company’s success (Braun et al., 2017; Heinemann & Zarnik, 2020). In this regard, customer data management, which involves the systematic preparation of all relevant customer data, plays an important role. For example, the composition of purchases by type, number and prices of items, as well as location, time and frequency of purchases, provides relevant information. If it is possible to link this data with the help of personal data and data relevant to purchasing behavior, it will be possible to address customers in a targeted and individual manner. However, this requires a corresponding institutionalisation, on the basis of which the exploitation of customer potential can be driven forward in the form of control loops (cf. Fig. 2.22 (Heinemann & Zarnik, 2020). • Strategy development and innovation: Sales and/or marketing propose new campaigns, for example weekly. • Hypothesis validation: Campaign concepts are confirmed by analysts from the relevant competence centres. • Algorithm creation: Selection models and rules are created by competence centers. • Release of customer contacts: Customer contacts are released on the basis of profitability calculations. • Validation on the market: campaign/measure is sent to test groups as well as to standard campaign recipients with control groups. • Data collection: Measurement of customer behaviour by the competence centre.

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2  Threat to Stationary Trade

1. strategy development and innovation Test 7. data evaluation

6. data acquisition

5. validation on the market

Automated algorithmic Marketing

Control

2. hypothesis validation

3. algorithm creation

4. pilot planning

Fig. 2.22  Control loop for exploiting customer potential. (Source: dgroup, 2012; Heinemann et al., 2019; Heinemann & Zarnik, 2020)

• Data evaluation: campaign added value is evaluated: test, standard and control groups are compared. Automated campaigns are improved based on the new findings. This control loop should be embedded in a system and process landscape and thereby be able to control the customer dialog automatically. This makes it possible to create measures and transfer them to a real-time marketing engine using campaign lists. With the definition of appropriate parameters, targeted tracking of activities is possible. It is also possible to assess whether the activity and customer are qualified for the measure. In addition, a relevant offer can be created for individual customers in real time, for which advertising and content can then be retrieved for further marketing to customers (Heinemann & Zarnik, 2020).

2.5 Change of Experience Orientation and Service With the change in shopping behavior, customer expectations of retailers are also changing. For a long time, the opinion was held in the stationary trade that advice is to be equated with service and that this is the main reason for visiting a store, regardless of its quality. In this respect, the reasons for purchase reveal that customers often do not visit a store because of the advice they receive, but for completely different reasons. Therefore, the aspects “advice versus self-service” should be examined more closely. The same applies to experience orientation, which is often invoked as a panacea, but is no longer a purely stationary issue from the customer’s point of view. From the customer’s point of view, services can now be presented primarily in digital form, for example in the form of location-based services or multi-channel services such as Click & Collect.

2.5  Change of Experience Orientation and Service

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2.5.1 New Disruptive Factors for Customers Both online shopping and stationary shopping each involve considerable disadvantages for customers. Overcrowded stores or unavailable products in the store are perceived just as badly by the offline part of the customer on the one hand, as long delivery times or unclear delivery dates annoy the online part on the other (Otto Connected, 2019). Which disruptive factors are effective in each case for offline and online shopping is shown in Fig. 2.23. Furthermore, customers see different advantages in online and offline retailing. While the price and the offer are seen as the most important motivation for buying online, the test of the goods represents the main reason for stationary shopping. Price and offer are rather subordinate factors as reasons for the stationary shop visit and also the consultation is not mentioned as the most important reason for the visit when it comes to stationary shopping. This has already been the result of various studies such as the HHL on “How does offline retail react to online retail?” or the Otto Group on “Connected Retail” (Maier & Kirchgeorg, 2016; Otto Connected, 2019). The reasons for buying online identified by HHL do not come as a surprise and are largely in line with the results already cited in previous studies. Differences can only be seen in the weighting, according to which consumers in past studies often considered price to be the most important decision-making factor. Accordingly, price (56% of those surveyed) is no longer the primary reason for shopping in online retail. Rather, convenient home delivery is a major factor in online shopping (58%). Other reasons cited were the wide range of products available on the Internet (47%) and permanent accessibility (39%). This is followed by the comparability Disruptive factors online purchase (% of respondents)

Disruptive factors stationary purchase (% of respondents) When shopping in stores, I am disturbed …..

When buying online, I am disturbed ….

too many customers and too long waiting times

59

Restricted Selection

47

Missing price comparison interbourse

43

ignorance of Product availabilities

40

Ignorance, where product can be found in the shop Missing Customer reviews

36 20

Products not touch and test being able

56

49

Long wait for Delivery ignorance of accurate Delivery date

41

34

Product not directly to be able to take along

Fig. 2.23 Disruptive factors of stationary shopping versus online shopping. (Source: Otto Connected, 2019)

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2  Threat to Stationary Trade

of goods and prices (37%). The available product information plays a comparatively minor role (15%). The results of the empirical studies conducted to date above all refute the widespread prejudice that online purchasing is always about price (Ibid.). They also confirm the result of the last kaufDA study that information on delivery options has become outstandingly important for customers (kaufDA, 2018). Although online retail is once again growing at double-digit rates this year and continuously gaining market share, the majority of customers still shop in-store, according to the results of the kaufDA study (kaufDA, 2018). In this respect, for more than half of the respondents (52%), convenience shopping is the main reason for visiting the city centre. Around a third are drawn to the city centre to stroll or because of leisure activities. For this, at 36%, “because I wanted to see what’s on offer” is mentioned most frequently by 14–29 year-olds, followed by customers between 30 and 49 years of age. Interestingly, the over-­50s are the least represented here, with 21% mentioning it. This suggests that younger people are not (yet) lost to the Internet without exception. At the very least, they generate considerable footfall through their strolls in the city centre. This also applies to online shoppers who pick up their goods in the store. Shipping costs are the main reason for picking up a product from a stationary retailer (31%). In addition, the study reveals that online retailers are often considered to be cheaper from the customer’s point of view. For example, 14% of customers state that the online retailer is cheaper anyway as a reason against picking up a product at a brick-and-mortar retailer. Another third always order from Amazon. Such customers are undoubtedly extremely difficult to win back. From the customer’s point of view, friendliness, courtesy, good advice, reasonable prices and expertise are considered hygiene factors for bricks-and-mortar retail. In addition, customers today have become accustomed to being able to generate the relevant information (in advance) from the Internet and no longer have to visit the stationary retailer on site. As in the previous year, search engines, shopping platforms, price comparators and the online shops of bricks-and-mortar retailers are highly relevant (Ibid.). However, clear differences can be seen when looking at the product groups. It becomes clear that the intensity of online research differs greatly depending on the product group. Electronic goods in particular are primarily researched online, which is not surprising given the high proportion of online sales. ROPO shopping behavior is also particularly pronounced here. For example, up to 40% of MediaMarkt-Saturn’s floor space sales are actually generated by preparing purchases on the Internet. In addition to electronics, technical products and clothing in particular are also researched on the internet (Koch, 2016; kaufDA, 2018).

2.5.2 From Experience Trade to Retailtainment According to relevant retail experts, experience orientation in particular can be a major plus point for bricks-and-mortar retail (dlv, 2016; Hudetz Otto, 2019). In many categories, such as sports or fashion, consumers also want to see, touch and try on or test products

2.5  Change of Experience Orientation and Service

71

before they decide to buy. This is also confirmed by the HHL as well as Otto studies (Maier & Kirchgeorg, 2016; Otto Connected, 2019). It can be assumed that when it comes to experiential shopping, brick-and-mortar retail is still ahead for the most part. This is because online retail is often perceived as an “efficiency machine” and as anonymous. Stationary retail also still thrives on the people acting, which is why the social aspect in the store is still seen as a key success factor (kaufDA, 2018; Otto Connected, 2019). However, caution is advised: Experience orientation is pretty old hat and was already an issue more than 30 years ago (Heinemann, 1989). It did not save brick-and-mortar retail. Moreover, it is now making its way into the digital world. In this respect, experience orientation in e-commerce will become an important topic in the next few years and will by no means be limited to stationary retail. This type of experience orientation is not only about staging brand and products and showing more profile and personality. It is above all about implementing social media elements on one’s own website (cf. Fig. 2.24). Interactivity options in the online shop are an essential quality feature with regard to a new type of experience orientation. In the coming years, online retailers will therefore make greater efforts to offer even better personalization of the online presence for users. The (pre-)selection and curation of products as well as a focus on large and thematically coherent image worlds, especially for women, are also an important part of a new online shopping experience (Heinemann OH, 2021). However, customer interaction should at least be distinguished according to whether it takes place onsite or offsite (Ibid.).

"Customer interaction must occur onsite and offsite" Customer interactions Onsite Customer Interactions Connected where they buy Product/performance evaluations

Offsite customer interactions Buy where they are connected 2019

Customer opinions/references/scorings Individualisation/curated offers Multichannel services to the store Link to social tagging Configuration/calculation tool Educative offers

Fig. 2.24  Onsite and offsite social media activities. (Source: Own representation based on Haug, 2013; weforum.org, 2019)

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2  Threat to Stationary Trade

• Offsite customer interaction refers to all activities outside the website. This also includes sales on marketplaces or engagement in social networks. In terms of social media, Facebook, Instagram, Pinterest or WhatsApp can be named as typical offsite platforms. Platforms such as YouTube as well as special interest blogs are also typical examples of offsite customer interaction (Ibid.). • Onsite customer interaction takes place in the company’s own online shop. As shown in Fig. 2.24, this can be customer reviews, customer opinions, own communities and also any form of consumer generated content. Examples also include size and style recommendations, personalization/virality, and links to social tagging. But also the link to offline channels, for example multi-channel services offered on the own website, can be considered as onsite customer interaction (Ibid.). There is no doubt that experience orientation is still important in stationary retail. However, it has changed significantly and has become a kind of “retailtainment” (Otto Connected, 2019; Pomare, 2019). The key question is how to attract more customers to a store through an immersive or more immersive experience. However, it is also crucial that they leave this not only with products, but also with memories. It’s all about a “memorable shopping experience,” with Millennials likely to be the driving force: As many as 78% of them would spend money on an experience or event, and 69% believe live experiences help them connect better with their friends. In the US, for example, consumer spending on live events and experiences as a percentage of consumer spending has grown by 70% since 1987. In this respect, “irresistible experiences” are the order of the day, as IKEA or Bauhaus are demonstrating: for example, IKEA organizes overnight stays for customers in the furniture store as an event – the “Big Sleepover” – on special occasions. This includes a dinner together and advice from a sleep expert with recommendations for restful sleep. Incidentally, IKEA got the idea for this from customer feedback via social media. This shows how direct feedback can be used to optimize marketing activities. But Bauhaus also demonstrates what retailtainment can mean. The DIY workshops offered by the DIY chain just for women are currently a special highlight. Here, Bauhaus offers interested women the opportunity to learn how to do handicrafts from scratch or to further develop their skills. At Womens Week, Womens Night or Womens Day, women can exchange ideas about tools and working techniques with like-minded female customers over a glass of champagne, sweets and without men, and watch informative presentations. They can also learn or practice sanding, drilling, doweling, screwing, and tiling (Pomare, 2019).

2.5.3 Role Change of Personal Counselling In principle, the stationary retail trade is differentiated according to the sales forms of service and self-service. The pre-selection by customers with subsequent consultation is also subject to the service principle. The demand-oriented food retailing predominantly follows the self-service principle. Only in the case of counter goods is there still a rudimentary level of service. In contrast, in experience-oriented specialist retailing,

2.5  Change of Experience Orientation and Service

73

pre-­selection, advice and thus service are often the dominant principle. While online retail can be seen as a consistent further development of the self-service principle, stationary retail is commonly associated with service and advice (Heinemann, 2017; Heinemann et al., 2019). However, this is rather no longer justified for non-food retailing, as self-service is nowadays widespread beyond food retailing (Wirtschaftslexikon SB, 2021). This is not least a consequence of progressive standardization in terms of branded goods, new sales techniques as well as an expansion of customer knowledge. The goods on offer are generally packaged for self-service and sales staff are hardly ever called upon – especially in the widespread discount sector. In connection with online retailing, it is not uncommon to discuss advice theft, according to which customers get advice in the store and then buy the product online at home. However, this has not yet been proven and actually contradicts the increasing trend for customers to prepare their stationary purchases online (kaufDA, 2018). Conversely, after “showrooming”, many customers are not even able to buy the item they looked at or tried on in the store at home from their preferred retailer because the latter does not have an online shop at all or only offers a rump range there. Experts estimate that the “web-to-store” turnover caused by ROPO (“research online and purchase offline”) is at least ten times higher than the possible theft of advice, which also occurs when a customer buys from a stationary competitor after receiving advice (Heinemann OH, 2021). Service and advice in bricks-and-mortar retail are repeatedly subject to criticism and are often discussed under the aspect of “service desert Germany”, although they represent a main service of offline retail in sales. This expresses experiences of incompetence, lack of motivation, lack of credibility and trustworthiness as well as insufficient presence and helpfulness on the part of sales staff (kaufDA, 2018; Heinemann et al., 2019). This should not be new and has always been the case when it comes to service. The only problem with this is that the internet has emancipated the customer. The now self-determined consumer has evolved over the past decades from not just a mouse to a king, but an emperor. He can live out his desires. In this respect, the times of “outside there’s only pot” are passé once and for all (kaufDA, 2018; Heinemann et al., 2019). It is now a matter of meeting the expectations of the self-determined customer instead of trying to dictate what is good for the customer. This certainly requires more advice quality and will lead to the need to invest more in advice staff. In order to finance this, the sales form could be offered for self-­service capable product groups without consulting, up to showroom solutions. In this respect, stationary store areas will increasingly transform into showrooms, where the customer then has his touch-and-feel experience: Here, all products are on display, but each only once. The customer can test, try on and try out at will. If he decides on the product, he can buy it easily and without waiting directly in the showroom with his smartphone, for example via a QR code. A new copy is then delivered directly to him – to the store, to his home or to any other location of his choice. That’s basically how it is in the traditional furniture trade, not with a QR code, but with home delivery and long delivery times.

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Regardless of whether more or less consulting or even self-service: The type of stationary consulting will change radically in the next few years and will only be data-based: Today, every customer actually leaves a digital fingerprint on the Internet, but this is hardly used for the customer-oriented control of offer formats and usually gets lost when the customer visits the store later. The customer advisor on site often knows nothing about the previous activities of his customer and can unfortunately not advise accordingly targeted and customer-oriented. This situation costs the customer valuable time and also frustrates him. In marketing language, the customer’s “customer journey” becomes “fragile” at such moments and, in the worst case, leads to the customer losing interest in shopping at this retailer and defecting to the competition – possibly online – which may be able to advise him better or provide him with better information. In this respect, too, the kaufDA study shows a worrying trend: from the customer’s point of view, online information is more credible than offline advice. In order to meet the demands of the modern customer, data-­ driven and personalized control of new offer formats can ensure that retailers position themselves better in relation to online offers, reach consumers in a more targeted manner and thus achieve stronger business and marketing results. The time is ripe: the majority of customers nowadays also expect digital offers on site in the store, for example apps for their smartphones with current offers from the retailer – as kaufDA or MeinProspekt make possible (kaufDA, 2018). At the same time, it is evident that customers have become accustomed to researching information (in advance) from the Internet and no longer only on site in the stationary retailer. Only 19% of customers still put “friendliness/accommodation” first in this respect, while only 12% expect “specialist knowledge/well-founded information” (cf. Fig. 2.25).

Use of LBS services

23

16 19

19 16 18

Friendliness / Courtesy

6

3

Quality

16 16 13

good / appropriate Prices

5

2

5

Good advice

2

nothing/nothing certain

3 3 3

18

14 12

expertise / well-founded Information

13 14 12 Service / Repair servic e/24h service

2 2 3

Speed/ good (special) none Offers/ Waiting times Information on Offered

2 3 1 Punctuality/ fast Delivery

11 9 10 Seriousness / Correctness / Honesty

1 2 2 Help/ Helpfullness

2018 (n=1.004) 2017 (n=1.024) 2016 (n=1.020)

8

6 5 6 Reliability/ Trustworthiness/ Trust

3 4

5 5 5

2

7 6

Trust and (free/ wide selection correct long)Exchange on (available) Data of the possibility/ Goods Availability of Goodwill goods

2 2 2

1 2 1

1 1 2

1 2 2

Flexibility

Customer orientation

Accessibility/ Near

pleasant/ better Opening hours

Basis: alle Befragten, Werte in Prozent, offene Frage

Question: “What do you generally expect from your dealer?”

Fig. 2.25  Basic service requirements for stationary retailers. (kaufDA, 2018)

2.5  Change of Experience Orientation and Service

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2.5.4 Location-Based Services Above all, cross-channel multi-channel services such as online information about store stocks, the compilation of individual assortments, pick-up and return options in the store offer customers real added value (kaufDA, 2018; Heinemann et al., 2019). In this context, cross-channel customer control can enable retailers to increase customer exploitation. Above all, location-based services (LBS) can be used for this purpose. These even allow brick-and-mortar retailers to improve customer satisfaction while at the same time reducing their expenditure of funds. This can also increase customer loyalty and the formation of repeat customers. Studies show that multi-channel customers are significantly more satisfied with the respective company if it allows channel hopping or at least the entry into the purchasing process in digital form. Multi-channel customers are also more willing to buy (kaufDA, 2018; Heinemann et al., 2019). Modern customers are “always on” with their smartphones. They use the internet at all times, retrieve purchase-relevant information, interact with friends or make purchases “on the side”. Social networking and recommendation processes are becoming important factors influencing customer decisions. In this regard, customers are increasingly looking for personalized, custom-fit information and products. One reason is certainly the almost unmanageable variety of alternative offers. The following starting points can be identified (Heinemann App, 2018): • New communication or transaction sites with a local connection: Internet-enabled mobile devices enable customers to conduct product research or complete a purchase at any time and from any location. That is why providers will increasingly be available offline in transfer rooms. Subway stations, bus stops or house walls are conceivable. Retailers will offer their products for sale via billboards with QR codes. • Efficient mobile marketing: Offline retailers can increasingly address customers via mobile applications such as apps or aggregator platforms. This enables contextual and local relevance, which in turn results in less wastage when addressing target groups. • Local assortments: Product groups with a local connection are made available online via marketplace applications. Google is also likely to play a certain role in this respect in the future by systematically integrating product availability data into local searches. Retailers will be able to use this to make attractive mobile and stationary offers. • Attractive real-time offers: These can be made accessible to a broad mass via mobile apps or platforms such as kaufDA. • Systematic customer data collection: Customer data can be systematically collected at every point of sale in order to build modern and integrated customer loyalty systems. In the age of multi-channeling and multi-screening, these are no longer channel-centric, but are set up in a cross-channel and customer-centric way. They thus enable a personalized customer experience. • Social reference: The inclusion of social media can also take place across channels. Product ratings and recommendations are increasingly being made available in-store,

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2  Threat to Stationary Trade

just as the first retailers are already doing with current like numbers for products. In this way, they create new incentive systems for their customers and can thus find an even stronger spread in social networks. • More attractive and convenient shopping experiences: By incorporating digital-in-store services, shopping experiences in brick-and-mortar stores can be made even more attractive. In this way, stores also become event and experience spaces with more highly qualified specialist and style advisors. Technological innovations increase the convenience of stationary shopping via digital information displays, mobile payment options or in-store navigation applications. • Channel synergies: Skillful channel linking makes it possible, for example, to use online advantages at the POS through the use of tablets, information terminals, QR codes on shelves and/or in-store apps. In this way, a large product selection, additional and more comprehensive product information or customer recommendations can be implemented on site. • Delivery time competition: Established and innovative logistics providers, such as Liefery, also enable bricks-and-mortar retailers to deliver products to customers more quickly. This represents an important profiling opportunity for local retailers in order to be able to compete with the large online pure players. Not only online pure players are currently building additional logistics centers in order to reduce delivery times and further promote same-day delivery. In addition to location-based services, other mobile measures such as couponing, cross promotions or app-based customer cards are certainly possible. However, a coordinated and consistent mobile marketing concept that takes into account the disruptive changes in purchasing behavior is advisable in any case. Overall, it is becoming apparent that the awareness of LBS services is increasing (kaufDA, 2018). In addition, apps with a local connection, such as Lieferheld, are being used more frequently. Despite the increasing awareness, however, location-based services are still in the early stages of use and are therefore predominantly not yet known by their term. However, LBS are attractive to around half of smartphone users. The high attractiveness of LBS illustrates their great potential from the customer’s point of view, as the use of LBS is obviously increasing: around 48% of customers state that they have already used LBS once. As Fig. 2.26 shows, Google Maps leads the way with 21%, followed by kaufDA with 12% and supermarket services/apps with 8%. When asked about the reasons for not using LBS, the answers “No interest/need” drop slightly to 27%. Of the respondents, 12% state “I don’t want to give out that much information”. The “No interest/need” response indicates that while there is knowledge of the service, no need is satisfied by it and there is no potential for LBS here. However, the people who answered “Didn’t know it existed” show that there is still potential for the use of LBS among this group of people.

2.5  Change of Experience Orientation and Service

77 Basis: only respondents who know LBS; values in

Use of LBS services 52 55 51 53 48 48 48 45 49 47 52 52

Yes

No

LBS services used Top mentions

21 14 16161512 KaufDA

6 888

21 15

Google & Google Maps

2018 (n=445) 2017 (n=441) 2016 (n=480) 2015 (n=355) 2014 (n=328) 2013 (n=398)

Reasons against using LBS Top mentions

545

12 7 6

Supermarket Services/Apps

2018 (n=215) 2017 (n=212) 2016 (n=252) 2015 (n=185) 2014 (n=180) 2013 (n=204)

16

25 25 26

31 27 3 3 6

No interest / need

12 6 12

I don't want too many disclose information

2018 (n=230) 2017 (n=229) 2016 (n=227) 2015 (n=166) 2014 (n=148) 2013 (n=194)

Question: "Have you already used location-based services or services for information on price and product offers or to search for specific retailers or shops in your direct vicinity on your smartphone or tablet PC? Question: "For what reasons have you not yet used location-based services or services for information on price and product offers or to search for specific retailers or shops in your immediate vicinity on your smartphone or tablet PC?" Question: "Which location-based services or services for information on price and product offers or for searching for specific retailers or shops in your direct vicinity did you use?"

Fig. 2.26  Reasons for or against the use of location-based services. (Source: kaufDA, 2018)

2.5.5 Digital Services and Services Online retailing with its high price transparency and 24-hour availability has also enormously increased customers’ expectations for stationary purchases. At the same time, customers are orienting themselves towards the industry leaders. If these online platforms offer a very large assortment, deliver on the same or the following day and can offer suitable product suggestions based on the large number of past purchases, then this demand sets the bar very high for other retailers. The immediate consequence is: the tolerance for missing goods, long waiting times or for problems with the integration of the various sales channels has fallen sharply. Today’s customers expect retailers to provide them with a coordinated presence across all channels and process steps. This applies above all to the preparation of stationary purchases, for example through services such as availability queries or click & collect, i.e. ordering goods online and then picking them up in the store. At the same time, these digital services are also a key to shopping in the city centre and thus to securing the existence of local retailers. In this respect, a development towards a “reinvention of service” with digital reference is discernible for stationary retail (kaufDA, 2018; Heinemann OH, 2021). Stationary retailers or multi-channel providers in particular could score points here if they take this up and do not leave it to online retailers. Everything that traditional retail does in terms of services to be better than the online competition secures its future. This also includes cooperating with service providers. Personal delivery to the front door, the assembly of appliances or furniture on the customer’s premises,

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2  Threat to Stationary Trade

instructions or even maintenance and repair services are conceivable. There are still many unoccupied niches in this respect. It would also be possible to provide advice at the customer’s home or to fix consultation appointments made on the Internet, similar to restaurant reservations. In principle, many customers are willing to pay something for additional services related to a product – such as installation. By the way, this also applies to the possibility of being able to prepare the stationary purchase on the Internet, such as with availability queries or reservations. If somehow possible, however, the retailer should offer everything from a single source and also try to do it himself first without external partners if possible, because from the customer’s point of view, services are a core competence of the retailer. Unfortunately, many retailers have gradually cut back or discontinued services such as repair services in previous decades. But now the question arises: What is the role of the stationary specialist retailer in the age of the Internet boom? It quickly becomes clear that it can certainly survive better via service than with pure product sales (kaufDA, 2018; Heinemann et al., 2019). Apart from the more “traditional services that need to be revived”, however, digitalisation also offers opportunities for new services with a digital connection. For example, it is a good idea to set up pick-up stations in the store for customers, where they can also pick up or temporarily store their parcels ordered from other online retailers. Free WLAN use, such as Starbucks offers, could also attract customers. And so could ship-from-store delivery, which would certainly be faster locally than from some central warehouse far away. From the customer’s point of view, there is also a lot of catching up to do in terms of returns services. For example, a “service point” is conceivable in stores as a contact point for customers, where they can then be served quickly and easily. Relevance of Push and Pull Notifications as Well as Voice Function Information services are also considered digital services nowadays. As it turns out, 22% of users use an ad blocker on their smartphone. Push functions are not popular among respondents, as they see them as a waste of time and annoying (kaufDA, 2018). Customers would rather retain control over when they obtain information and therefore prefer pull functions. At the same time, consumers definitely want to engage with product information, as long as it is seen as worth engaging with. In particular, appropriate personal recommendations are desired. This indicates that push notifications also meet with rejection because of their rather impersonal content. After all, a quarter of the respondents would like personal recommendations that are tailored to their own wishes and interests. Furthermore, they are interested in a simplification of the search (“complexity reduction”) with a local reference. According to this, a quarter of the users expect a pre-selection of the many offers at the location. This shows enormous potential for curated advertising. These can be provided in both push and pull notifications. Mobile services also carry the risk of annoying their users, which can go as far as boycotting them. Hence, it is advisable for merchants and also portals to spend energy on delivering user relevant content or offers. It is advisable for merchants and also portals to put energy into relevant content or offers for the smallest customer segments.

2.6  Refusal of Digital Transformation

79

100 90 80 70 60 50 40 30 20 10 0

2013 (n=204)

2014 (n=180)

2015 (n=185)

2016 (n=252)

2017 (n=212)

2018 (n=215)

Price

90,1

86,9

83,4

89,0

85,8

86,7

Availability

73,4

79,4

72,6

75,9

71,9

71,0

Ratings of the product by other consumers

57,3

55,5

54,4

52,6

60,5

52,9

Functional product features

54,6

64,4

53,8

53,4

49,2

46,0

texture, material, ingredients, etc.

34,9

50,7

55,0

48,2

44,7

43,1

Alternative products

34,0

40,8

39,4

44,8

42,2

38,3

15,0

30,2

30,5

20,7

17,9

26,7

Environmental friendliness/sustainability of the product

Basis: only respondents who have already used LBS; multiple answers possible; values in percent

estion: "When you use location-based services to learn about a product, what specific aspects do you want to learn more about?"

Fig. 2.27  Desired information of digital services. (Source: kaufDA, 2018)

Digital Information Content The kaufDA study also shows: When searching for product information on mobile devices, the relevance of functional product features, the availability of goods as well as prices is clearly the highest (cf. Fig. 2.27). This correlates with the increasing importance of price search engines. The answer “I would like personal recommendations only for me, which correspond to my wishes and interests and no one else receives” illustrates the desire for personalization with 21% agreement. Simplification or reduction of complexity is desired by 21% of respondents with “I would like to have a pre-selection of the many offers at my location for products that I usually buy.”

2.6 Refusal of Digital Transformation There is no question that Germany has some catching up to do in terms of digitalization. This is especially true for stationary retail. Especially in large parts of local retail, resistance is still great when it comes to digital transformation. As long as these barriers remain, however, it makes no sense to embark on a digital transformation. Only with a clear commitment and an unrestricted commitment to digitalization does it make sense to tackle the actual basic prerequisites. These relate to all system-related, process-related and structural aspects, which should be specified in a digital strategy including business planning. Otherwise, the digital transformation will be a rather aimless undertaking, just like the digital agenda of the German government.

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2  Threat to Stationary Trade

2.6.1 Hardly Any Digital Jolt in Germany Germany is falling further and further behind in digitalisation. Although the land of poets and thinkers is making selective progress, it is clearly unable to close the ever-widening gap with the leading Internet nations. In this respect, Germany still has plenty of room for improvement for the digital future (Cisco, 2020; Greiner, 2020). This is the result of the Cisco Digital Readiness Index, which is intended to make a country’s level of digitalisation maturity internationally comparable and to show where there is a need to catch up. The index assesses technical, economic and social framework conditions, from access to electricity and IT services to the demand for IT products and the startup-friendliness of a country. It was compiled by Cisco in conjunction with Gartner and covers 141 countries. While other countries have made significant progress, with an index score of 20.26 – the scale goes up to 25 – Germany has only improved its level of digitalization maturity by a measly 0.17 points to 17.84. It thus even slipped from 6th to 14th place in the country ranking compared with 2018 (see Fig. 2.28). In contrast, even digitization-savvy newcomers, such as Iceland, are overtaking our country. The small island nation immediately moved up to 9th place with a score of 18.16. Luxembourg, which is even smaller, jumped straight to second place with an index value of 19.54. The USA slipped to second place with this index value. The USA slipped to third place, but still achieved a score of 19.03. At least Germany made the greatest progress in terms of investment, climbing from 30th to 11th place. Germany did not do so well in the “environment for startups” category, with a meagre 0.68 out of three points, which corresponds to 27th place. Germany also needs to catch up in terms of demand for digital products and services. In terms of “technology

Top 14 Digital Readiness Score 2019 1. Sinagpore

20,26

2. Luxembourg

19,54

3. United States

19.03

4. Denmark

18.98

5. Switzerland

18.86

6. Netherlands

18.66

7. Sweden

18,42

8. South Korea

18,22

9. iceland

18,16

10.Norway

17.98

11. Finland

17.95

12. Australia

17.89

13. united kingdom

17,86

14. germany

17,85

Digital Readiness Index – Germany Technological infrastructure Use of technology Development of skilled workers Living Standards Economic framework conditions Investments Environment for start-ups

2,53 / 4 1,63 / 3 3,76 / 4 3,90 / 4 3,76 / 4 2,11 / 3 0,68 / 3

Fig. 2.28  Cisco’s digital readiness index 2019: Germany ranks 14th out of 141 countries. (Cisco, 2020; Greiner, 2020)

2.6  Refusal of Digital Transformation

81

use”, Germany remains stuck in 18th place. This is in complete contrast to the wishes of the population: at the beginning of 2020, 75% of German citizens wanted Germany to be the world leader in digitalisation (Ibid.). Pandemic Period for Digitisation Not Fully Exploited The reactions to the Corona crisis have proven that Germany is without a doubt actually capable of digitization even where it has been rather taboo, namely in the “home office”. Germans have used digital technologies to maintain coexistence, the economy, as well as administrative, governmental, educational and health systems. However, the digital jolt of the Corona era has yet to become a long-term strategy. Home-based work and huge increases in Internet and media consumption have put pressure on networks everywhere in this country. Demand for cloud-based solutions was in some cases a factor of four higher than the average before. In this context, the term skills shortage takes on a new meaning. For example, if part of the IT team is down due to illness, companies need to keep their infrastructure running with the remaining part. Automation can help with this (Cisco, 2020; Greiner, 2020). Despite or precisely because of the increase in usage, a quarter of users are dissatisfied with the connection to the corporate network. Above all, the limited broadband infrastructure is now making itself felt. Although there were no bottlenecks in the backbones, the distribution of traffic is changing fundamentally and with it the demands on network capacity. For example, traffic peaks are now more likely to occur in the morning during the time of web conferences, rather than in the evening. And the massive failures of the last few years cannot be ‘ironed out just like that’. There is no doubt that the crisis is ‘putting pressure on the last mile issue’. However, since the use of the home office was already significantly lower during the second shutdown than during the first, it is also questionable whether the pressure will remain after the crisis. Fundamentally, Germany needs to do considerably more, particularly in the expansion of Wi-Fi 6 and 5G networks, public access to data and the framework conditions for start-ups (Ibid.). Due to the pandemic, many countries have had to make a digital leap. There, the “new normal” was quickly adapted in many cases, without wasting time with endless concerns about whether there should be a legal right to home office work or not. And as long as data protection regulations are involved in every measure, we will continue to drive digitally with the handbrake on (Ibid.).

2.6.2 Digital Resistance in the Retail Sector While the majority of companies in the German SME sector have recognised the importance of digitalisation, the majority of retailers in the sector comparison do not see any need for digitalisation or any added value in it (Starfinanz, 2019). Despite the success of the major platforms, resistance is still high in large parts of stationary retail when it comes to digital transformation. However, as long as these barriers remain, it makes no sense to

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go into digital transformation. Accordingly, more than half of retailers do not consider digitalisation to be relevant (cf. Fig. 2.29). This figure is also confirmed time and again in Corona times, where project initiatives to digitise inner-city retail largely fell on deaf ears among large sections of local retailers. Nevertheless, there is no denying that digitization is profoundly changing the economy. All experts actually agree on this assessment (mg. retail2020, 2015; Agentur Handel, 2020). However, a certain degree of helplessness is evident among SMEs when it comes to the topic of digitalisation. This also has to do with the fact that it is only one of many topics that SMEs have to deal with. There is also a lack of theory on this topic, as most business management theories come from a different industrial age. Science and business certainly need to be more closely linked in this regard, but this does little to change the increasing pressure to act. On the other hand, there is certainly no reason to fear that small and medium-sized businesses will perish as a result of the concentration processes associated with digitization. On the contrary, digitization also offers opportunities to tear down barriers to market entry. For example, cloud computing opens up the possibility of using high-quality software that previously only large companies could afford (Agentur Handel, 2020). However, these opportunities have hardly been exploited so far. While digitalisation already determines a large part of everyday life, the biggest changes are certainly still to come, especially in stationary retail. It is all the more worrying that, as mentioned, 50% of retailers are in digital resistance: “If you don’t move with the times, you move with the times” – according to a central wisdom of the retail industry (Bohl, 2016; Starfinanz, 2019). After all, however, a

Companies that do not deal with the topic of digitalization, because they see no need or added value (List by industry, values rounded, n = 1830)

Trade

50%

48%

Services

46,5%

Hospitality/Tourism

Transport and traffic

40%

Industry/ manufacturing sector

37,1%

Fig. 2.29  Proportion of companies by sector that are not engaged in digitisation. (Starfinanz, 2019)

2.6  Refusal of Digital Transformation

83

considerable proportion of German retail companies are now at the highest level of digitalisation maturity (Starfinanz, 2019). However, these are predominantly the approximately 120,000 online shop operators in Germany. Almost without exception, they also include the large chain stores such as MediaMarkt-Saturn, Thalia, Deichmann, etc., among others. However, the majority of medium-sized companies in the retail sector still find it difficult to adapt to changing requirements in the context of digitalisation (Agentur Handel, 2020). For this reason, the Dialogue Platform Retail had dedicated itself to breaking down mental barriers and creating an awareness of the problem among stationary retailers as one of three key focal points (Dialogue Platform, 2015; Agentur Handel, 2020). The associated Mittelstand 4.0 Agency Commerce was part of the funding initiative “Mittelstand 4.0 – Digital Production and Work Processes” from October 2015 to September 2018 and was funded by the Federal Ministry for Economic Affairs and Energy (BMWi). The website as well as the contact persons of the Mittelstand 4.0-Agentur Handel were available to retailers until the end of 2020 (Agentur Handel, 2020). Nevertheless, the signs are pointing to change and 50% digital refusal means, on the other hand, that 50% have set out on the path. At least half of SMEs are now convinced that digital transformation is essential. This is also shown by the representative study “Digitalization Index for SMEs 2019/2020”, which was conducted by Techconsult on behalf of Deutsche Telekom (Digitalization Index for SMEs, 2020). According to the study, the level of digitization has increased across all industries and company sizes. SMEs scored one index point more than in the previous year, coming in at 56 out of 100 points. Every second company also sees digitisation as a strategic project. In addition, the companies are planning to improve their customer relationships and are increasingly focusing on data protection and data security (Digitization Index, 2020). SMEs are increasingly focusing on professionally aggregating and analyzing their existing information in order to derive new insights for their future business. They are becoming increasingly aware of the economic relevance and potential of this data. They recognize that big data is not a problem, but a great opportunity.

2.6.3 Risk Averse and Visionless Standard Digitisation There are still retailers who deny the internet and its relevance for the stationary business. Otherwise, there would not be 250,000 of them who are not yet online (DHL, 2020). Many entrepreneurs, especially from small and medium-sized businesses, still believe that digitalisation in retail is only about a change of media and merely about replacing or supplementing catalogues with a website at the front end. The author repeatedly made the experience that retailers considered an investment of €5000  in their own website to be completely overpriced, while the decoration costs for the stationary shop window alone exceeded this amount several times over. The fact is, however, that digitalization is influencing all previous competencies and business processes. Medium-sized companies are often faced with three main problems (Agentur Handel, 2020):

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Variety of innovative technologies: Stationary retailers are often not clear which technologies are best to use for the company, bring additional benefits to consumers and prove themselves in practice. Process adaptation and integration: Companies are usually not aware that not only should processes be digitized, but that they must also be optimized beforehand for meaningful automation. Media discontinuities should be avoided as far as possible. Barriers to digitisation: Apart from the lack of technical prerequisites (for example, software selection, information transfer between different systems), stationary retailers in particular are also confronted with mental barriers (for example, the role of sales when setting up an online shop). Accordingly, the level of digitisation among stationary retailers is still weak: more than 60% of them do not currently operate an online shop and 60% do not intend to do so. Time and costs often prevent retailers from addressing digitalisation issues (ibi, 2020). Certainly, having your own online shop is not always absolutely necessary or sensible – not even due to online market concentration. But discoverability on the internet and especially on the mobile web is now a must. Here, retailers are not alone: Only a few German companies are consistently focusing on digitalization, as a survey of top decision-makers from DAX and medium-sized companies conducted by Kearney shows: Less than 10% are cleverly exploiting all dimensions of digitalisation for themselves. In most cases, visions and an overall strategy are lacking (IT Rebels, 2020). Five types of companies can be identified that tend to hold back when it comes to digitalisation (cf. Fig. 2.30). Risk-averse standard digitizers make up the largest single group (34%). As a matter of principle, they do not pursue a clear digital vision. Digital measures are only implemented when others do the same. There is a lack of digital culture. The established, centralized structure is an additional obstacle. The bosses of these companies have the feeling that it is enough to swim along in the mainstream. Survey among decision-makers German company > 1 billion Euro turnover

Digitization types of German companies* Digital Deniers Digital Lament • Lack of digital competence • See mainly problems (data protection, security, etc.)

Risk averse Standard digitizer • No clear strategic digital goal • Doubts in the absence of rapid success

10%

40%

3 %

Ambitious Digitally driven

15%

• Comprehensive digital strategy • Ready for new business models

24%

Non-disruptive digitizers • Digital culture developed • No courage for new digital Business models

*another 8 percent are mixed forms

Fig. 2.30  Five digitally defensive company types. (Source: IT Rebels, 2020)

2.6  Refusal of Digital Transformation

85

Non-disruptive digitalisers make up the second largest group (28%). These are companies that operate a thoroughly successful business model, but it is not digital. Because of their success, they shy away from creating a new type of business model at the expense of the traditional model. Such companies may well have developed a digital culture and may also be implementing clearly prioritized digital measures. However, for them, the incremental path is preferred. As a result, they miss the point where radical steps are required. Ambitious digital-driven people want it badly, but implement it wrong (15%). They lack a true digital vision. They also lack sustainable digital leadership. They often suffer from the fact that new initiatives from the board of directors or the supervisory board constantly change the digital direction. Basically, pure digital actionism. A diffuse perception of the ever faster changing customer needs as well as technology dynamics lead to a lack of prioritization of individual digital measures despite considerable efforts. The reason for this is an uncoordinated, decentralised structure, from which implementation competence suffers above all (IT Rebels, 2020). Digital complainers (10%) and digital deniers (3%) bring up the rear with a combined 13%. They consider it impossible to seize digital opportunities because of poor technological, legal and economic conditions. The fear of making mistakes obscures the opportunities offered by digitization. Some of these companies even consider digitization to be an overrated hype. Together with the German Society for Management Research, Kearney researched in spring 2020 the reasons why digitization is stuck or why it even fails. In the summer of 2020, the results were updated in 50 further sample interviews for possible influences of the Corona crisis (IT Rebels, 2020).

2.6.4 Lack of a Digital Strategy Stationary retailers need a strategy to position themselves for the future in the age of the digital revolution. The majority of stationary retailers obviously need support in this regard in order to develop and implement digital solutions and to take advantage of the opportunities offered by digitalisation. SMEs need both an online strategy and an offline strategy in order to strengthen their stationary strengths (Agentur Handel, 2020). In this context, it must be ensured that both the opportunities offered by the internet are exploited (also in terms of reach) and that the stationary core functions receive more attention again and, above all, meet modern customer expectations. In this regard, there are overarching fields of action which, in addition to strategy development, primarily include the removal of barriers and also the general need for training (cf. Fig. 2.31). The development of a digital strategy ideally takes place in a structured form. From the fundamental decision to the implementation and operation of an e-commerce business, a procedure in four phases is recommended. In order to achieve implementable results pragmatically, efficiently and quickly, a strongly workshop-driven approach is recommended, especially for the first two phases. This should at least have the definition of a master plan as its goal (see Fig. 2.32).

86

2  Threat to Stationary Trade Digitization Changed consumer behaviour, market change

Implications for trade Framework conditions, level of knowledge on strategies, competences for implementation

Need for support

Strategy Online strategy

Training needs

•

•

Which possibilities (e.g. online shop, website) exist? • What fundamentals (e.g. Customer Insights, merchandise management system) are required?

• •

Strengthen stationary • • •

Which formats (e.g. guide, roadshow) are suitable

to impart knowledge? Which financing or Are there any funding opportunities? Which institutions can be involved?

Strengthen stationary

What framework conditions (e.g. variety of offers) are available? Which trade functions (e. consulting, staging) are of particular relevance? How can technology support?

• •

Which external and internal Are there barriers? What are the main barriers (e. ompetence)?

Fig. 2.31  Overarching digital fields of action, n  =  195. (Source: Dialogue Platform, 2015; Kompetenzzentrumhandel.de, 2021)

Early Stage Phases:

Principle decision

• start time • Kick-off

Decisions

Workshop Yes – No

Time required

1 day

Concept and Business Plan

Master Plan

• Go-no-Go Online

Methodology

Late Stage

1

Implementation/ operator model

• starting position

• detailed concept

• transformation

• options

• In-/Outsourcing

• GU/Masterpartner

• milestones

• implementation plan

• service providers

• business estimate

• resources

• budgeting

Workshop Cascade 5 options

2

4-8 weeks

assessment/ Workshops Time table

3

4-8 weeks

Tender/ Accompaniment 4 Make or Buy Annual

Sticking points: 1

Commitment: There must be a willingness to make a fundamental decision!

2

Transparency and confidentiality: Everything must be on the table, even on the other

3

Resources and know-how: Professional support is necessary!

4

Change management: blood, sweat and tears!

Fig. 2.32  Development and implementation of an online strategy in four phases

Start

2017?

2.6  Refusal of Digital Transformation

87

The first phase is primarily about the fundamental decision (“Go  – No-Go”) for or against the topic of online. In this regard, an initial workshop is recommended, which should first be properly prepared and above all provides for an internal analysis and target definition. In doing so, existing market and competition analyses as well as potential analyses should be reviewed and an exact classification of the target understanding of the individual stakeholders should be obtained (through targeted interviews). In addition, key questions regarding the leveraging of online growth potential, such as strategic framework conditions and business-side prerequisites, must be clarified. The result is a presentation of the market and competitive situation relevant to the retailer, which then forms the basis for the next workshop. In particular, the management’s expectations of an e-commerce strategy, including opportunities and risks, should be worked out. The goal should be to derive relevant options for action (long list) and to bring about a fundamental decision for or against an e-commerce offensive in the management circle. This includes a clear commitment of the management to the implementation of an e-commerce offensive or a temporary discontinuation of this project. The second phase focuses on prioritising the options for action identified in the first workshop (long list) and a directional decision for the option(s) for action to be implemented. This phase consists of at least two workshops, each with a preparatory phase. In this respect, a quantitative assessment of the online/multi-channel potential, an analysis of the competitive situation and a rough definition of the business requirements (resources, skills, organisation, processes/IT) are required for each option. On the basis of a rough target definition (e-commerce expectations in figures), a joint prioritisation of the options for action should then be made as well as a selection of the options to be pursued further for the company. This makes it possible to conduct another workshop to develop a master plan. This includes the derivation of the market size and the derivation of the sales and marketing potential for the selected option(s) including the definition of the target. Likewise, a more detailed competitive analysis should be conducted and relevant positioning option(s) (online USP) defined. A deepening of the business requirements for resources, capabilities, organization and processes/IT is also the subject of the workshop. This can then be used to define the rough implementation plan (project modules, milestones and responsibilities as well as timeframes) and develop a rough cost/benefit estimate (very rough business case). The result of the second phase would thus be one (or more) jointly selected options for action that fit the company and the market environment. Furthermore, a rough master plan (including cost/benefit consideration) for the selected option(s) should be available. In a third phase, the detailed concept including business planning can be developed. After deciding on the interaction of in- and outsourcing as well as the required resources, the implementation plan must be adopted. This is developed according to work packages and provided with time specifications and responsibilities. It is important that in this phase only the “how, when, etc.” is discussed; this means that the involved employees examine in detail which barriers and knots can occur and must be solved in order to achieve the

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specified goals. The third phase finally culminates in the developed business plan for the online strategy. In the fourth phase, the implementation and “digital transformation” can then be tackled and the detailed concept transferred into a concrete operator model. This should then be seen as a “permanent operational challenge” in terms of cooperation with master partners and service providers. An online strategy requires a radical rethinking in all areas. This is often made more difficult by the high volatility in the target picture (Bohl, 2016; Heinemann et al., 2019). Thus, it is impossible to say with certainty which players will be in the respective market in the future, as the rapid pace of change makes reliable future forecasts almost impossible. Many retailers allow themselves to be unsettled too quickly by the changing need for adaptation and ever new customer demands. In this respect, trends must be constantly observed and analyzed. Only in this way can retail companies react quickly enough to new requirements (Ibid.). It is essential to position oneself for the future in the constantly changing ecosystem. Whether this is necessarily as the owner of the customer interface or also as a provider of process parts – this question arises when defining one’s own digital strategy. Previous experience also shows possibilities for simple online strategies that, for example, aim for pure online visibility or include online sales via marketplaces. For this, too, the infrastructural requirements must first be clarified and created in any case (Ibid.).

2.6.5 Slow Digital Adoption and Transformation Stationary retail is not generally considered to be very innovative. Not without reason, a lack of innovative spirit in German retail and e-commerce is criticized. This is worrying, because Amazon is not only the market leader, but also a driver of innovation. The company from Seattle experiments a lot, even if it had to face setbacks, as with the Fire Phone. In historical observation, German retail has actually always been good at copying, but not at innovative self-discovery. Even the Samwer brothers of Rocket Internet basically only ever found copycats (Heinemann, 2017; Heinemann et  al., 2019). Self-service was invented in the US and brought to Germany 80 years ago. Cash & Carry was introduced in the USA, copied and then transferred to Germany. Specialty pet supply stores first started in the US and then were only brought to Germany by copy. This is obviously how German retail works and in this respect it has never been really innovative – except for the discount grocery stores perhaps. It was quite good at copying and that continues. In e-commerce, the topic of pioneer is once again particularly challenging because it also requires appropriate technology. This technology does not exist in Germany. The USA draws from Silicon Valley with Stanford as an institution. We actually need a research centre like this in Europe – but we don’t have one (yet). Perhaps the retail sector will finally realise this, without always waiting for politicians, and set up its own research institution – financed by the German family foundations of the major German retail and media companies. Because we need more innovation in retail from the technical side

2.6  Refusal of Digital Transformation

89

(Ibid.) and also a reversal of the previous funding policy, according to which the Federal Ministry of Economics only funds technical product innovations and not innovative retail concepts. These are considered application-oriented and are therefore not eligible for funding. Nevertheless, brick-and-mortar retail in particular offers excellent starting points for implementing the customer-centricity practiced online offline as well. With a view to digitalization, however, the basic prerequisites must first be created. Above all, the mental blocks and barriers that are now even preoccupying politicians and associations need to be dismantled. In addition, the technical foundations, such as electronic merchandise management systems, must be established before the digital agenda can get underway. Multiand omni-channel retailing, however, are only preliminary stages, as they do not generally touch the store. But that is the priority, both from an “outside-in” and “inside-out” perspective. The development and adoption of a competitive digital strategy – also vis-à-vis innovators – while challenging existing business models is also referred to as digital adoption. In terms of the principle of aspiration, this is also primarily about setting one’s own bar high enough vis-à-vis the disruptive pure plays. This is the only way to successfully implement the digital strategy, for which the term digital transformation has become established. However, like the rabbit in front of the snake, too many traditional retailers are still faced with the decision to go online or – if already done – to launch an online offensive. Following the “principle of hope”, online pure players are often declared dead or dismissed as a “non-profit event”. Again and again the same “killer arguments” are brought up and excuses are found for not (yet) taking the step into the online world. Sometimes there is not only a lack of awareness of the need for transformation, but also a lack of willingness to take risks. A retail group has to put a lot of money into it if the management decides to go full throttle with digitalization. Comfort zones must also be dismantled, both among employees and managers (Heinemann, 2017; Heinemann et al., 2019), because the fast online pure players are demonstrating that comfort zones and pronounced hierarchies are more of a hindrance. Increasingly, traditional retailers are participating in early-stage start-­ ups to learn from disruptive innovators. In this phase, however, the “proof of concept” has often not yet taken place, so that it is not yet clear whether the business idea has disruptive potential. Moreover, this kind of involvement has nothing to do with a digital transformation, which is more like a comprehensive restructuring project. Here, it is about change management, restructuring, process optimization, know-how transfer, etc. and thus about completely different topics than in investment management. Young founders can certainly provide fresh input here, but the existing organization must be radically opened up and renewed in order to be able to implement the impulses from the digital portfolio in the existing core. The basis for this is often lacking in the form of a digital strategy, which should always be at the beginning according to the generally valid management rule “structure follows strategy”. Otherwise, there is uncertainty as to which steps should be taken within the framework of digitalization for one’s own retail company. Here, innovation theory provides valuable clues, because the cognition phase should be followed by a future-proof adoption before a comprehensive institutionalization. A genuine, consistent

90

2  Threat to Stationary Trade

digital transformation is more like a comprehensive restructuring project than a research and development project. The situation is similar with employees and the changing job requirements resulting from the digital transformation. Here, too, many retail companies still have no idea who will have to be able to do what in the future and how recruiting and personnel development will have to change as a result (Heinemann, 2017; Heinemann et al., 2019). This gives rise to new questions, for example: How do we upskill our employees? Which people should be hired on a complementary basis? Which competencies are in demand? Many companies rely on generalists to master the challenges. But in order to attract the appropriate high potentials, retail companies must first develop the power of attraction, just as the Pure Plays are already doing. After all, even large companies can no longer rely solely on their traditional strengths, but must constantly evolve. In this context, under certain conditions, it could certainly also make sense to dovetail with start-ups (Ibid.). However, enabling employees through participation in relevant associations or participation in conferences and trade fairs is also conceivable in order to thereby bring about a targeted transfer of knowledge. However, the customer should always be at the center of all considerations regarding digital transformation. The topic is no longer what is technically possible, but rather what the needs of customers are. Or the question of how companies can create added value for their customers with the help of the new technical means (Bohl, 2016). When it comes to implementing the insights gained, it is essential to have the right organizational development. For this purpose, structures must be created in order to be able to examine potential innovations quickly enough, to promote them with regard to scaling possibilities, and to locate them across departments. For this, the commitment of the management is enormously important. This requires a culture that promotes innovation and creates a sensitivity for digital trends. This includes a willingness to question one’s own business model before an innovator does (Heinemann, 2017; Heinemann et al., 2019). Statements such as those made by US CEO’s – “anyone who does not go along with digitalisation is fired” – would be unthinkable at a German retail group, if only against the background of the German Works Constitution Act. There is also a great fear of cultural change: stationary retail groups are often managed hierarchically and conservatively. With this long-standing corporate culture, however, it is becoming increasingly difficult for them to get hold of highly qualified graduates, whom they need above all for the digital transformation. High potentials who want to make a career in e-commerce prefer to seek their experience at online pure players such as Zalando. Here they find a start-up atmosphere: relaxed interaction with each other, freedom and opportunities to work creatively on topics. This is what attracts young e-commerce graduates from university. They learn a lot in order to then, under certain circumstances, become self-employed, as former Internet employees at Zalando and Rocket did (Heinemann OH, 2021). The conflict between the “new economy” and the “old economy”, which was often played out externally in the early years of e-commerce, often continues internally and is still “quietly” effective in many cases. For example, investment decisions are often still

2.7  Change of Use of City Centres

New Economy Culture

91

Old Economy Culture

• Potential counts

• Experience counts

• Academic approach

• Non-academic approach

• Conceptual strength

• implementation strength

• Tie-less“ you-culture”

• Business style and you culture

• Moonlighting/Little Conventions

• Conventions and rules

• Team orientation

• hierarchy orientation

• Stock options/success sharing

• High fixed portions/guarantees

Fig. 2.33  Cultural differences between “old economy” and “new economy”

made against the Internet channel or are so small that it is not possible to speak of a digital transformation. In this case, a genuine generation change means that the old decision-­ makers with a “digital allergy” are not sitting on the supervisory boards and continuing to “put the brakes on” the topic. A comparison of the main cultural differences between this “old economy” and the digital “new economy” can be found in Fig. 2.33.

2.7 Change of Use of City Centres Digitalization and structural change are undoubtedly changing brick-and-mortar retail and thus the inner cities. Covid-19 acts like a fire accelerator in this respect. Small and medium-­ sized towns in rural areas in particular are facing special challenges in order to remain attractive and competitive. The same applies to shopping centres, albeit under different circumstances. This poses an enormous threat to the stationary retail trade. The critical success factor is to reinvent and digitize cities and shopping centers. This concerns both the integration of digital elements into the infrastructure and thinking offline and online together. Furthermore, stationary locations must restage themselves, i.e. create experiences, emphasize feel-good factors, improve the quality of stay, and emphasize aesthetics and building culture. At the beginning of every inner city development there is certainly the question of the special identity of one’s own city and the external effect on third parties, the image. In this context, the role of the city will also have to change. For many cities, it makes no sense to chase the vision of a shopping city.

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2  Threat to Stationary Trade

2.7.1 Critical Size: Major Centres Versus Small and Medium Cities There is no doubt that Shutdown as well as Corona restrictions such as hygiene regulations and mandatory masks have taken a toll on downtown merchants. The resulting damage will probably not be repaired so quickly (RP Interview GH, 2020). However, the future of city centres has not only been the big topic of concern for local politicians, real estate managers, retail chains as well as economic development agencies and chambers of commerce since Corona. A distinction must certainly be made according to the type of city and the role a city grants itself. The smaller the city, the greater the challenge, no doubt. The statement “trade is not everything, but without trade everything is nothing” illustrates the key role of stationary retail for a functioning city centre. In this respect, however, a distinction must be made between the supply function and the experience function. For this reason, towns and cities should consider supporting the stronger medium-sized centre in the vicinity and supplementing it as a satellite, rather than getting bogged down in a hopeless battle. The right measures and an interplay between politics and business are advisable in any case. The effects on stationary non-food retail and thus on city centres are obvious, but will vary greatly depending on the location. In the top city locations, particularly in the metropolitan centres, retail chains and property developers are continuing to look for new locations. Rent and value development there will continue to be above average in the coming years. “A core can always be saved,” says, for example, Ina Scharrenbach, Minister for Home Affairs, Municipal Affairs, Building and Equality of North Rhine-Westphalia. “It is, after all, not only a place of commerce, but also of living, working, culture and events. Every community needs such spaces. We have appealed to the municipalities to take a close look at whether they are not taking out retail locations and repurposing them for housing, offices or educational facilities. These are all frequency drivers” (RP Scharrenbach, 2020). In addition, stationary retail will have to focus even more on urban centres. When selecting locations, many well-known brands also consider whether the city attracts tourists or has a good cultural offering. The harnessing of tourism potential for inner-city retail is not infrequently underestimated and deserves targeted examination in terms of opportunities in the context of spatial impact (Stadt + Handel, 2014). “It also requires a healthy mix. Only restaurants and cafés do not save a pedestrian zone. A city centre is like an orchestra. Only with the trumpet alone it gets a bit boring” (RP Scharrenbach, 2020). The stationary retail trade and the city centre are closely intertwined, and not only in spatial terms. Around a quarter of all retail sales are made here. In these locations, the suppliers are largely threatened by the Corona crisis and, above all, many of the smaller, non-­ store retailers are already insolvent. The many local non-food retailers in the inner cities are dying off like flies. Particularly due to the increasing intensity of use of the Internet and online retailing, the physical space is becoming less and less important as a link. By 2024, the online share of total retail sales is expected to grow to over 25% (IFH Prognose, 2020). This has direct consequences for inner-city retail locations. The structural problems had

2.7  Change of Use of City Centres

93

been looming for some time and were at best accelerated by the crisis (Stepper, 2016; Heinemann, 2017; Internetworld Interview GH, 2021). Depending on whether they are located in spatially and structurally advantaged or disadvantaged cities, there will be both winners and losers. It is becoming apparent that smaller and medium-sized cities will be more affected than large cities. Accordingly, the major centres – generally cities with more than 100,000 inhabitants and above-average centrality  – and above all the seven large metropolitan areas in Germany will be less affected, as they provide the sought-after locations that all providers will rush to. They will also benefit from a continuing influx of new residents and thus growth in the number of inhabitants. In small and medium-sized towns, on the other hand, there will be distortions. Experts are already talking about spatial polarisation (BBE, 2018). (cf. Fig. 2.34). Where the distances from the surrounding areas are long and the offer in the central shopping street is already manageable today, it will become increasingly difficult to attract customers. Smaller municipalities are already struggling with high vacancy rates. In the small town of Tönisvorst, with a population of 30,000, just outside Krefeld, 50 shopkeepers covered their shop windows with black foil as early as 2013 to draw attention to the competition from the Internet (RP, 2013). Similar campaigns are known from other cities, such as in Berlin’s Oranienstraße in 2017, in Frankfurt’s Nordend in 2018 or in Niesky in Saxony in 2020. First retail companies, which have so far also been present in the pedestrian zones of medium-sized cities, have already taken cities with less than 100,000 inhabitants out of their expansion strategy (Heinemann, 2017; BBE, 2018). Spatial polarization

40

30

20

10

0

10

20

30

40

Top 7 cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, Düsseldorf

36

Large cities (>100,000) in growing regions

Large cities (>100,000) in shrinking regions

35

1

15

Medium-sized cities in growing regions

Medium-sized cities in shrinking regions

Small towns in the vicinity of metropolises

Small towns in rural areas

33

2

35

17 0

31

31 Loss of importance due to structural change and online trade

3 0 Increased importance General (para.)

Fig. 2.34  Spatial polarisation: impact of online retail on city centres. (Source: BBE, 2018)

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2  Threat to Stationary Trade

Consequently, the greatest attention is required for the different types of cities in order to precisely differentiate the reasons for this development. The following questions need to be answered: 1. Which developments are price-driven, which are experience-induced? 2. Where is it about the allure of the unknown? 3. What role do service and convenience factors play? 4. To what extent can international comparisons be made? In order to determine the effects of online retailing on city centres, city districts and local centres, it is important for targeted recommendations for action to distinguish between already known effects and their factors, identifiable factors for future effects and the portfolio of options for action by the relevant groups of actors that would change the effects. This has to be done both in terms of trade and urban development. The decisive question here is how general and spatially relevant framework conditions can be mapped. The outlook for the next few years is not rosy. In order to determine the effects of the Internet on city centres, district centres and local centres, it is important to differentiate them according to already known effects and their factors, both in terms of retail and urban development, in order to develop targeted recommendations for action. The task of municipal economic development, urban development and municipal urban marketing must therefore also be to support retail businesses and to increase the attractiveness of the inner cities in order to avoid vacancies as well as misuse of inner city areas. In any case, the goal should be to keep the vacancy rates of retail properties as low as possible. For this reason, a number of cities have drawn up retail and centre concepts. Such concepts can, for example, exclude undesirable tenants from an inner-city area and strengthen small specialist retailers. The provisions of the Building Code form the legal basis for the control of retail trade projects in cities. It is also a question of being able, or even having to, specifically control retail development integrated into the building culture of a city. This also applies to the designation of retail areas. If it becomes apparent that no more retail businesses are to be located in certain street sections, the municipality can designate retail areas where retail should still take place in the future by amending the building law. By concentrating and centralising healthy retail, inner-city quality aspects can be influenced (mg.retail2020, 2015; BBE, 2018). In view of the potential increase in vacancies, targeted vacancy management also makes sense. With the help of a vacancy register, property owners and companies interested in real estate are put in touch with each other. The location, size of business, sales and ancillary areas, section, space utilisation options as well as costs and contact persons are recorded. The economic development agency or a city marketing company are conceivable operators who can also provide advice and recommend suitable locations, as well as evaluate and analyse properties (BBE, 2018).

2.7  Change of Use of City Centres

95

2.7.2 Changing Roles: Sleeping City Versus Shopping City Every city has different prerequisites for positioning itself as a retail location. Nevertheless, there is hardly a city in Germany that does not call itself a shopping city, even though the term does not officially exist. However, everyone can imagine that this is more or less about the attraction and attractiveness in terms of shopping. Sleeping town is also not found as an official term, but is at least forwarded to the term satellite town and then explicitly named there in the explanation (Wikipedia Satellite town, 2021). While satellite towns are independent, trabantenstädte, or satellite towns, are considered suburbs of large cities and consist mainly of residential areas for commuters, like the huge prefabricated housing estates in East German cities, for example. They are characterised by a low density of jobs and little infrastructure of their own, which does, however, include schools as well as a retail supply for everyday goods such as groceries and drugstore goods. Satellite towns were built primarily to meet the housing needs of the core city and, as bedroom communities, are more of a recent phenomenon, with large numbers of residents leaving in the morning to work in larger cities and returning to them after work. Satellite towns, on the other hand, tend to be regarded as fully-fledged small towns in the vicinity of a large city, such as Kaarst or Willich for Düsseldorf (Ibid.). In this respect, the discussion is also about “satellite town or shopping town” and within satellite towns certainly more about a supply function, which has in any case shifted strongly to the “greenfield” in recent years. The quality of retail locations is measured by retail centrality or centrality factor (GfK Geomarketing, 2019). This is derived from the ratio of retail sales and purchasing power in the respective location. Values above 100 indicate an inflow of purchasing power, values below 100 indicate an outflow of purchasing power. A value higher than 100% indicates that the city is highly attractive to the surrounding area for shopping. In this case, it encourages residents from outside to shop in its retail sector to a greater extent than, conversely, its own population carries the city’s purchasing power to surrounding cities (Wikipedia Einzelhandelszentralität, 2021). The centrality of different sectors can vary considerably depending on the density of supply: in the case of foodstuffs, which are available nationwide, the centrality of these products generally hardly deviates from 100%, unless the supply function in the city has already been eroded, as in some small rural towns. In the case of shopping products such as fashion or high-tech products, which are often only available in major centres, centrality varies enormously. In this respect, even for “dormitory towns”, the supply function must be more of a duty and not weakened by hopeless concepts for a shopping function. Whether a city should focus more on experiential shopping and continue to fight for it with all its might in the future should therefore be discussed purely rationally and strictly according to centrality factors, especially since Germans have long since stopped shopping at their own place of residence, except for basic supplies (BBE, 2018; GfK Geomarketing, 2019). GfK regularly breaks down the retail potential for all regions in Germany on the basis of retail centrality. It compares retail purchasing power with regional retail sales and uses this to calculate the retail centrality for each region and city. According to this, in 2019, the

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2  Threat to Stationary Trade

162 German districts with purchasing power inflow contrasted with 239 districts with purchasing power outflow. Among the urban and rural districts, Munich leads the purchasing power ranking with a retail purchasing power of €7694 per capita, which is 30% above the national average. By contrast, the city district of Gelsenkirchen brings up the rear: Here, people have less than €5000 per capita available for their retail spending (GfK Geomarketing, 2019). In contrast, Würzburg repeatedly shows very clearly how strong the attraction effect of a city can be on the surrounding area. For example, the district of Würzburg, with a centrality rating of just over 50, is way down the list, meaning that the retail trade there practically only performs a supply function and residents travel to Würzburg to buy other goods. This is why the city district of Würzburg has a centrality rating of 196.1, which puts it in third place nationwide. The retail centrality ratings of the top 10 districts in Germany are shown in Fig. 2.35. Interestingly, the top places among the cities are not taken by the metropolises of Munich, Berlin or Cologne, but by medium-sized centres such as Trier, Passau, Würzburg or Straubing. Outside these cities, there are generally hardly any retail offerings apart from utilities. At the same time, these retail locations tend to have a small number of inhabitants, so that the inflow of purchasing power from the surrounding area clearly exceeds the purchasing power in the cities. Medium-sized towns certainly have potential for future retail trade, especially if smaller towns in the nearby hinterland turn into dormitory towns and defer to the next largest medium-sized centre as a retail location. Starting a “battle for retail locations” would be futile anyway. Medium-sized cities often have a reach that clearly exceeds the number of inhabitants in the immediate urban area. At the same time, however, it is also advisable to take a look at the retail turnover in total (GfK Geomarketing, 2019).

Rank

Cityor county

Inhabitants

Retail purchasing power 2019 Index *

Retail centrality**

1

SK Munich

1,456.039

1 3 0 ,2

114,7

2

Starnberg district

135.545

1 2 9 ,7

6 4 ,9

3

LK Hochtaunuskreis

235.995

1 2 9 ,5

6 8 ,5

4

LK Munich

346.433

1 2 6 ,9

7 6 ,3

5

LK Main-Taunus district

236.969

1 2 4 ,7

1 0 5 ,5

6

LK Ebersberg

140.800

1 2 1 ,1

114,3

7

LK Fürstenfeldbruch

217.831

117,7

7 3 ,1

8

SK Düsseldorf

617.280

117,4

113,8

9

Miesbach district

9 9 .1 8 9

115,2

7 7 ,8

10

Dachau district

152.703

114,9

6 9 ,3

* (100 = national average) ** (100 = inflow and outflow of purchasing power balance each other out)

Fig. 2.35  Top 10 counties by GfK retail centrality 2019. (Source: GfK Geomarketing, 2019)

2.7  Change of Use of City Centres

97

2.7.3 Retail Real Estate: Polarisation and Trading Down The further development of online retailing also has an impact on the potential uses of retail properties. Less turnover in stationary retail quickly also means a noticeable decline in prospective tenants, which is then followed by vacancies. This affects small and medium-sized towns in particular. While prime locations in major cities have tended to be less affected, secondary and suburban locations in larger cities have also been losing ground for some time (GfK Geomarketing, 2019). Even before Corona, there was a shift towards smaller shop spaces, while the number of lettings remained at the same level. This led to dramatic vacancies in city centres even before the pandemic (BBE, 2018). Since Corona, however, inner-city locations and shopping centres with a focus on textiles in particular have suffered from dwindling returns and a loss of investor interest. Even commercial properties in 1 A locations are attracting little interest. Interestingly, it is not Corona that is seen as the biggest challenge on the real estate investor side, but the growing competition from online retail. Not even the constraints imposed on retailers to combat the spread of Corona are viewed as gloomily as the impact of e-commerce (Fondsprofessional, 2020) (cf. Fig. 2.36). In contrast, grocery stores are actually benefiting strongly from the Corona crisis. While the majority of investors (75%) believe that shopping centres have little future, almost all (90%) assume that retail parks will continue to develop positively after the crisis. Above all, supermarkets, food discounters and retail parks are at the top of investors’ wish lists. Corona has polarized investments in retail real estate in this respect. While food retail locations are gaining, city centre locations are threatened by a trading down and thus

Current challenges in retail real estate investments Figures in percent multiple answers possible

Competition in the retail trade from e-commerce

81 79

the economic framework conditions Restrictions due to the Corona pandemic

58

Dynamic change in consumer preferences

45

Restriction of motorised individual transport

17

Dynamic change in consumer preferences Restriction of motorised individual transport

8 4

Fig. 2.36  Current challenges in retail real estate investments. (Source: Fondsprofessional, 2020)

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2  Threat to Stationary Trade

Permanent vacancy Business closures

Turnover and Decline in earnings

Loss of attractiveness

Investment backlog Community Hyper Investment backlog competition Operator Succession issues Multipolarity Investment backlog of demand Landlord Environment/public Room Area Green Meadow sizes

Turnover and Decline in earnings

Withdrawal of the Company

Sinking Tax revenue

Structural change Inner Circle: Causes Outer Circle: Effect Actions Reactions

Sinking public Investments

Fig. 2.37  Trading-down of retail properties. (Source: CIMA, 2009; Wikipedia Trading Down, 2020)

progressive erosion (cf. Fig. 2.37). In spatial planning, the trading-down effect is a tendency in which a location develops from a complete offer with vibrant life to increasing vacancies including a lack of customers. Rented commercial units are also an indicator here, for example if their use does not match the demand and supply of the district centre. There is a great danger that these will also become vacant or be replaced over time by low-­ cost providers (e.g. tattoo shops, amusement arcades or one-euro shops). The inevitable consequence is a decline in the image of the location. The result of this development is always shop vacancies with long-term consequences. This leads to a loss of turnover for the landlords and thus to a diminishing ability to invest in the vacant property to be let. As a result, modernisation measures are not carried out. The consequence is that potential investors stay away from the location because it no longer meets their expectations. An accumulation of vacancies also has a negative effect on the surrounding area and thus creates further vacancies. Ultimately, the shopping street or district becomes deserted (Wikipedia Trading Down, 2020). The threat scenario is undoubtedly huge and is magnified in particular by the Corona effect. Smaller municipalities are already struggling with vacancies of 50%, in some cases even up to 75% (RP Scharrenbach, 2020). However, the cause of vacancies is not only due to the online boom. In many cases, this is only a catalyst for fundamental undesirable developments or permanent structural changes – just as Covid-19 is only an accelerant. Reasons for the vacancy of retail spaces can certainly also be the loss of “anchor tenants” or an important magnetic business, which then represents a “vacancy-induced vacancy”. In this respect, department stores have certainly tipped the scales in quite a few cities – as

2.7  Change of Use of City Centres

99

of July 2018, i.e. around ten years after Hertie filed for insolvency, only the last Hertie department store in Velbert/Ratingen was acquired by the city (WZ Velbert, 2018) and then demolished in early 2021. But also relocations due to too high shop rents or qualitative and structural deficiencies of the property can cause vacancies, as well as strategic wrong decisions of the management, which can be for example in the refusal of digitalization. Age-related business abandonment and a lack of business succession are also issues that economic development agencies and chambers of commerce in particular need to address. The most frequent causes of rising vacancy rates are certainly reduced purchasing power and demand, for example due to regional competition, spatial shifting of customer flows (for example due to a new shopping centre) and changed purchasing behaviour (for example online purchasing). The consequences of vacancies are a loss of image and attractiveness of the location, a decline in sales within the city, increasing fluctuation of shops as well as trading down processes. In order to prevent further negative effects on city centres, vacancies must be avoided at all costs. Properties should be re-rented as quickly as possible in line with the market and converted or re-used. Building use regulations should be made more flexible and allow for deconstruction. In any case, a property rented out for residential use is better for the cityscape than a vacant store. “It is the end of the pedestrian zone, the future use will be residential” – according to the city of Velbert on the demolition of the Hertie property in 2018 (mg.retail2020, 2015; WZ Velbert, 2018).

2.7.4 Overstretched Local Politics: Lack of Ideas and Concepts Many cities and municipalities are overburdened with the structural changes. Local policy must primarily focus on making the inner city attractive and modern and managing it professionally. New usage concepts must be developed together with the citizens and accompanying measures must be initiated.

New Concepts of Use Creative Concepts for Interim Use  Vacancies can be used sensibly and creatively by property owners. In this respect, temporary interim uses for social/cultural purposes and those that generate temporary income are conceivable. The easiest way to conceal vacancies is through full-surface window displays that give visitors an impression of what kind of business it might be. Modern photographs leave the impression of real shops such as butchers, bakers or boutiques, always with the indication that the shop is available to rent. In North Tyneside, Mönchengladbach’s twin town in the north of England, shop window backdrops were set up in vacant shops by the town officials to show which shops would make sense in this location. This targeted potential users and over 140 vacancies were filled with the help of this idea (mg.retail2020, 2015; Zukunftdeseinkaufens BID, 2019). For social and cultural interim uses, the property owner could make the shop premises available at cost or pro bono. For example, window dressing could highlight a current theme or be given to an up-and-coming artist. Perhaps neighboring businesses like to use the storefront as an extended display window. Or virtual shops could cover a store wall or

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window. Vending machines can make products directly purchasable, as long as they are integrated into the real estate. Alternatively, vacant storefronts can be used as temporary pop-up stores, which attracts additional attention. A fitting room offers opportunities to try on goods ordered online offline in a store, to buy them or, if necessary, to complain about them directly (Ibid.). Creative Concepts for Conversion/Re-use and Additional Use  Real estate operators are encouraged to develop their retail properties in a modern way and to invest in the renewal of existing properties. The changing requirements of the retail sector make more flexible leases or even short-term leases necessary. Since the demand for shop premises is likely to decline, a permanent fall in rental income must be expected in secondary or city district locations. For this reason, property owners should also increasingly address the issue of the conversion of retail properties. The “Soho House Berlin” with restaurants, bars, a fitness studio, a cinema and a hotel provides impulses in this direction. And demographic developments are also fuelling a trend towards inner-city residential developments including barrier-free service facilities. Creative expansions are also conceivable, such as a drive-in counter where customers can pick up their online orders in their own cars. At the end of 2020, Thalia equipped its Leipzig store with parcel boxes in the shop window, where customers can pick up their books contactlessly. Also conceivable within a city is the bundling of local retailers who offer their goods jointly or via an existing online shop and have the products ordered online delivered to the collection point via a corresponding interface. This concept with several retailers requires proper coordination, as the customer is demanding and less concerned with additional service and advice on site than with the speed of receiving his goods. Finally, a trend of “stationary space for online retailers” is also emerging. Online pure players such as Zalando, among others, are increasingly looking for ways to market their current merchandise or even remaining stock offline. Showrooms are also becoming increasingly important for online retailers, where the online range is presented in a small space. Relatively little space is required for this, so that prime locations are also conceivable for such premises (mg.retail2020, 2015; Zukunftdeseinkaufens BID, 2019).

Accompanying Measures for the Retail Trade Shop Opening Hours  In terms of opening hours, brick-and-mortar retail is at a significant disadvantage compared to online retail, which can sell on seven days with 24 h each. In e-commerce, for example, the largest share of weekly sales is generated on Sundays. To compensate for this disadvantage, consideration should be given to liberalising opening hours again or making them more flexible. While convenience shoppers, for example, can purchase groceries at sufficiently attractive times, shopping opportunities for so-called experience shopping are limited. Here, an expansion of shopping opportunities at the weekend, for example with Sunday openings, would be worth considering. Open Sundays in particular generally lead to high footfall in city centres, because consumers are free at the weekend and can stroll around in peace. Opening hours on Sundays and public holidays vary according to the law on shop opening hours, which specifies different numbers

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of days per year depending on the federal state. In Berlin, for example, eight Sundays and public holidays are permitted per year. There is also the additional option of allowing shops to open on two further days for special occasions. In Baden-Württemberg, on the other hand, shops are only allowed to operate on Sundays and public holidays a total of three times a year. Across the Länder, individual sectors are permitted to open on Sundays on condition that no consultation or sales take place. However, if the customer obtains information in the store via touchpads or tablets, at least self-advice is taking place. In this respect, the legislation of the federal states must respond to the increasing merging of online and offline purchasing (HDE, 2016; Heinemann et al., 2019). Integrated Retail Concepts as a Basis for Urban Development  Retail concepts in a city promote urban development by guaranteeing planning and investment security in the retail sector. The aim should be to develop the retail structure in such a way that the supply of the population is ensured and the development of the retail trade is compatible with the city. In addition, the development potential of locations that serve an attractive and competitive retail landscape should be recorded and promoted. The task of the state governments can be to call for appropriate retail concepts and their updates. It should also be given a kind of veto right for the relocation of large-scale retail areas in peri-urban locations. State policy can certainly exert more influence on restricting the designation of retail space in peripheral locations or on greenfield sites in order to promote inner cities. To ensure that these areas do not become further fragmented in the municipalities, the steering function of the ­legislature is also required here (mg.retail2020, 2015; Heinemann, 2017).  Adaptation of Legislation, for Example the State Building Code  regulations for the approval of retail businesses have so far been based exclusively on stationary businesses. All forms of online retail are usually subsumed under the aspect of logistics, as the goods have to be picked and delivered. There is a need for regulation, for example, if online retailers operate their own exhibitions/showrooms or if peripheral ranges are also sold in these showrooms. The possibility of ordering online in showrooms also requires legal regulation in order not to disadvantage the stationary trade (Ibid.). Digitisation of the Inner City  In order to minimise the consequences of structural change for the cities and municipalities affected by it, the opportunities offered by increasing digitisation should undoubtedly also be used as a chance to increase the attractiveness of inner-city retail locations (RP Scharrenbach, 2020). What citizens have been demanding for a long time, namely fast WLAN for everyone, should be implemented quickly by local politics and not left to the large network radio operators. However, digitization does not only mean WLAN. Cities and municipalities can also digitalize city marketing and implement interactive inner-city marketing tools. Digital outdoor advertising terminals are also conceivable. For example, a few years ago the Federal Ministry of Economics and Technology awarded the interactive outdoor advertising and coupon portal “Stuff4Free” as the main prize winner of the BMWi start-up competition “Successfully launching with multimedia” (Heinemann, 2017). It is a coupon box as an outdoor terminal, which is located in the pedestrian zone of a city centre and serves to enable retailers, restaurateurs, but also leisure providers to acquire new customers. Customers can use it to find out what is available locally and directly purchase a voucher or coupon for a nearby store. The

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advantage of this is that the users are already on site and therefore the way to the shop is not far. Merchants who want to distribute their offers via the screen pay a monthly fee and are marketed via various booking options for a certain period of time. The interactive advertising medium can also be used to provide information about local events and offers. In this respect, interactive and internet-based shopping guides for a city centre are also an option. With the help of a city map, the user can be provided with information on shopping opportunities, gastronomy, leisure activities and, for example, opening hours of service facilities in a city. Distances from the location to the nearest desired retailer can also be provided, ideally with links to additional information about the shops. To integrate local retailers into this shopping guide, the integration of the local yellow pages is conceivable (Heinemann, 2017; Heinemann et al., 2019). Managing City Centers as Shopping Centers  Shopping centers have the advantage over city centers that they are managed professionally and centrally. Uniform core opening hours, joint marketing concepts and possibly a customer card in which every tenant is required to participate are therefore not a coincidence in shopping centers. Should such a central management also be aimed at for city centers, an appropriate staffing is required, either in the responsible economic development department or in the city marketing department. Above all, it should also be able to influence the branch mix, since the branch diversity of a city centre in particular is what makes a city centre attractive. This also applies to the balance between strong chain stores and owner-managed solitaires within a city. A municipality can also prevent unwelcome developments by amending the building code and preventing the establishment of gambling halls, sex shops and betting shops in city centres. City marketing can also be quite successful in contributing to the flair in certain areas of the city centre. This is possible, for example, by establishing a retail area with an affinity to the arts, with galleries, arts and crafts and jewellery designers. In addition, areas are conceivable where customers deposit their goods or collect goods ordered online. It could be the task of the municipality to create the planning law for such collection points at suitable locations. It can also exert influence on urban logistics, which in fact lends itself as a cooperative measure for bundling urban flows of goods. This could also minimise pollution and have a positive impact on the development of the business location. However, in times of online boom, this should not hinder access for traffic (mg.retail2020, 2015; Heinemann, 2017). In addition to the measures outlined, other options are certainly conceivable and useful. Figure 2.38, for example, shows a package of measures that largely coincides with the approaches just outlined. It also includes flanking measures that are aimed directly at retailers and have already been addressed separately, namely the need to develop futureproof formats and the digitalisation of stationary stores (Heinemann, 2017).

2.7.5 Lack of Initiative: Not Everyone on Board Including Landlords A major problem in many cities is the lack of initiative. All the proposed measures can only work if local retailers are also held accountable, not through financial levies, but in terms of initiative, willingness and cooperation. State governments can promote and

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Focus Online Equal opportunities –Less local regulation, opening hours etc.

Level the playing field –German game rules/(anti-trust) laws for US Pure Plays Digitisation –Digital upgrade of city centres and stationary retailers New formats –reinventing “stationary” (no-line), overcoming cost spirals Local Self-Help –Cooperative Occupation of the Last Mile (“Ship from Store”) Focus Offline Veto new settlements –No further large areas in peripheral locations (VM etc.) Centralisation –incentives for relocation of peripheral locations to city centres Profi-City-Management –Professional (EKZ) Center Management in Cities Shopping centre policy – sense/impact of inner city shopping centres? Coordination –coordination of cities with each other in terms of state policy?

Fig. 2.38  Accompanying levers for the city, politics and trade

publicise relevant projects so that other retailers and cities can benefit from them. In this respect, competitions are also conceivable in which prize money is offered for initiatives or projects are publicised. In NRW, for example, the City-Offensive NRW “Ab in die Mitte” has been in existence since 1999 and is supported by the public sector and private actors. The aim of this offensive is to present the city centres as a place of art, culture and leisure and to anchor them in the population as a place to work and live. Corresponding initiatives are also conceivable in the direction of “inner city and trade”. In this context, it is important to bring together the activities of the state, municipalities, retail and business so that everyone pulls together in a “coordinated” way (mg.retail2020, 2015; Heinemann, 2017; RP Scharrenbach, 2020). Landlords and property owners play a key role. They are faced with the question of how they can still use their properties in the future. In this regard, so-called business improvement districts (BID) or real estate and location communities (ISG) are conceivable, in which property owners are to be financially involved. Without retailer cooperations and initiatives, however, it is unlikely to work in city centres (Heinemann, 2017; Zukunftdeseinkaufens BID, 2019). Business Improvement District or Real Estate and Location Community  The establishment of a real estate and location community (ISG for short) could revive inner-city retail by spending money specifically to increase the attractiveness and frequency of a street section. Similar to the Business Improvement District (BID), the idea is to collectively enhance a city’s retail locations. The measures can relate to the redesign of the pedestrian zone, the creation of new inner-city green spaces, investment in lighting or even

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the creation of a joint marketing concept. It is important that the property owners are actively involved and also share in the costs. As a rule, subsidies are also available for this concept in the federal states. The advantage for the property and building owners is that the properties can be upgraded or at least maintained in value. In order to ensure uniform financing, the voluntary ISG can also be converted into a statutory ISG. In North Rhine-­ Westphalia, a corresponding ISG law was passed in 2008. Every property owner within a location must participate in this ISG by paying a membership fee. In practice, however, the implementation of such ISGs turns out to be difficult, as many property owners do not want to participate in such a way. In particular, those owners who are not located locally or where the properties are part of larger funds tend to show no interest in doing so (Zukunftdeseinkaufens BID, 2019). Promote Retailer Cooperation and Initiatives in a Targeted Manner  So far, it is not understandable that local retailers are leaving the field to Amazon more or less without a fight when it comes to delivery. This danger now also exists with same-day delivery, which would actually be much more feasible from local retailers than from the large online pure players. With the expansion of same-day delivery concepts, the question arises as to who could perform a bundling function outside of possible shopping centers. With the help of inner-city pick-up stations, customers who order their goods online could also conveniently pick them up offline in the city centre on their way home or during their lunch break. So-called outdoor lockers are conceivable, which could even be refrigerated according to the product category (food) and could be used for different sizes. An excellent example of cooperative initiative is the portal Osnabrück24.de. Here, retail shops from Osnabrück’s city centre offer a joint delivery and collection service. Customers can use it to have their goods deposited at Nikolaiort, a central point in Osnabrück’s city centre, until 10 p.m. every day. However, it is also possible to order goods to be delivered to the customer’s home at the desired time. The new portal Osnabrück24.de wants to include more shops (NOZ, 2018). In addition to “logistical cooperations”, forced initiatives by local retailers are also conceivable, such as the “Heimat shoppen” campaign known from North RhineWestphalia. The aim of this campaign is for local retailers, service providers and restaurateurs to show what they have to offer. Retailers are not only to present their goods in cooperation with neighbourhood shops, but also to sensitise customers to the fact that the individual townscape characterised by owner-­managed retail could be lost. However, this is less about generating sympathy and more about presenting themselves as a professional alternative. More professionalism is certainly also needed with regard to city marketing, location associations and city management. It can often be observed that some chain store operators in particular refuse to participate in location communities or city management. While the same chain stores in shopping centers accept a marketing levy as a matter of course as an additional cost, they are not willing to contribute in the shopping street. This also puts the prime locations at a competitive disadvantage compared to shopping centers, which can ensure frequency with a much higher marketing power. Many retailers pursue the strategy of not contributing to the costs, but still benefiting from the marketing

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measures of the shopping centers or the city management. In cooperation with the city marketing, discounts or coupons can also be offered to promote the stationary retail trade in a city centre. For example, it is conceivable to reimburse a portion of the parking fees to customers who parked in the immediate vicinity and subsequently shopped in the store. However, this only works if several retailers participate and the campaign is also known locally by all businesses, otherwise it quickly annoys customers (Heinemann, 2017). Best Practice ISI: Strong Inner City Initiative There is an exceptional example for the topic “Future Inner City” as well as corresponding flanking measures, namely in Münster (Westphalia) with the ISI – Initiative Strong Inner City. With a population of around 312,000 and almost 60,000 students, Münster is considered one of the most beautiful cities in Germany. Since October 2004, Münster has even been allowed to call itself the “most liveable city in the world”. The Westphalian metropolis was the first major German city to win gold at the LivCom Awards in Niagara/Canada, taking first place in the category of cities with 200,000 to 750,000 inhabitants. In this international city competition, Münster left cities such as Seattle/USA, Okayama/Japan, Changshu/China, Poznan/Poland and Coventry/UK behind. More than 450 cities from all over the world took part in the annual competition in 2004 (Die Welt, 2004; Münster, 2006). The title brought Münster international attention and many visitors (Münster, 2021). In this respect, the bar has been set very high since then, and this is precisely where the ISI in Münster comes in, because Münster’s city centre is characterised by a well-kept, historic townscape and high-quality retail. The ISI is a voluntary alliance of retailers, service providers, gastronomy operators and property owners from Münster’s city centre (isi muenster, 2021). It is a typical Business Improvement District (BID) that has set itself the task of implementing inner-city projects to preserve property values and promote trade. The initiative was founded in 2006 and has more than 200 members. The membership fees are based on the location and size of the shop (1A, 1B and 1C location), are used exclusively to upgrade the inner-city infrastructure and for inner-city projects with a retail focus, and amount to between €0.5 and €2 per square metre (Ibid.). Up to 30% of the funds flow back to the street communities, but the measures of the various neighbourhoods and streets financed decentrally with these funds must fit into the overall concept of the initiative. For joint projects, the round table of inner city merchants decides on trade marketing activities and a board decides on real estate projects. The use of the funds is disclosed to the members in general meetings and through regular reporting. With the Eigenbetrieb Münster Marketing, ISI has an operative partner at its side with whom the city projects can be jointly implemented. The initiative “Strong City Centre” aims to ensure the attractiveness of the city centre, to increase accessibility and to further develop Münster as an attractive retail location in the long term. As many retailers, property owners, service providers and gastronomy operators as possible are to be involved. Typical events organised by the ISI include advertising campaigns for open Sundays, childcare in the city centre, International Hanseatic Day, supra-regional advertising (for example for the Night of the Museums and Galleries) or a luggage storage bus during Advent. In addition, the ISI pursues projects

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Topics and projects of the "Strong inner city" initiative 1. Improvement of the parking guidance system (in particular better parking guidance and information on the "walking distance to the city centre X minutes") 2. Short line to the administration (for landlords a more direct line to the administration and coordination within the administration) 3. Design catalogue for outdoor gastronomy and product displays (design guidelines for furnishing outdoor gastronomy and for product displays) 4. Actions to strengthen individual neighbourhoods (to stage new places and new quarters through events or projects and to "welcome" them to the city centre) 5. Thematic actions and projects (discuss important issues/mismanagement with the responsible departments and develop solution-oriented concepts, e.g. "clean city centre") 6. Information on urban development projects (in consultation with the planning office, provide information at regular intervals on developments/proposed concepts and obtain an opinion on ISI) Fig. 2.39  Topics and projects of ISI Münster. (Source: isi muenster, 2021)

such as the external image analysis of the city of Münster, inner city survey by the Münster University of Applied Sciences and special campaigns such as “Ab in die Mitte  – Münstermorphosen”. Each member can name problems of the inner city and also submit concrete project proposals. The long-term topics and projects of the ISI Münster are shown in Fig. 2.39.

2.8 Customer Centricity Misunderstood as a Business Principle Of the 60 million online customers, most also shop at Amazon and at the same time in brick-and-mortar stores. The experiences at Amazon & Co. lead to ever higher customer expectations of brick-and-mortar retailers. In this respect, the customer-centricity invented by Amazon must also be the business principle for stationary retail. This is not about traditional virtues or a ‘greeting uncle’ at the door, but much more. A customer-centric retailer breaks away from functionally-oriented marketing doctrine and places the passion and credibility of the entire management and an unconditional focus on customer needs at the heart of business activities. Above all, it is about the key question raised and visionarily pursued by Amazon founder Jeff Bezos: “How can I make my customers’ lives easier?”

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(Heinemann OH, 2021). But what does this mean for marketing and retail practice? First of all, it involves a new dimension of professionalism, the implementation of which – contrary to widespread opinion  – requires far greater investment in marketing, customer approach, organisation and systems than is the case in traditional sales channels. In the long run, however, these investments are likely to pay off, because customers appreciate and reward being at the center of business activities. Customer-centric companies that think in terms of maximizing customer delight are demonstrably more successful than “merely” customer-centric companies. Customer-­ centricity implies passion and credibility of leadership and an unconditionally customer-­ centric company. Jeff Bezos, CEO of Amazon, firmly believes that only superior customer service and a thorough understanding of customer needs can ensure long-term success. Because customers want to compare offers from different retailers on a product, he has allowed other retailers to offer on Amazon as well, even at the risk of Amazon being undercut by other retailers. “If you don’t, the customer will,” is his motto here. Customer-­ centricity permeates the company’s entire business system and provides employees with a guiding framework for their daily decisions. For example, an employee at WalMart knows that he must serve the customer first before pursuing an internal problem. An Aldi shopper knows not to raise prices on price-inelastic items, even if the competitive situation would allow it. An Amazon employee knows to identify industry placements as such so as not to give the impression that they are objectively generated. And a Zappos employee is aware that his main task is to discuss problems openly and honestly with his customers in the community area (Rotax, 2010; brandeins, 2014; Heinemann OH, 2021). Ideally, each customer is regarded as an individual. In mass business, individualization is not easily economically feasible. Therefore, customers are often statistically assigned to relevant segments (personalized). These are either formed statically as with more traditional companies or dynamically/chaotically with Internet providers. The art of customer centricity lies in the superior individualization or personalization of the company and in the implementation of this topic in the right place, which must be a “matter for the boss”. Only if the top leadership is convinced of customer centricity, they will be willing to credibly exemplify it and systematically make the company customer centric (Ibid.). The implementation of a customer-centric organization can only take place within the framework of a controlled change management process that derives concrete measures on the basis of KPIs or measured values (Baars, 2017). In this context, the measured values form the starting point for a multi-stage process that should lead to the targeted implementation of customer centricity. Through a permanently repeating sequence of measurement and inventory, reflection and action development, and subsequent implementation in the organization, the cause and effect of improvement measures can be managed operationally. The following three-stage approach has proven successful (Ibid.): • Stage 1: Survey maturity level for customer centricity. The maturity level of customer centricity is determined by means of an online assessment. The assessment questions are additionally assigned optional questions to collect further metadata (e.g. error rates), so that a comprehensive analysis is possible. This enables a differentiated view

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of the individual drivers of the maturity level (e.g. digital investment intensity). This makes it possible to quickly identify where there is potential for improvement within the company (Ibid.). • Stage 2: Derive concrete options for action (reflection-to-action process). The measurement results are analyzed with regard to causes and drivers and transformed into options for action for implementing customer centricity. Based on previously defined KPIs, the options for action can be prioritized and transformed as concrete measures into strategy and target specifications for a KPI improvement in the next measurement period (e.g. customer satisfaction index). This determines both the sources and the targets of future improvements with regard to customer centricity. Ideally, these are differentiated according to products and customer segments (Ibid.). • Stage 3: Define and implement action plan. The derived and KPI-based measures are integrated into existing processes and thus implemented (e.g. automation). This is followed by regular monitoring and KPI measurement. Concrete measures that lead to increased customer referrals and thus customer acquisition are developed and implemented according to the 80/20 rule. Based on this, milestone planning and controlling is established (Ibid.).

3

Intelligent Retail

Abstract

In smart retail, there are five central issues that will shape the retail of the future. First and foremost, the basic prerequisites must be created that enable data-based working. This in turn allows the use of artificial intelligence (AI) and thus customer data-based one-to-one marketing. In order to be able to work with this at all, intelligent employee qualification and recruitment is required. Qualified employees are also needed for a digital supply chain as well as future-proof business modeling including the development of smart stores. Digital-based stores also enable digitalized shopping centers. In the end, it’s all about “channel no matter” as the highest evolutionary stage of stationary retail.

In smart retail, there are five central issues that will shape the retail of the future. First and foremost, the basic prerequisites must be created that enable data-based working. This in turn allows the use of artificial intelligence (AI) and thus customer data-based one-to-one marketing. In order to be able to work with this at all, intelligent employee qualification and recruitment is required. Qualified employees are also needed for a digital supply chain as well as future-proof business modeling including the development of smart stores. Digital-based stores also enable digitalized shopping centers. In the end, it’s all about “channel no matter” as the highest evolutionary stage of stationary retail.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 G. Heinemann, Intelligent Retail, https://doi.org/10.1007/978-3-658-38316-9_3

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3.1 Basic Requirements for Intelligent Retail The basic prerequisites for intelligent retailing are above all system-related and organizational aspects. Without high-performance merchandise management and checkout systems, which have actually been around since the 1960s, it is not possible to display valid product availability or enable efficient inventory management. However, these are almost as important to today’s customers as attractive prices, because a visit to the store is also about valuable time that should not be invested in vain. In addition, IT issues today have to be prioritized much higher, both organizationally and hierarchically, than in the pre-­ Internet age, when IT departments were often located in the basement, where the AS/400 was or in many cases still is. However, since the law “structure follows strategy” is still valid, a digital strategy must of course be formulated first and foremost, and the job structure must be aligned with it. Such organizational prerequisites, however, require a “digital leadership” as well as a digital culture. With digital resistance or digital allergy, the project is hopeless. In this respect, the first step is to sound out the digital culture fit.

3.1.1 Intelligent Situation Assessment: Digital Evolution Stage Previous evaluations and analyses with stationary retailers as well as their customers show that retailers do not display the same degree of willingness to address the issue of change in retailing due to the influence of e-commerce (Mg.Retail2020, 2015; Dialogplattform, 2015; Kompetenzzentrumhandel.de, 2021). Accordingly, some retailers are already active on the Internet in various forms. Other retailers have an attitude towards their business that obviously does not contribute to the success of the business. Among them are opinions that place the retailer himself at the centre of the action as a form of self-fulfilment and do not see the customer at the centre. Still other retailers point to successful displacement mechanisms, whereby the reason for the migration of customers to the Internet is placed in a completely different place, such as politics or city administration. This results in a not at all infrequently held attitude in which retailers do not see themselves as being forced to act, but also hand over this responsibility to, for example, the city or politics. Online retailing, on the other hand, relentlessly exposes some of the retailers’ existing weaknesses. In this way, it acts as a catalyst that leads to a shakeout in competition. However, meaningful, supportive measures can only be derived for retailers who are also fundamentally healthy in their stationary business and have a perspective for their retail existence. Accordingly, measures do not affect all retailers equally. For this reason, the affected retailers should be divided into four groups based on their digital transformation capability, regardless of their type and size of operation: • Group 1: Traders who are not represented in any form on the Internet and are not willing to do so.

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• Group 2: Retailers who have not been digitally represented in any form to date, but who show a willingness to engage on the Internet. • Group 3: Retailers who already have a digital presence in the early stages and want to expand this further and who meet the prerequisites (e.g. electronic merchandise management system). • Group 4: Retailers who already have a diverse presence on the Internet, are fulfilling their first multi-channel approaches and want to develop further. Digital recommendations for measures must address the different concerns and prerequisites of the groups in a differentiated manner. In addition, retailers who do not want or have no perspective should be “left alone” digitally (Mg.Retail2020, 2015; Welt Ladensterben, 2020). No Further Action for Traders Without a Perspective  Traders without a perspective are characterised by the fact that they exclusively blame the development of online trade for their difficulties without taking a good look at themselves. However, a closer look reveals that the problems often already lie in the elementary business understanding of these retailers. They have no understanding of the customer, cannot offer a personal atmosphere and also do not know exactly why customers come to them. These “entrepreneurs” are more or less “resistant to advice” and cannot be reached by measures either, as they lack the will to change. They are actually even aware that their difficulties are not solely due to online retailing, but do not want to admit this. Basically, these retailers are advised to remain exclusively stationary or analogue and to shrink the store in a healthy way. In doing so, cost reduction through renegotiation with the landlord is also advised. Digital Evolution Stage: Identification of Merchants with Clear Value Creation for the Customer  Priority should be given to identifying and addressing merchants who have a clear idea of why customers come to them and what benefits they offer. These merchants have usually already dealt with the online issue. They often know their customers personally and understand how to nurture those bonds as well. These types of dealers should be the focus of the dealer-directed digital measures. For this purpose, an action plan was developed that comprises the following eight evolutionary stages: Evolution stage 1 – Ground Zero: The interested party must first of all be sensitised/ educated. At this point, it is advisable to provide appropriate seminars and information via the associations, the Chamber of Industry and Commerce or private providers. This should happen quickly and necessarily also include a “digital sensitization” of the dealers. Evolution stage 2 – Online start: In the second expansion stage, the retailer should first dare to take the first “online steps” and gain initial experience. This includes sharing or presenting in social networks or providing basic online information such as opening hours, product range overview or directions. It can also be helpful to enter information in overview maps. The aim of this measure is that the customer can find information about the retailer online in the first place and contact them if necessary.

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Evolution stage 3 – Digital basis: The basis for selling via the Internet is at least one functioning, high-performance, electronic and interface-capable merchandise management and cash register system. A well-organized merchandise management system can speed up business processes and make them more efficient. An automatic adjustment of the stocks on connected systems is also indispensable in preparation for a possible online sale. Most retailers do not yet meet this elementary requirement today (DHL, 2020). The goal must be to be able to provide reliable information about the availability of goods at a specific location in real time. In the long run, a retailer benefits from an enterprise resource planning system because, above all, in order to be able to operate professional multi-channel retailing, a suitable solution with functioning interfaces between all sales channels and the enterprise resource planning system with smooth data exchange of order, product and inventory data is essential. Here, there are already very affordable entry-level solutions that can also provide hardware and are available at the consumer level. Evolutionary stage 4 – Online platform: Connection of the individual local traders to an established platform or online marketplace, which is equipped with numerous online customer contacts and at the same time primarily focuses on the local offers. Preferably, the traders participate in online trade via this platform, which stands for the necessary customers as well as the necessary infrastructure. This allows the presentation of the goods, but also the sale via the Internet to be trained first of all. A partial assortment of single articles and remaining stock is optimally suitable for the entrance into the on-­line business. In the process, a retailer can practice shipping, returns processing and dealing with an inventory management system. Even at this stage, retailers can offer customers an additional benefit by offering the option of “pick-up in store”. Confident handling of the platform and the acquired skills qualify the merchant for level 5. Evolutionary stage 5 – Online channel: This evolutionary stage marks the beginning of proper and serious online sales on an online platform, such as Amazon or Zalando, with a closed overall assortment. In the first place, it is important that this online presence is perceived by customers as a relevant online offer and is frequented accordingly. If the retailers in a city are willing to cooperate, joint logistics solutions could be developed that enable same-day delivery if the goods are available in the stores anyway. In addition, further multi-channel solutions are conceivable in cooperation. Such cooperation is easiest to implement in managed facilities such as a shopping center. Since loose cooperation on the basis of mutual agreements or even loose association in an advertising community, which is often organized as an association, does not usually work, alternative forms of cooperation should be used. Conceivable here would be the establishment of a cooperative solution, so that despite low equity capital, an economic interest in joint action can arise. Such forms of cooperation would not act externally vis-à-vis customers, but would merely organise internal coordination and agreement as well as the bundling of logistics processes. They are thus internal service providers for the participating stationary retailers.

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Evolution stage 6 – Online shop: A retailer who has established his online presence on the shared platform in stage 5 can take the next step and develop his own online shop with a link to his brick-and-mortar store. The idea is to supplement or replace the platform online presence with its own online shop. In any case, an inventory management system will also be indispensable here in order to be able to offer the entire product range online. If necessary, it is advisable to participate in an industry-specific integrated solution if such a solution is established in the respective industry, such as the ARNW Group with Schuhe.de. In addition, it would be possible to use a national marketplace as a further sales channel. Evolutionary stage 7 – Omni-channel retail: In the further course, corresponding multi-­ channel solutions can be offered, provided that the online shop has established itself and generates noteworthy sales. These enable the retailer to expand the customer benefit through an availability display, possibility to reserve and pick up the goods. In parallel, of course, continue to maintain and update the measures that ensure local discoverability of this retailer (Heinemann, 2017). If the online shop is a “flight path for stationary ROPO customers”, can be used equally well on all devices and is also connected to marketplaces, online portals and/or social networks, the end of this evolutionary stage is omni-channel retailing, in which no channel is the “lead channel”. Evolutionary stage 8 – Intelligent Retail Start: The highest evolutionary stage involves the start of the world of Intelligent Retail. This is not just about automation and robots taking over tasks, but about instruments and machines being able to learn and draw conclusions themselves. The focus should be on the central issues that will shape the retail industry of the future, namely that the retail industry uses intelligent systems that it did not have and did not need before. For example, if retailers are applying systems in the seventh evolutionary stage, then even in omni-channel retailing, they are actually rather non-intelligent ones that usually don’t even work with algorithms. But also the stationary retail has to work data-based today, which was not a big issue so far. The highest level of evolution opens up the use of artificial intelligence (AI) with data-­ based work. For example, intelligent recommendations can be made to a customer shopping in a store based on the customer’s stored data and what the customer is looking for. Product recommendations based on the customer’s interests, previous purchases and search behavior are conceivable. Google is also working on this, and locally. In this way, the platform economy is increasingly changing the shopping and search behavior of users. And if a retailer doesn’t get on board with this, they will lose customers. The large online marketplaces have been working successfully with these methods for a very long time. A strategy that aims to merge online and offline shopping by means of artificial intelligence is conceivable (ON4OFF, 2021).

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3.1.2 Digital Leadership Leading in the digital world, so-called digital leadership, is currently probably the greatest challenge for seasoned retail managers. However, the digital transformation can no longer be stopped. That is why more and more retail companies are accepting this paradigm shift. However, most managers still do not have a clear idea of what digital leadership actually is and how the mindset can really be changed. In this respect, it is not surprising that there is a lack of powerful examples and also role models (Vranken, 2020). At the same time, the demands on retail managers are, if anything, increasing. They are required to react ever faster and more flexibly to external influences. Digital providers that are already fully exploiting the potential of new technologies owe their success on the one hand to newly created organisational structures, and on the other to the development of new ways of working and managing that can respond flexibly to change. These companies are called “exponential organizations” (“ExOs”) (Rotax et al., 2019). In the online market, which is still characterized by exponential growth, scalability has become the most important success factor. In this context, network effects are the main reasons for an ever-growing customer base as well as for market share gains. The more people who use the product, the greater the value for potential new users. The retail industry, in particular, is being permanently transformed by the entry of new market players that leverage the power of network effects. To cope, companies need to embed their products and services in a platform or ecosystem and open their organization to collaboration with business partners and users. With an ExO organization, the value proposition can be strengthened and new growth opportunities can be opened up. However, to achieve this, companies must fundamentally transform their ways of working and organizational structures to create new forms of internal collaboration. Such a transformation is associated with a variety of difficulties (Rotax et al., 2019). Above all, the aspect of “agility” is gaining in importance, as digitalization is undoubtedly increasing agility requirements (Heinemann et al., 2019). The speed of social and economic developments is enormous and the changes in the working world are of a technical and social nature. Yet the new skills cannot simply be delegated, nor should they be. Because top decision makers in retail are expected to be agile and innovative, empathetic and coordinated. This is typical of a VUCA world. When the USSR collapsed in the early 1990s, US military experts spoke of the VUCA world, which stands for volatility, uncertainty, complexity and ambiguity. In the context of the digital world with the increasing digitalization of all areas, changes in customer demands, new and individualized services, increasing globalization, changes in all working environments and demographic change, VUCA also plays a major role. The following success factors can be derived for the retail companies concerned (Schallmo, 2020): • • • •

Change to Digital Culture to enable digitization, Use of digital technologies for process optimization and acceleration, Customer centricity and development of corresponding business models, Agility in all functions with appropriate empowerment of employees.

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The four success factors can be condensed into a two-dimensional model with a human-­ technology dimension. The decisive factor here is whether the task areas are oriented more towards technologies or towards people. In this way, four constellations can be distinguished that describe the various task areas and roles of managers in the digital age (see Fig. 3.1). The roles of managers for digital leadership are therefore (Ibid.): Innovator: The focus is on informing, raising awareness and qualifying employees. Innovators actively shape the digital transformation and renewal of the company, have a long-term orientation, focus on employees and drive the change in the corporate culture. This is a typical digital, open culture that actively allows new impulses. In this, employees and their willingness to shape the digital transformation are encouraged. Doers: Focus on anticipating technological trends in order to take advantage of opportunities at an early stage and in the long term. Doers tend to focus on the technologies and corporate strategy that serve the digital transformation. They are concerned with new technologies and clear approaches to how the change is shaping up from a technological perspective. Coordinator: Also oriented towards tools that serve collaboration and, like the doers, towards technologies that, however, have the focus on operational activities. Through the use of digital potentials as well as the use of existing technologies, the performance, especially that of the processes, is to be increased within the company.

Sync and corrected by dr.jackson for

Innovator

Mentor

Digital Transformation of the undertaking and change of the Corporate culture by enabling the Employees

Digital leadership and creation of Commitment from employees through Design of the Work

strategic

operational Coordinator

Maker

Increase in Performance through use and Use of digital Products

Alignment of the Digital Transformation on corporate strategy through Anticipation of trends

Technology

Fig. 3.1  Dimensions, tasks and roles of managers in the digital age. (Source: Schallmo, 2020)

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Mentor: Focuses on employees and thus creates a commitment to digital topics among them. In addition, he promotes their individual performance. However, mentors are short-term oriented and rather shape the daily work. All four digital leadership types require a minimum of the following seven digital competencies (Vranken, 2020): 1. Vision and innovation: Digital leadership types develop visions for their team, recognize long-term options and approach tomorrow’s problems with innovative ideas. To do this, they are willing to leave their own comfort zone, question their own position and always dare to try something new – ideally with interdisciplinary approaches. 2. Digital skills: Digital leadership types prioritize the topics and developments that are customer-centric and use agile tools and techniques to manage them. Only those who know all about digital business models and processes as well as digital value chains can also lead digital teams. 3. Technology and data literacy: Digital leadership types are data-driven and use data to make decisions, especially in product development or in selecting priorities for investment. They are tech-savvy and understand the integration and application of technology to their business. 4. Networked thinking and action: Digital leadership types recognize that disruptive developments in digital change can no longer be managed with linear methods and solutions. Together with their teams, they look for meaningful opportunities for intervention, control levers and holistic system improvements. Their own network is expanded through digital communication possibilities and existing knowledge is linked in a meaningful way. 5. Metacommunication and purpose: Digital leadership types can take facts, processes and problems to a higher level of observation. They can look from a helicopter perspective and have the ability to coach their employees in an accelerated, digital world as well as to show them the meaning contexts and the “purpose”. 6. Change management: Digital leadership types are game changers and constantly optimize work processes and resources as well as IT systems. They develop themselves through coaching and training and work on their leadership personality. They train the employees themselves to become change agents. 7. Identity creation, inspiration and participation: As coaches, digital leadership types encourage digital leaders to develop swarm intelligence and help the team to achieve extraordinary performance by granting them freedom. They give intensive feedback and show individual appreciation. In doing so, they implement systematic talent management. Conclusion: Digital leadership – also and especially in flat hierarchies – is a critical success factor. A change in the leadership culture in stationary retail is needed. Complex questions of a global, digital world are no longer solved by individual masterminds, but by collective networks. These must be orchestrated and moderated by digital leaders.

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3.1.3 Digital Culture: Digital Culture Fit Peters and Watermann already explained in their legendary book “Search of Excellence” (1982) that corporate culture is the central success factor of all successful companies. It is undisputed that the lived attitudes, values and norms of the employees of a company influence their behaviour and their decisions. This is not to be understood statically, because retailers in particular are subject to constant change. Basically, the “Wheel of Retailing” determines strategy and thus the laws of “structure follows strategy” and “culture follows structure”. Above all, the digital future is setting in motion a changed mindset in companies and a new design of work processes. This, in turn, is dependent on the companies’ ability to innovate. That is why stationary retailers need, above all, a culture adapted to the digital world. This should promote and anchor the necessary new skills and key competencies. It must contain precisely those aspects that make companies digitally successful and the shaping of which is in any case the task of managers (Heinemann OH, 2021). The assumption is that the digitalization of the retail company depends on certain characteristics of the corporate culture, on the other hand, in turn, has a significant influence on the company’s success (Remdisch & Petzel, 2019). In this respect, the cultural fit – i.e. the cultural fit – between the company and its employees is critical to success. It is relevant for all functions in the company, as shown in Fig. 3.2. Increasingly, even traditional companies are recognizing the influence of the cultural fit of candidates and employees on satisfaction and productivity. One in two employees has changed jobs at some point due to a lack of identification with the employer’s culture. Companies that ignore this risk being left behind in the race for digital talent (Athanas, 2017). Without a digital corporate culture that takes advantage of the new digital requirements, a retailer will no longer be able to be successful. What distinguishes such a digital culture and what connections exist between the culture and the success of a company was found The importance of cultural fit in staffing of positions in different areas IT

Very important/ Rather important

68,4

Rather unimportant/ irrelevant 31,6%

Production and Personal Development

Managers

Marketing

Sales

Finance

82,4

93,3

93,2

92,1

90,2

74,5

17,6%

6,7%

6,8%

7,9%

9,8%

25,5%

Fig. 3.2  Importance of cultural fit in filling vacancies in different positions. (Source: Athanas, 2017)

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out by the Leadership Garage in a study on the “Digital Cultural Fit”. In the process, 2460 managers were surveyed (Remdisch & Petzel, 2019). Digital Cultural Features and Cultural Balancing Act The digital corporate culture was examined according to 41 different cultural characteristics. They include both traditional characteristics and aspects of the new, digitally fast and agile working world. The traditional characteristics focus on performance expectations, results orientation, quality awareness, customer orientation and job security. The new aspects include, for example, flexibility, agility as well as risk-taking. Rapid exploitation of opportunities and free exchange of information are also taken into account. On the basis of a factor analysis, it was determined that all characteristics can be assigned to three different areas, namely innovation mindset, performance mindset and social mindset (cf. Fig. 3.3). An interesting result of the study is that the new characteristics should by no means be at the expense of the traditional cultural characteristics. The executives surveyed want to see a high level of new digital characteristics, but they also want to maintain traditional cultural characteristics. This means a cultural balancing act for companies, because a sustainable corporate culture represents a mix of new and traditional cultural characteristics. In addition to traditional values, executives see a particular need for development in terms of agility and flexibility, cross-departmental collaboration and rapid exploitation of opportunities, innovativeness, learning culture and transparency in their companies. The extent to which digitization in companies is related to corporate culture is made unmistakably clear by the analysis: Almost all managers rate the influence of digitization Innovation Mindset Agility and flexibility, overarching Cooperation, rapid use of Opportunities, innovativeness

Social Mindset: Culture Characteristics, the welfare of the employees and their needs and stable structures in view.

Digital Culture Triangle

Performance Mindset: Culture Characteristics, Performance and results orientation on to the foreground.

Stationary retail

Fig. 3.3  The three factors of digital culture. (Source: Remdisch & Petzel, 2019)

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on their employers as extremely high. In contrast, however, only 18% of respondents are satisfied with the actual state of digitization in their company. Overall, deeply effective correlations between corporate culture and the degree of digitization become clear. According to this, advanced digitization is well compatible with performance orientation and the consideration of employee interests. Furthermore, significant correlations between corporate culture and corporate success are revealed. The higher the degree of digitalization, the better the market performance, employee satisfaction as well as disruptive ability and innovative strength. Overall, it can be summarized that corporate culture influences the degree of digitization, which in turn correlates positively with corporate success. In particular, the cultural characteristics that are representative of the “innovation mindset” are associated with a higher degree of digitization. The study makes it possible to identify cultural characteristics in the sense of a digital cultural fit. This makes it possible to measure how well a company is culturally positioned for the challenges of the digital working world. In addition, it can be identified in which cultural areas there is still a need for action in order to drive digitization forward.

3.1.4 Digital Organisational Requirements For more than ten years, the findings of business reengineering have been pointing out that functional organizations tend to be unsuitable for meeting the requirements of the digital age. Nevertheless, a look at the structures reveals that the management organizations of most companies are still flawlessly functional with a classic division of labor according to purchasing, operations and sales. A CDO (Chief Digital Officer), who could explicitly take responsibility for this important topic of the future, rarely exists. In such supply-­ oriented management structures, where organizational changes in middle management and management responsible for day-to-day business sometimes have to be requested for years, the speed required for the digital age cannot emerge. Digitally aligned organizations are moving away from a functionally oriented focus and putting the passion and credibility of the entire leadership and an unconditionally “digital customer desire” oriented organization at the center of business activities, including CDO.  This type of “customer-­ centricity” permeates the company’s entire business system while providing employees with a framework of guidance for their daily decisions. However, only a few experiences from the traditional brick-and-mortar business can be transferred to the online channel. The main reason for this is that the online channel is not just a new sales channel in the traditional sense, but a completely new business with new capability requirements. The decisive factor is that above all customer-oriented business processes and unrestricted customer orientation are essential prerequisites for success in e-commerce. The key factors here are speed, transparency and service orientation. In view of the changed market environment as well as customer expectations in terms of time and costs, online retailers are now forced to increase effectiveness on the one hand and to realize sustainable efficiency gains on the other hand in order to meet the upcoming challenges. In this respect, the speed

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of internal decision-making and work processes plays a key role in online retailing, for example. Efficiency and “lead time reduction” are considered to be the essential basis for success in online retailing (Heinemann et al., 2019; Heinemann OH, 2021). This requirement can only be met if the organization is made leaner, faster and more effective through a process-oriented realignment. In addition, there is the demand for uncompromising customer orientation, which is a basic prerequisite for competitiveness due to the drastically reduced customer response times and forms the basis for dynamic growth. This requires a customer-oriented all-round handling in processes. It is necessary to design continuous processes between the procurement and sales markets without interfaces as far as possible and thus to create “a window to the customer” for each process. This is the only way to achieve the actual “customer orientation” that characterises online retailing and allows direct feedback from customers (Osterloh & Frost, 2003; Heinemann OH, 2021). For each process there must be persons responsible for the process (process owners) as well as process workers (case workers). Depending on the scope of work, it is also conceivable to make an entire team responsible for a process (case team), which then coordinates itself by way of self-coordination. However, this presupposes well-developed team skills and the ability to make decisions on one’s own. In order to do this, however, the employees need appropriate authority to be able to satisfy the customer within the framework of the respective process variant (empowerment). This is usually accompanied by larger management spans and flatter hierarchies. The result is a customer-oriented all-­ round processing with a minimized number of interfaces, which, however, requires an Internet-specific business system that takes the principles of business reengineering into account (Ibid.). With regard to the organisational requirements, it quickly becomes clear that the new focal points of activity cannot be mapped in the previous organisation. Rather, corresponding new positions with a specific job structure are required. Prerequisites in the Management Organization In many retail companies, there is great uncertainty about how to implement the process-­ related requirements of the future retail trade in the management organization. It is necessary to create the structural framework conditions in order to increase the clout vis-à-vis competitors and thus to gain lasting competitive advantages. This can be achieved – as in the classic forms of organization  – by means of flat structures and teams in a separate e-commerce organization. Such a management organization is shown in Fig.  3.4 as an example for the e-commerce division of a medium-sized omni-channel retailer. Such an e-commerce organization must fit into the overall organization. However, it can only function if the company management is aware of the challenges of intelligent retail and meets the requirements of professional digital leadership.

3.1  Basic Requirements for Intelligent Retail

Internal

Marketing/ Distribution 4,0

Assortment Marketplace N.N.

8,0

Online-Marketing/ socialmedia 0,5 N.N.

Multi-ChannelAssortment 0,5 N.N.

CRM-Marketing

Online assortment

N.N.

0,5

Search & Browse N.N.

0,5

Shop-Mgnt. N.N.

0,5

Expansion Abroad 1,0 N.N. Customer service/ Call center N.N. 1,0

Fulfillment-Partner

Management E-Commerce Ladder 1,0

Ladder 1,0

121

N.N.

1,0

Marketplace/B2B N.N.

0,5

3,0

Logistics/ Supply Chain N.N.

2,0

0,5

IT/Systems/ Catalog Ladder 1,0

0,5

Payment/debit Management N.N. 1,0

N.N.

N.N.

2

Content

2 -

0,5

Product catalogue

0,5

Multi-ChannelCommunication 0,25 N.N. SEO / SEM N.N.

6,5

Shop

0,25

0,5

1

EBV Model

N.N.

Mobile/Voice

Logistics

photos/ ContentManagement Photo 1 Stylist

1,5

Offline-Marketing

WWS N.N.

N.N.

Multi-ChannelManagement N.N.

N.N.

0,5

System operation N.N.

1,0

DWH/ Analyses N.N.

1,0

Graphic-Design N.N. Fulfilment-Sharing Optional N.N. RTD

2,0

ShopDevelopment Dev/Grfx 1,5

Provider Services 26,0

N.N.

Customer service/ Call center 8,0 N.N. Photos/Content 1,5

N.N.

IT/ WWS N.N.

2,0

Logistics 9,0

N.N. Hosting N.N.

0,5

Payment/debit Management 5,0 N.N.

To be filled without lines

Fig. 3.4  Possible e-commerce organization at a medium-sized omni-channel provider

3.1.5 System Technical Requirements: API First The basic prerequisites for intelligent retailing are above all technical and organizational aspects. Without high-performance merchandise management and checkout systems, which have actually been around since the 1960s, nothing really works in the digital age. In addition, IT issues today have to be prioritized much higher, both organizationally and hierarchically, than in the pre-Internet age, when IT departments were often located in the basement, where IBM’s legendary AS/400 was or in many cases still is. The first retail companies are realizing that IT and digitization must be a matter for the boss. In addition, all functions and areas of brick-and-mortar retail are now affected by digitization, i.e. not only e-commerce, but also the entire marketing including customer loyalty, all procurement processes as well as the entire merchandise management. This must not only be data-based, but also carried out via an ERP system that can be integrated into the system landscape and at the same time enables online trading. Unfortunately, companies still too often and naively fall back on isolated solutions that are supposed to solve a specific problem, be it a CRM system, a POS system, a shop system or other digital systems for the point of sale. What is often missing, however, is an integrated system strategy that provides data between the entire islands and enables their exchange. This is not only about customer data, but all information about the products and their availability as well as data from orders. However, intelligent retailing and also functioning multi-channel retailing requires systems that go beyond the existing systems. In any case, solutions are required

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that connect different data sources. However, this often fails because of the various data silos in which each of the systems stores and manages data for itself. Omni-channel commerce and click & collect are only basic examples where the comprehensive data flow must be ensured. It is not uncommon for there to be a lack of corresponding systems or – if systems are available – an API solution that enables data exchange and the provision of uniform interfaces and services. However, if companies opt for an API strategy or even a modern API-first approach, they can react much more flexibly and quickly to new challenges. Most importantly, APIs are the only way to make sense of AI and intelligent systems. APIs also allow new business models to be developed and existing processes to be digitized holistically. And platform connectivity, where existing data is made available to external customers, partners or users, would not be possible otherwise (Whitepaper API First, 2021). Finally, it would be even more difficult with a complex interaction of several channels and the integration of external software or providers. As a rule, online shop solutions require a wide variety of puzzle pieces to be brought together. The most important system components are undoubtedly ERP, PIM, CRM, newsletters/ emails and external service providers (Steireif et al., 2015: Heinemann OH, 2021): • ERP or Enterprise Resource Planning refers to a system with which all available resources can be planned and controlled in a timely manner and in line with requirements. In addition to the usual basic functions of a company such as purchasing, production/operations, marketing/sales and administration, this primarily concerns materials and merchandise management as well as product data management. A typical provider of ERP systems is SAP, for example. • Checkout systems traditionally refer to the POS hardware and software in the stationary store. However, these also represent a separate system in online retail that must be consistent or at least compatible with the stationary checkout solution. Especially with regard to mobile payment and contactless payment in the store, POS systems are subject to ever new requirements in ever shorter cycles, which is why maximum flexibility is required here. • PIM or Product Information Management stands for a system in which all product data is managed, maintained and modified in a media-neutral manner. This ensures that the various systems and sales channels are fed with consistent and error-free product information from a single source. It classically replaces the Excel spreadsheet chaos in companies and usually consolidates decentralized data sources into a central and uniform overall solution. • CRM or Customer Relationship Management refers to the planning, control and execution of all processes relevant to customer relations. • Newsletters/emails today require personalized newsletter campaigns that can no longer be run manually, but only system-based and fully automated. • External service providers are typically payment service providers such as Paypal, shipping service providers à la DHL, credit assessment service providers such as Klarna and controlling service providers such as Nitrobox.

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The essential task for the development and smooth operation of an online shop is to combine the various software components and integrate the shop into the existing IT infrastructure. There are different forms of integration that need to be weighed against each other (Steireif et al., 2015; Heinemann OH, 2021): • Online shop as a stand-alone system is the least complex form of integration. Here, predefined software packages are used whose components are already configured and can be operated independently of other software solutions. This form of integration is the classic approach for a smaller online shop, which then maintains all data, functions and processes itself. The advantage is a faster “time to market”, but the disadvantage is that customer and product data must be maintained several times. • Functional integration uses certain functions of a software component through other components of the IT infrastructure. For example, it makes sense to integrate the credit check into the payment process. In this case, the online shop calls up a defined service in the ERP system and receives the desired information from it. This type of integration requires adherence to certain standards and is thus very strongly linked to the components of the individual systems, which cannot be adapted quite so easily without creating data chaos. • Data integration: If this variant is selected, several components from the IT infrastructure access the same data, so that redundancies and inconsistencies in data management as well as unauthorized access to it are avoided. Especially in multi-channel systems, it would not make sense to maintain customer data in different systems, which is why data integration is almost a must here. The only question to be clarified is whether the ERP or the CRM system should be the leading one. • Combined integration: In this form of integration, functions and data are blurred. Here, it is no longer concretely defined interfaces that are accessed, but rather defined services. An example would be the possibility of a CRM system to create an order for the customer, which is then not stored in the database of the CRM system, but is created directly in the database of the online shop via services. This allows the customer to track his orders in the online shop. When integrating into the existing infrastructure, a healthy balance of open and standardized interfaces or more coupled integration into the IT infrastructure should be found. A certain degree of flexibility and vendor independence also provides more investment security. Figure 3.5 shows how complex the interaction of the necessary system components is in omni-channel commerce and thus intelligent retail. The online shop system is only one small component. As a rule, online retail stands and falls with a high-performance ERP system that is indispensable. This ensures the provision of digital data in real time. The middleware coordinates the ERP as the most important pillar in the backend with the shop system as the essential pillar in the frontend. The master data management and the ERP

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Newslettersystem subscriptions/ impulses/ Offers

Master data management Article master/ stocks/ Prices

CRM Customer Relationship Management/ Database

PIMS ProductInformationsystem

Middleware System Mediator = adapter set

Online shop frontend Production control and monitoring Operating data output/recording

Order

Orderentry

ERP enterprise resource Planning = merchandise management = EWS

Order entry

OMS Order Management System

Order management

CMS Content Management System

warehouse

picking

MST MarketplaceInterfaceTool

WAT WebAnalysis Tool

Packing

Cash system

Search system Intelligent Finding aids

RCE Recommendation Engine

Return Return

Shipping

Delivery

Fig. 3.5  Most important system components in omni-channel retailing. (Heinemann OH, 2021)

are closely connected and exchange data in a permanent flow with the PIMS (product information system). The POS system, the search system and the RCE (Recommendation Engine) system are connected. On the other hand, the newsletter and CRM systems work automatically in close connection with the PIMS and the ERP. The front end is complemented by the OMS (Order Management System), CMS (Content Management System), MST (Marketplace Interface Tool) and WAT (Web Analytics Tool). The technical implementation, which involves programming as well as connecting the shop to the external systems, is comparatively simple (Menzel, 2012; Steireif et al., 2015; Himmel, 2018). Undoubtedly, these are very agile project stages for which not all requirements can be planned in advance down to the smallest detail. Therefore, in many cases, changes and adjustments still arise in this phase, which should be planned for in terms of time. The same applies to the test phase and “going live”. Nevertheless, none of this makes sense if the technical implementation is not preceded by a sound digital and API strategy, including business planning. Furthermore, it must be clarified whether the realization should take place internally or externally. For in-house developments, the necessary capacities and the required know-how are often lacking. Delegating the topic to the advertising or IT department usually goes wrong. E-commerce agencies are usually professionals who have the necessary knowledge for such systems. The requirements are enormously high. In addition, there is the technical change, which is why the technical realization also deserves a certain amount of respect (Himmel, 2018; Heinemann OH, 2021).

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125

3.2 Intelligent and Customer Data-Based One-to-One Marketing AI (artificial intelligence) is currently the big topic in industry and commerce. Especially the large platforms, i.e. all GAFA TABs, are driving this development. Not only in the back office and in the supply chain, but also in the front end, enormous research efforts are being made to be able to use customer data more intelligently. In order to ensure that the stationary retail trade does not finally lose out in intelligent customer advice, it should also dedicate itself to this topic. However, it is often misunderstood that AI rather stands for automation and actually has nothing to do with intelligence. When it comes to real intelligence, it is better to talk about machine learning. This concerns the intelligent handling of large amounts of data and the ability of machines or computers to learn and develop independently. Even in advanced multi-channel systems, the customer leaves a digital fingerprint in the web shop, but this usually plays no role in a later visit to the store. To ensure that the customer’s “customer journey” does not become “fragile” at such moments, solutions are required that enable the desired seamless exchange of data between brick-­ and-­mortar and online retail. This makes it possible to provide customers in stores with offers and suggestions that are precisely tailored to their needs, and to strengthen the advisory skills of the salesperson in the store. This thus also enables customer data-based oneto-one marketing and intelligent customer service with AI in the store. At the same time, the customer data can also be used for intelligent assortment and sales planning.

3.2.1 AI Versus Machine Learning in the Retail Sector Especially in retail, including online retail, the topic of AI (artificial intelligence) is currently being hyped. Whether in the back office or the front office, in pricing, merchandising, service including advice or in the virtual changing room in front of the Smart Mirror, AI is supposed to fix it (Lamprecht KI, 2018; Heinemann OH, 2021). In this regard, however, it is usually misunderstood that AI in most cases stands for automation and algorithms, but often has nothing to do with intelligent processes. So if it is about real intelligence, it would be better to talk about Machine Learning or even Deep Learning (Kolbrück Chatbot, 2017; Riedel, 2019; Heinemann OH, 2021). These terms describe the intelligent handling of Big Data and the ability to learn and develop independently. What is normal for humans is naturally considered revolutionary for computers or machines. Collecting and using relevant data to make conscious decisions and achieve strategic goals is not new for online retailers, who are now also moving forward with AI. Zalando, for example, is considered a best practice in Germany and has installed an AI research project team. Machine learning is to be used here for the personalization of product recommendations, forecasting of customer preferences as well as assortment curation, among other things (Locationinsider Trends, 2019). For most brick-and-mortar retailers, on the other hand, artificial intelligence is a closed book. Yet AI is already being used in a variety of

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ways in marketing, for example to optimize advertising messages. Persado, for example, has been using systems that recognize natural language to optimize processes and content since 2012. It has been proven that AI-optimized advertising messages are more effective and efficient than “normal” advertising content can ever be. Chatbots or social bots cannot be used at all without Artificial Intelligence and Hyper Targeting would not exist otherwise. This enables behaviour-based predictions that can be used for the placement of advertising messages, personalised content creation and improved pricing (Büttner, 2020). In e-commerce, however, the big topic so far has undoubtedly been the chatbot, a compound word made up of chat and robot. These are applications that evaluate typed and/or spoken texts and react to them in an individualised way (Lamprecht KI, 2018). They are usually deployed at the point of contact with the customer in order to be able to perform certain tasks independently and without human intervention. The goal here is, of course, also to permanently relieve the call center. However, customers will only use chatbots as an alternative to human service staff in their purchasing process if they understand them and are capable of dialogue. If this is the case, then one wonders why customers should still look for a salesperson in the store, even for stationary retailers. Especially when the bot in the smartphone can explain the way to the shelf or directly to the product much faster. In addition, the question arises why users should look for filter functions in the online shop and click for a long time if the robot understands it with just a few words. Intelligent chatbots show where retail could be heading in the future. Thus, helpful computer species are already being offered that are even capable of reinventing commerce in the highest evolutionary stage. That’s why experts consistently see great potential in chatbots and solutions capable of dialog. For example, tests show that they can be used to persuade more customers to complete a purchase (Kolbrück Chatbot, 2017; Damm, 2019). So far, however, only routine queries can be carried out with it. A real and truly intelligent dialogue capability does not yet exist. This is why the opinion is widespread, especially in stationary retail, that the potential of chatbots is rather limited. The same applies to the closely related voice-controlled assistants. Without a doubt, many of the bots so far resemble rather narrow-minded command receivers that perhaps respond to a few keywords. On the other hand, intelligent solutions on the customer front are currently being worked on at full speed. Today, there are already higher levels of maturity in chatbot development that use deep learning. This allows conversation patterns to be compared in real time with other conversation patterns from past dialogs and corresponding deductions to be made. Additionally, other sources of information such as data from the CRM database can be evaluated in the process, as illustrated in Fig. 3.6. Such chatbots come very close to simulating a real dialog and lead to a significantly improved customer experience. Such intelligent dialogs are also the subject of the joint project launched in January 2019 under the name ON4OFF, in which the author is also involved. Among other things, this involves concepts or applications of artificial intelligence and machine learning to improve the dialogue with customers who prefer to shop in stationary stores in their region. The aim is also an intelligent channel linking of offline and online in multi-channeling (Carell & Heinemann, 2018). For

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Historical Data

New Data Position data Time data Terminal device data Situation data Other context data

Data model Inference

Basic data CRM Potential data CRM* Action dates Reaction data Other customer data

learning method

Answer/ Reaction data

Answer/ Reaction data

Positive Negative Spontaneous Delayed None

Grunddaten Positive Potenzialdaten Negative Aktionsdaten Spontaneous Reaktionsdaten Delayed Sonstige None Kundendaten

Continue learning *CRM = Customer Relationship Management

Fig. 3.6  Possible data model for an intelligent chatbot. (Source: Own representation based on Kossmann, 2020)

example, around one third of stationary retailers also maintain an online shop in addition to their brick-and-mortar store (ibi, 2020). In most cases, however, the internet presence does not complement the overall presence in terms of a coherent “customer journey”. In this context, the online and offline business areas do not function in a skilful interplay, but rather as separate “sales events”. So while the customer may leave a digital fingerprint in the online store, this is then not used when they later visit the store. While AI is a very broad application of tools and techniques that allow computers to mimic human behaviour without “thinking”, Machine Learning and Deep Learning go far beyond this (ON4OFF, 2019). The terms such as AI, machine learning and Deep Learning are often used interchangeably. Yet, machine learning and deep learning both fall under the umbrella of Artificial Intelligence because without Artificial Intelligence, machine learning would not be possible and both are prerequisites for Deep Learning (Benoit, 2019; Riedel, 2019; Heinemann OH, 2021). Artificial Intelligence: Programming Tasks with Logic Artificial intelligence is a subset of computer science whose logical concepts originated in the pioneering days of computer science in the 1950s. AI is reminiscent of teaching, where

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students are taught such information that they are supposed to learn. Here, however, we are talking about systems that mimic routinizable skills. AI applications assume speech, language, and strategic thinking, and are capable of performing certain tasks (e.g., image classification, speech recognition, translation) as well or better than humans do. This is especially important in the age of Big Data, because the number of data points as well as the acquisition of new data is almost impossible for humans to handle in terms of volume. Even everyday tasks such as time management, troubleshooting or organizing employees and their activities are already a data challenge (Luber & Litzel, 2016; ON4OFF, 2019; Riedel, 2019; Heinemann OH, 2021). AI is divided into weak and strong AI. Here, “strong AI” is the futuristic concept of robots that are designed to act and think like humans. In contrast, “weak AI” refers to computer systems that are only meant to perform human-like tasks. In this respect, it is really the discipline of intelligent algorithms. An example of AI in practice is the modern traffic light with fixed-time control that stays green for 45 s and then switches to red and is connected to a traffic light network with coordinated control (Benoit, 2019). Machine Learning Machine learning is considered as a technique to achieve AI and can be considered as a subset of AI. This involves the use of algorithms that enable computer systems to learn from data and make decisions (Benoit, 2019). Using school as an example, machine intelligence works in such a way that students are handed a book to work out the subject matter on their own. Machine learning thus goes far beyond automation and empowers machines to learn on their own using data. In this respect, machines are to be taught something. In particular, the limitless abundance of data on the Internet makes it possible for computers to learn for themselves and pave the way for Deep Learning (Luber & Litzel, 2016; ON4OFF, 2019; Riedel, 2019; Heinemann OH, 2021). Related to traffic lights, machine learning algorithms could be used to determine the optimal amount of time to switch from red to green depending on the situation. This could lead to a reduction in traffic congestion and help cities use the data generated by cars to make optimal decisions using this programmed logic. Image processing is also a grateful application area for machine learning. For example, cameras with optical character recognition and image data can be used for image processing software to check whether parts are missing during goods receipt or picking, for example (Benoit, 2019). Deep Learning The newest subset of Artificial Intelligence is Deep Learning algorithms, which build on the advances of machine learning, but take a slightly different approach. They no longer rely on humans to program the tasks first, but mimic human learning. Deep learning-based applications make connections using neural networks to discover patterns (Benoit, 2019). Exemplified by teaching, Deep Learning enables the student to learn from mistakes and improve more and more. However, Deep Learning requires the ability to analyze and evaluate information. Logical conclusions must be drawn and solution paths selected in order

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to learn from mistakes. This is based on artificial neural networks, which have been around since the 1950s but are only experiencing their breakthrough in the wake of digitalization. Deep Learning primarily enables predictive applications, such as improvements in predictive maintenance, safer autonomous vehicles, and better prediction of disease or recurrence. Experience has shown that the more data a machine can process, the greater its ability to learn. The most common of these are voice and image recognition as modern applications. However, these are not used to carry out their own programming at great expense of time, but rather to automatically gain an understanding of the problem, such as a quality check, from the algorithm. If, in the process, the test equipment learns what a correct part looks like, taking into account slight deviations, for example, it is possible to quickly determine if something has visible defects. The solution can be further improved by providing more data to the tool to even make independent improvements. The principle of deep learning application is that the more data available, the better the results (Luber & Litzel, 2016; ON4OFF, 2019; Riedel, 2019; Benoit, 2019). By recognizing patterns in existing databases, IT systems are able to independently find solutions to problems. They are enabled to recognize regularities and develop solutions. On the basis of existing databases and algorithms, quasi artificial knowledge is generated from experience. The software thus learns independently and finds intelligent solutions. The knowledge thus gained can be used for new problem solutions or for the analysis of previously unknown data, rather than generalized. However, this requires prior action by humans. Accordingly, the “machines” must be fed the relevant data and algorithms in advance. In addition, it is necessary to establish rules for data analysis and pattern recognition. Once these requirements are met, machine learning computers can, among other things, find, extract, and summarize relevant data. They are able to make predictions based on the analyzed data or calculate probabilities for certain events. At the highest level, they can independently adapt to developments as well as optimize processes themselves based on the recognized patterns. Algorithms play a central role in this. They can be divided into different learning categories, namely supervised, unsupervised, partially supervised, reinforcement or active learning (Luber & Litzel, 2016; ON4OFF, 2019; Benoit, 2019): • Supervised learning requires that example models have been defined and specified in advance. Thus, the information must be suitably assigned to the model groups of the algorithms. Afterwards, the model groups can be formed and automated based on independently recognized patterns. • Semi-supervised learning represents a mixture of supervised and unsupervised learning. • Reinforcement learning works on the basis of rewards and punishments. Accordingly, the algorithm is told how it should react in different situations, which is strongly reminiscent of human learning. • Active learning offers algorithms the possibility to ask for the desired results depending on the data situation. Beforehand, a selection of relevant questions is made in order to minimize them. Active learning also marks the highest level of AI, namely deep learning.

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The database should be digitally based and can be repeatedly made available for machine learning. Machine learning is characterized by the fact that input and output pairs can be available simultaneously or with a time delay, i.e. either batch learning or sequential learning can take place.

3.2.2 Intelligent One-to-One Marketing and Hyperpersonalization Machine learning has received an enormous boost, especially due to the development in the field of Big Data. Big Data systems are a prerequisite for this type of learning, since machine learning requires the processing of enormous amounts of data. With the help of Big Data, both structured and unstructured data can be analyzed and fed to the learning algorithms efficiently, quickly and with relatively little hardware effort. Therefore, machine learning requires distributed computer structures and particularly fast database systems. This enables flawless “one-to-one” marketing, which can be regarded as extremely differentiated in terms of both customer value and customer needs (Fig. 3.7). Here, all customer data on preferences as well as customer behavior are used for regular profiling, i.e. a detailed customer description. With permanent interaction, an expansion and deepening of the degree of individualization over time, i.e. dynamic profiling, is possible (Luber & Litzel, 2016; Heinemann OH, 2021). The end of the home page, which was identical for all visitors, is also approaching in online retail (Internetworld eCommerce Trends, 2020).

Expansion of needs FrequencyMarketing

One-to-OneMarketing

“loyalty programs”

“online dialogue”

Mass marketing

Nicheand Target Marketing

Value of the Customers

uniform

“Class. Advertising”

uniform

Customers Customer needs

Interactivity

high differentiated

“Events”

high differentiated

Fig. 3.7  Classification of one-to-one marketing. (Source: Adapted from Peppers & Rogers, 1997; Heinemann OH, 2021)

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In this respect, the future is hyper-personalized web shops, which are called Applied AI web design in technical jargon (Stein, 2017; Heinemann OH, 2021). These use algorithms and user data to enable dynamic adaptation of content and design in real time. For this purpose, layout changes (including arrangement of elements, menus, banners) can be generated and tested fully automatically or based on templates. In this way, optimal forms of presentation can be found for the user in order to offer him the most appropriate customer journey (Stein, 2017). Therefore, it is not surprising that more and more retailers are taking advantage of the opportunity to use advanced customer data analytics and artificial intelligence to gain real-time insights and create hyper-personalized experiences based on them. This helps to create differentiated and highly individualized user and customer profiles. These can be associated with patterns of action or identify completely new patterns of action. This enables dynamic personalization of content and offers, which are generated in real time and made available via the relevant touchpoints. One of the most important touchpoints remains the store. That’s why the future belongs to individualized customer targeting in brick-and-mortar retail, especially since AI-supported systems also make this technically possible. In this context, AI-based one-to-one marketing not only supports market segmentation on a micro level, but also opens up hyper-personalized and granularized offers in combination with AI. At the beginning, there are usually personalized emails. The next step should quickly lead to personalized websites and landing pages, where the visitor gets the impression that this page is just for them personally. If implemented correctly, this allows companies to generate greater interest in their offers, increase call-to-action awareness, increase dwell time on the website, and provide value to repeat customers (iBusiness Trends OnlineMarketing, 2016). If the online visit is followed by an offline trip to the store, it is important to be able to seamlessly follow up on site. Hyperpersonalized and Granular Offers from a Micro Perspective Customer data-based working makes it possible to analyse customers and understand them better. In extreme cases, they can be addressed individually. However, such hyper-­ personalization not only pursues the goal of an individual customer approach, but also has relevance for the entire marketing. This not only affects the individualized communication and assortment of products/services, but also the pricing, the brand promise as well as channels and devices used (Locationinsider Trends, 2019). Retailers can use AI and hyper-­ personalization to improve their marketing efforts across a range of metrics and deliver more effective experiences. This comes as no surprise, as the majority of consumers – 63% of them and as many as 69% of Millennials – are interested in personalized purchase recommendations (Ibid.). Hyperpersonalized customer expectations and customization are in this respect highly valued by customers (Sermon, 2019). Therefore, not only online providers are focusing on personalization with the idea of customization or curated shopping (Heinemann App, 2018; Sermon, 2019). In addition to newcomers, such as Modomoto, 8Select or Outfittery, established brands, such as Zalando and now Amazon, also offer this service (Lamprecht Personal Shopping, 2019). The first brick-and-mortar retailers, such as

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Breuninger, are following suit and start-ups, such as Indochino or Warby Parker, have already implemented this topic across channels. These also see the customer visit as a huge opportunity to generate additional customer data. In fact, constantly collecting customer data is absolutely critical to the success of AI. When first purchasing clothing, customers can provide information about their clothing sizes, preferred colors, price preferences, as well as favorite clothing brands. An appropriately programmed algorithm can then use this information to determine suggestions for items of clothing or entire outfits that might match the preferences. In addition, a style advisor can ask on the spot which items of clothing have been bought so far or what the customer’s daily routine is like. In this way, individual outfits can be put together and suggested. In this respect, “curated shopping” increasingly makes use of artificial intelligence (AI).

3.2.3 Intelligent Assortment and Sales Planning Especially in the consulting-intensive specialized trade and fashion trade, there are diverse AI application possibilities. Not without reason, the online retailer Zalando employs more than 100 AI experts and has poached the AI luminary Ralf Herbrich from Amazon. The data analysis and machine learning department was created especially for him. While such systems are already being used along the entire value chain and are already commonplace in logistics, the AI era is only now beginning on the customer front. Intelligent techniques are really only being used properly for the size and fit problem, but not for more complex assortment issues. It is probably the biggest problem, especially in online fashion retail, that sizes vary widely across brands (Kolf, 2020). This is why customers often do not find the right fit right away and often order several sizes online, which drives return rates. This is why Bonprix, for example, uses a fit finder, which is also used by numerous other fashion companies, such as Boss, Peek & Cloppenburg, Puma or Esprit. With the help of AI, this evaluates the information provided by customers as well as purchase and product data in order to then provide targeted size recommendations (Ibid.). However, reliable sizing plots are only one part of assortment planning. More extensive AI use is more likely to take place in “curated shopping”. Already today, all major online pure players, such as Zalando, use algorithms that are constantly learning (machine learning) in order to recognize needs, find similar and complementary products, or even to classify reviews. AI paves the way from descriptive to predictive curation, i.e. individual demand forecasts. This is what customers expect, because they increasingly want companies to provide them with personally relevant content, such as product recommendations, in real time via the channel that is relevant at that moment. However, this can only work if retailers understand the data they collect and use it effectively for assortment planning. It has long since ceased to be enough to just know the face of the customer. Only those who use the data of their customers and their individual needs can inspire them with situationally appropriate, personal recommendations, tips or discounts. Positive, convincing, consistent and personalised shopping experiences can only be created on the basis of data (iBusiness Trends Online-­ Marketing, 2016).

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Data-based personalization should ideally complement the personal component of the social exchange in the stationary store. Customers should also receive individually tailored product suggestions in the local store, just as they are not infrequently integrated into personalized entry pages online. Here, too, the prerequisite is that the individual customer data from previous purchases is stored and an interest profile stored by the customer is accessible. This undoubtedly requires customer identification, which is either done automatically on the basis of data already stored in the customer account (so-called cookies) or via a log-in by the customer. Curated shopping offers retailers an ideal opportunity for differentiation. The price premium for clothing is generally somewhat higher with curated shopping than if customers do not take advantage of any advice. In addition, brick-and-­ mortar retailers can score extra points by not allowing customers to try on clothing when buying online. Automated tools for size recognition have not yet become established, also because women in particular do not want to be scanned by cameras. In addition, the size information provided by suppliers cannot always be relied upon. Stressed men in particular, who have to be stylishly dressed for work but have neither the time nor the inclination to go shopping, like to fall back on outfit recommendations. Because they don’t usually see it too closely with exact fits and the right size, curated shopping is exactly the right offer for the right target group: career-oriented men with a well-filled wallet and “comfortable sizes”! In the assortment comparison of curated shopping and a category killer concept, the differences shown in Fig. 3.8 become clear: With personalized assortments, it is usually easy for the customer from the target group to find the right product for him. Ideally, the curated assortment in its entire breadth satisfies his needs exactly, so that he builds up additional trust in the retailer brand (Gyllensvaerd & Kaufmann, 2013; Heinemann OH, 2021). In addition to curated shopping, AI solutions can also help optimize sales forecasts and replenishment. They enable retailers to forecast sales per item, time unit and store. On this basis, replenishment of items can be controlled (Gläß, 2018), especially since sales planning is existentially important for fashion retailers in particular. For them it is a huge problem if the current assortment does not meet the wishes of the customers. The ever faster turning collections require that there is space in the warehouse and store again in the shortest possible time. Assortments that do not sell quickly become remainders or go into the margin-killing sale. So Bonprix is turning to artificial intelligence (AI) to get a better handle on this problem. Together with the AI experts of the Otto Group, the multi-channel retailer has developed a forecasting system that can calculate exact predictions of how well items will be demanded by customers. This means that potential flops can be identified and sorted out in advance. Moreover, AI can provide valuable clues to create better styles for customers (Kolf, 2020). The prediction system is driven by a machine learning algorithm that optimizes itself to keep improving predictions. An example of such a system is shown in Fig. 3.9. To create the forecasts, the influencing factors that are to be taken into account in the AI model must be defined. These should always take into account the supply and demand

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Curated shop

Category killer Any target group (all)

Focused in the target group and in the content Focused in the contents

Popular content (all)

Tandentially narrow range

Maximum wide assortment

Few selected brands and or manufacturers per product group

Rough brand and manufacturer diversity per product group

Fig. 3.8  Assortment focus in the curated shop versus category killer. (Source: Gyllensvaerd & Kaufmann, 2013)

Weather Promotions

Purchasing power Customer Size Catchment area

Influencing factors

Holidays

Placement of goods Marketing

Price

Influencing factors

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POS / ERP Realized Sales

Advertising

Price

POS / ERP Training data

Available Stock

Model training

Forecast

Model validation

supply chain Configuration

KPI Targets Forecast Replenishment-

Fig. 3.9  Replenishment control with AI. (Source: Gläß, 2018)

situation in the environment of the stores. In addition, the influence of the company’s own marketing campaigns on customers must be estimated. But also past sales as well as the analysis period and current influencing factors such as weather or economic situation have to be taken into account. Once the influencing factors have been determined, the neural network must be trained for the machine learning process (Gläß, 2018). For this purpose, a training period must be determined (e.g. last season), for which the sales figures and the influencing factors are known. During training, the weightings of the correlations between the influencing factors and the sales must then be determined until the article-specific forecast model that best forecasts sales is finally found. The next step is to validate the model. In this test period, actual sales are compared with the forecast and the model is further optimized until the highest possible accuracy is achieved. This is when

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productive use begins. The AI model now enables a more accurate sales forecast as well as an optimization of the replenishment process. Furthermore, out-of-stock situations can be largely avoided and all KPIs in merchandise management can be improved (Ibid.).

3.2.4 Intelligent Pricing in the Retail Sector Probably the most important tool for the retailer to optimize his sales remains the price. Due to the large number of relevant influencing variables, this can hardly be controlled manually today. The majority of pricing tools used in German retail, however, follow rigid price rules that are often only based on the pricing behavior of the competition. Amazon plays this instrument to perfection. The online retailer changes its prices several times a day. At peak times, such as before Christmas, the price for the same product can change up to 70 times a week. Dynamic pricing is the magic word that is now driving the entire retail industry. Because of these peculiarities, the best price is considered a success factor in online retailing and especially in marketplaces. Figure 3.10 shows the special features of dynamic pricing in comparison to traditional pricing. This tension has to be managed by multi-channel retailers. That is why it is not only online shops that use the instrument of dynamic pricing, but increasingly also stationary or multi-channel retailers. The change from classic labels to shelves with electronic displays creates the technical conditions and obvious desire (eTailment DP, 2019). For example, the Brandenburg Consumer Center monitored the prices of selected retailers for 34 days. According to this, more than every

Online Price World

• • • •

intense competition quick price changes price search engines multiple pricing mechanisms

Dynamics through online Access

Offline Price World

• • • •

Pricing Multi-channel Dealers

local communication POS activities clear sale periods limited comparability

Fig. 3.10 Special features of dynamic pricing compared to traditional pricing. (Source: Schleusener, 2012)

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third product examined was subject to price fluctuations. Apparently, quite a few stationary retailers who also sell on the Amazon marketplace also use repricing systems: as soon as competitors lower their prices, the system tries to follow suit, i.e. to undercut the competitor. A common reason is that merchants on the Amazon marketplace try to win the “buy box”, for which an attractive price is an essential criterion. Repricing systems are often very simple and rely primarily on market observation. However, this only makes sense if the sole aim of the company is price leadership: then the use of such a repricer can suffice (eTailment DP, 2019). Pricing Strategies Via Control Systems Current software solutions for dynamic pricing combine various pricing strategies with (more or less) complex sets of rules. Seasonal conditions or times of day can be taken into account, as is the case at gas stations, for example. However, a capacity-dependent “peak load pricing” is also conceivable, according to which prices increase when demand rises. If it is clear that the competition can no longer supply, prices can then be raised even more. In a completely different way, a penetration strategy involves a conscious decision to align prices with competition. The goal here is to always offer the lowest price in order to quickly generate market share. Once a certain market share is reached, prices are tightened again (eTailment DP, 2019). Around the pricing strategy, other rules and filters can be used, such as end devices (higher price for iPhone users). The more different rules are combined, the more complex pricing becomes. Nevertheless, dynamic pricing remains a purely reactive system that always leads to price adjustments. Big Data Pushes Dynamic Pricing The goal of some vendors is to combine dynamic pricing with forecasting to anticipate and adjust prices rather than react. Blue Yonder meanwhile offers such a tool for price dynamization via SaaS. In addition to rules, it uses external data and information from a wide variety of fields, including purchase histories. A learning algorithm constantly examines the interaction between prices and sales. A hypothetically optimal price is then confirmed or refuted on the fly. This requires constant A/B testing and can make the data model a complex affair that must also be adapted to the needs and circumstances of the individual retailer. Since the more historical data available, the better the system’s hypotheses and assumptions become, the scope and quality of the data material determine the reliability of the predictions. The cloud-based tool from IBM takes into account, for example, historical data on the price development of competitors and the company’s own key business figures. It also takes into account data from brick-and-mortar retail. Nevertheless, retailers should not overdo it with price dynamics and these should always remain comprehensible. Otherwise, the best customers will quickly be scared away (eTailment DP, 2019). Retailers who want to get the most out of their pricing strategies therefore rely on AI-supported methods for automatic pricing. An optimal pricing strategy does not undercut the competing supplier at any price, as is the case in re-pricing. Rather, it is about offering the optimal price that the customer is willing to pay (Gläß, 2018). To this end, intelligent systems for

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pricing offer significantly more functions and possibilities. Not only do they take into account multiple influencing factors, but they also take into account the economic concerns as well as the strategy of the retailer. The Optimal Price: A Narrow Corridor Price adjustments are actually part of a trader’s everyday business. When it’s cold, customers pay more for their heating oil, because they need the supply and have to buy. As I said, dealers should not overdo it. Customers do have an idea of what a product is “worth” to them and what price is still considered reasonable. Price acceptance is a narrow corridor between “too expensive” and “too cheap” (eTailment KI, 2019). However, what does not mean too expensive and too cheap, and therefore optimal, undoubtedly depends on the current situation of the retailer. It is at this point that Artificial Intelligence can bring its advantages to bear. It is about adjusting the price to influencing variables. Intelligent pricing systems, such as the one from Prudsys, take into account a wide range of influencing factors, such as time factors, regional factors, weather, stock levels, competitor prices, seasonal trends, company targets, historical data, purchase prices and real-time information from the shop such as clicks, purchases and shopping baskets. These are parameters that are subject to constant change (see Fig. 3.11). Dynamic price optimization is based on the price acceptance of customers and takes supply and demand into account. It is not cost-driven and enables retailers to optimise turnover, sales and earnings (Ibid.).

3.2.5 Intelligent Communication and Customer Services in the Retail Sector With deep learning, communication is able to provide new insights and predictions about the needs and preferences of its target groups, users and customers. This makes it possible to create a customer experience that is optimized for the individual customer and his or her interests. In doing so, exactly the information or offers can be conveyed that correspond to the customer’s need disposition and are relevant at the moment – for example, with the Historical data

Own brand strength Regional factors (competitors)

Purchase prices

Marketing campaigns

Company goals

Course of the season

Stocks

Time factors (holiday period)

Competitor prices

Weather

Real-time data (clicks, purchases, etc.) Plus infinitely more

Fig. 3.11  Possible influencing factors of AI-based dynamic pricing systems. (Source: eTailment KI, 2019)

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newsletter, which can contain individualized offers and content. These can be tailored to previous buying behaviour, product and blog pages visited and other interactions (Kossmann, 2020). Or the example of customer relationship management: AI-based CRM systems enable predictions of the likelihood of whether and under what conditions a customer will accept an offer. AI can also be a great help in creating relevance in the digital world, which is overloaded with product and brand messages. This is also proven by a survey of AI experts conducted by the “Scientific Institute for Infrastructure and Communication Services” (WIK). They agree that artificial intelligence holds great opportunities, especially in the area of advertising and promotion (see Fig. 3.12). AI also plays a prominent role in finding and addressing target groups. So it’s no wonder that stationary multi-channel retailers are also increasingly using “audience targeting” as part of their communication policy. The visitors of a website are examined for their interests and affinities to individual topics with the help of tools such as Google Analytics. This enables the creation of typical user profiles so that users with similar interests – i.e. target groups – can be addressed in a focused manner. In targeted campaigns, users who match the target group on the website can thus be reached specifically via display campaigns or Google search (Worldsites-Schweiz, 2019; Heinemann OH, 2021). While target branding focuses on the target groups on the Internet, e.g. in social networks, onsite marketing refers to communication measures coordinated with this on the company’s own online presence or in its own stores. Using data analysis, a hyper-local store concept was developed for shoppers with Nike Live, in which the store design and product range are adapted to the preferences of local customers. With a Nike Live location, customers can communicate directly via WhatsApp while receiving localized offers via the app. Data is analysed in real time and used to adapt local marketing, so that the store also serves as a “lab”. Overall, it can be seen that an individualized customer approach in the web shop is becoming mandatory, especially since AI-supported systems make this technically possible. In this context, more and more retailers are not only focusing on micro-reaches, but

Optimization of distribution and logistics Increased process efficiency More targeted advertising/promotion Improved customer service

AI does not open up opportunities

Development of new business models

AI opens up few opportunities

Product innovations

AI opens up medium opportunities

Increasing flexibility

AI opens up great opportunities

Improving the quality of work

AI opens up very big opportunities

Optimization of pricing Opening up new markets Strengthening IT security Reduction of personnel costs 0%

20%

40%

60%

80%

100%

AI opportunities in SMEs by experts (n = 33)

Fig. 3.12  Opportunities for AI use in SMEs. (Source: Kossmann, 2020)

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are also looking for market niches (iBusiness Nischen, 2017; Locationinsider Trends, 2019; Heinemann OH, 2021). The background is that mainstream commerce does not offer the perfect solution for every customer and for every concern. Therefore, it is to be expected that new e-commerce business models will develop in the next few years for a wide variety of customer needs. Undifferentiated merchants have less and less chance of keeping up with the rapidly increasing complexity and constantly changing consumer behavior. That is why many providers will probably go even more into specialization or verticalization. For small online retailers in particular, the niche will become the only chance of survival, also because the large market gaps are already occupied several times over. There are no limits to creativity in the search for niches. Product niches (for example mass customisation), service niches (for example guaranteed delivery in twelve hours, personal advice before every purchase), channel niches (for example sales via Pinterest), convenience niches (for example subscription commerce), advice niches (for example curated shopping), inspiration niches (for example experience design based on the Tinder model) or payment model niches (for example pay per use) are conceivable (iBusiness Nischen, 2017; Heinemann OH, 2021). Control of Micro-Ranges The extent to which AI-based one-to-one marketing enables a personal approach and the targeting of micro-reaches is also impressively demonstrated by Facebook, Google, Spotify and Netflix. Here, each user receives their individual series experiences, social media streams, music mixes and YouTube channels. This impressively illustrates that one-­ to-­one communication is increasingly replacing mass communication. This has resulted in a downright granularization of the media world, in which it is becoming increasingly difficult to build solid reach. AI is also helping with this. In this respect, the view is increasingly changing from macro to micro, so that micro-reach is becoming more and more important (iBusiness Interactive-Trends, 2019a, b). With the Internet and online marketing, the rules of advertising have once again become much more complicated. Web users are so widely dispersed that their uniform addressing is no longer possible. The Internet has ushered in a granularization of reach, making it smaller and more diverse (Walle, 2017; Heinemann OH, 2021). While in the past masses could be reached with a single spot during prime time, this is no longer possible today. Potential customers are spread across hundreds of linear TV channels as well as countless media libraries and video-on-demand portals. In addition, the nature of media use is changing in that there is less and less linear and simultaneous consumption. The number of viewers who watch their preferred moving images whenever they feel like it is increasing. Granularization is also taking place within channels as a result of ever greater diversification, as can be observed in social media, for example. Accordingly, more and more small networks are recruiting their own target groups. In this respect, the reach to be addressed is almost approaching “1”. Around 1000 followers are already enough to be noticed by marketing departments. Granularity need not be a disadvantage, as long as the Internet is not seen as a branding medium and customer data is used for AI applications for

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one-to-one customer addressing. Bloggers are also already among courted reach generators, and sometimes individual users of platforms or of social networks, especially if they are opinion leaders. Personalization is obviously becoming the topic of the future in retail marketing. It is not only in online retail that an individual approach to both new and existing customers is essential (pubiz, 2016; Heinemann OH, 2021).

3.3 Smart Stores and Channel Linking There is no doubt that brick-and-mortar retail has advantages for customers, but online retail has no fewer. That’s why it makes sense to transport the potential of e-commerce into the stationary business. However, the options for Intelligent Retail differ significantly depending on whether or not there is already a functioning shop. If this is the case, this in turn results in different options for a multi-channel retailer or even for omni-channeling. In any case, however, new digital technologies include additional services and interaction options for stores, for example via mobile apps or in-store terminals. Digital services in conjunction with offline offer customers real added value that online pure players have not been able to provide to date. In addition to online availability information and the curation or compilation of individual assortments, these also enable a pick-up and return option in the store. Such approaches can be differentiated as either “Web-to-Store or Store-to-­ Web” – depending on where they are initiated or executed from. In relation to the stationary store, its digitalization follows a “digital-in-store or web-in-store perspective”. This means a kind of reinvention of the stationary store. This is still where the majority of sales are made. But the store can also be a base for new business models, such as remote services or curbside retailing, which take place outside the store. All approaches take a customer-­centric view that is ultimately focused on the customer. If all the digital stops are pulled out and all conceivable approaches, including omni-channeling, are implemented, we can speak of a smart store.

3.3.1 Online Versus Offline and Onsite Versus Offsite Options Which strategic options are available to stationary retailers depends on many factors. Food is undoubtedly a topic in its own right and is only dealt with peripherally here, although their options are certainly comparable. The focus of the following is on stationary non-­ food retailers. In principle, the same recommendation applies to all non-food retailers, namely to ramp up the online business to the maximum extent possible and to scale down the stationary business in a “socially acceptable” manner. However, when it comes to the recommendation for online retailing, opinions are already divided and, above all, the options are different. For this reason, Fig. 3.13 first shows the ideal-typical initial conditions that can be found in the retail sector. These are differentiated according to whether an online shop is already being operated, whether sales are already being made via marketplaces and whether the establishment of an online shop is being considered.

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“In general, in the affected non-food retail sector, it is now necessary to maximize online business and radically downsize the brick-and-mortar business.” Existing online shop Online retailing with around 63.8 billion nonfood Turnover is NOT affected: Online business maximum power up with differentiated Pricing incl. fee adjustment

Stationary non-food business Immediate full spending brake with all available resources (the are unprecedented) Creative USP = revenue protection program

All possibilities of marketplace sales through Amazon, eBay & Co. asap and exploit

Just not now with online shop at zero Getting Started. Instagram and phone Receipt of orders and Delivery is possible, therefore maximum exploit

Sales via marketplaces

Cold start online shop

Fig. 3.13  Options for non-food retailing

Existing Online Shop  With sales in an own online shop, online trade takes place onsite (via an own website). Nowadays, the large chain stores almost all have a functioning online shop and thus quite often also achieve the so-called fair share of the market, i.e. the online share in a product group. Anyone who doesn’t do this today has definitely done something wrong. Category killers, such as Douglas or Breuninger, even have disproportionate online shares and are also now benefiting from the current development in the online sector (Douglas HB, 2021). This can compensate for much of what is lost in the stationary sector. Of course, online-only retailers are doing best. Since the start of the Corona pandemic, all online shops that work have noticed a positive boost because many people are increasingly shopping online. Groceries in particular have been developing rapidly since then. If you are a stationary non-food retailer and operate an online shop, you should ramp it up to the maximum and do everything possible to eliminate any bottlenecks that arise. These quickly arose in the call centres, delivery services and in fulfilment when online orders started to come in as a result of the shutdowns. This resulted in delivery delays and also short sales. Capacity planning should therefore be approached proactively. Employees who have nothing or less to do in the store than usual can at least ensure availability by phone. Or if the logistics companies no longer deliver, you have to get on a cargo bike yourself. Many multi-channel retailers demonstrated this in the first shutdown. It worked perfectly. Because of the bottlenecks, there was also room for improvement in terms of pricing if retailers were able to offer a good service and deliver quickly, for example. Currently, there is a strong polarization in multi-channel retail into some very successful and many less successful agents. The sales figures for 2020 show that the “stationary mail order companies” with only 4.9% online growth have not benefited from the Corona effect and were significantly below the market growth in 2020 (bevh figures 2021)

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and only come to around 13% online market share. That is why opinions are confirmed in either “omnichannel has failed” (Kolbrück Omnichannel, 2017) or “multi-channel retailers generate a quarter of their sales online” (Wiltscheck, 2017). At the same time, digital devices enable a new form of customer orientation, which bring great opportunities especially for stationary retailers. The smartphone in particular makes a completely new shopping experience possible, which non-food retailers can take advantage of by luring customers into their stores in a targeted manner with mobile forms of advertising. That’s why even e-commerce experts say that “the future of online is offline.” More and more customers expect to be able to prepare their stationary purchases in the form of ROPO. At the same time, they are making less and less use of personal advice in stores and increasingly perceive them as incompetent (kaufDA, 2018). Selling on Online Marketplaces  Marketplaces and platforms, which have grown tremendously in recent years and especially in 2020, account for nearly half of online commerce. Many do not even have on the screen that two-thirds of Amazon’s trade volume is now made on the marketplace by marketplace partners, who then profit from it through Amazon’s business referrals. Stationary retailers should therefore consider using this situation to now increasingly sell their own goods via marketplaces such as eBay, Real.de, Otto, Zalando or Amazon. In this case, this type of online sales does not take place onsite (via one’s own website), but offsite (outside one’s own website). Even though many local retailers have refused to go digital until today, now is the time to at least consider or start marketplace selling. Getting into marketplace trading in the short term was also a common way to keep business going during the shutdowns and make the bridging period productive, especially as eBay offered pragmatic help. To sell through online marketplaces, however, you have to meet the technical requirements to do so. But a survey by DHL shows that around 250,000 local retailers in Germany do not (DHL, 2020). These do not even work with an electronic cash register or merchandise management system. As a result, they also do not work data-­based and therefore cannot become a marketplace partner of Amazon or eBay. This requirement can now be met in just a few days, for example with iPad-based solutions. This is no longer ‘rocket science’ and requires neither ingenious skills nor ‘fat budgets’. Entrepreneurs just need to sit down once and follow through. But many don’t like to make the effort. They continue to fancy themselves in the land of milk and honey, believing that customers will come to them all day long on their own. What is annoying is the fact that public money is still flowing into local marketplaces. Yet the more than one hundred initiatives together do not even make as much turnover as a well-functioning Aldi store. In this respect, the issue has also been resolved, although it will be taken up again later under the aspect of “local commerce” (cf. Sect. 4.6). And with Amazon and eBay, too, one has to be realistic. If the business has been ramped up, everything is running as it should, and all service standards are met – and this is not an inconsiderable effort – a marketplace partner on eBay generates an average of €90,000 in annual sales, on Amazon it is perhaps €120,000 (Heinemann, 2017; Amazon KMU impact, 2020). This is “nice to have”, but no more. This means that merchants only make a relatively small part of their sales additionally via marketplaces. So it’s a revenue enhancement program, but it can’t save them.

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Stationary Business Only  The question is what remains as an option for stationary dealers who neither have their own online shop nor the system-technical prerequisites for marketplace sales. Most cooperative groups now offer their own platforms for their dealers. However, experience has shown that local retailers do not like to cooperate, tend to view cooperative groups opportunistically and use the cooperative as a ‘golden goose’ as far as conditions are concerned, but otherwise refuse to support them (Ahlert et al., 2009; Heinemann, 2017: Planettoys, 2020). This is where it then fails. The least retailers without an online store can do is to put the brakes on spending in brick-and-mortar stores. That’s what most retailers did during the shutdowns. However, it is important to remember that every turnaround project has a parallel revenue enhancement program. This is known as the entrepreneurial balancing act (Fig. 3.14). Despite the full brakes on expenditure and liquidity, this means trying as hard as possible to boost sales in the stationary business. In this way, stationary retailers can consider how best to serve contact-traumatised customers in the store. For example, during the Corona crisis and sanitation mandates, there were resourceful retailers with a queue manager for customers, curbside and window service with pick-up bins, drive-ins, bring to door, etc. And if a customer had already made their way into the store, it should have at least been worth a try to increase sales via cross-selling and upselling with smart discounting. This is also relevant for the post-Corona era, because cocooning, i.e. the retreat of many people into their private cocoon, will shape the 20s (Accenture, 2020). Retailers can respond to this – for example, by offering a specially curated selection, day bags for daily needs, live chat advice, pick-up service or ship from store. Here it would be advisable for local retailers to join forces with other retailers to cooperatively occupy the last mile. A good example is Osnabringts.de. Here, Osnabrück businesses can present

Entrepreneurial balancing act in stationary retail

Sales

Full Throttle Online Maximum marketplace business 24/7 Tel. order acceptance Stationary Fast Lane Services Own (cargo bike) delivery Instagram, Facebook, WhatsApp

Stop liquidity outflow Stop stockpiling Radical reduction of fixed costs Cancellation Pre-Orders Exploitation of substantial aid packages Option insolvency

Fig. 3.14  The entrepreneurial balancing act in stationary retailing

Costs

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their online shop, delivery service or other service offers for their customers. Customers can then have this brought to them via Osnabrueck24.de. In the process, purchases from the participating shops will be held at a service point free of charge on request. At some stores, customers can also order directly by phone with a delivery or pick-up option (Osnabringts.de, 2021; Osnabrueck24.de, 2021). Delivery is made by electric vehicle, Monday to Saturday in the greater Osnabrück area on a day of choice between 6 and 9 pm. If you buy in the shop or place your order online before 5 pm, it will even be delivered on the same day. This service costs €4.90 and is free of charge for purchases over €100. Many retailers in Osnabrück have thus actively used the Corona crisis and made the best of it. Cold Start Online Shop  The question remains: “cold start online”? Experts advise against starting from scratch with an online shop in times of crisis. Retailers cannot ignore the experiences of the past 25 years. Launching and maintaining your own online shop requires excellent business planning and a lot of patience as well as resources. Experience shows that the break-even point is only reached after several years and the ROI takes even longer. Time is no longer a given. This was also shown by the experience of some Bremen retailers during shutdowns (Weser-Kurier KMU, 2021). Whoever believes that internet sales alone will bring the fast turnover is rather naive. During the first lockdown, for example, a decoration retailer from Worpswede tried out of necessity to maintain a presence via the Internet in a jerking action. In order to still be able to take the Easter 2020 business with her, she quickly looked for a software provider. She decided on a website for which she had to pay an annual fee of €250. However, stationary retail could not be transferred to the web overnight, because all products had to be photographed and described from several perspectives. With several hundred items, this alone is a full-time job. However, the more products were added to the online shop, the slower the websites built up. However, if the supplier is changed, the whole job starts all over again. In addition, there are expensive packaging materials for fragile products. Information should also be available on how to deal with a DHL business account, for example. It is often forgotten that retailers also have to be found on the Internet. For this, however, expensive advertising must then be placed on Google. On the other hand, in the event of a shutdown, only retailers with an additional sales channel such as Click & Collect or an online shop have a chance of at least partially covering their fixed costs. Nevertheless, this can also only generate a fraction of the normal sales. When launching an online shop quickly, retailers should also think about how things will continue after the shutdown. Because then things can get really complicated. After all, if a customer buys something online, it must also be taken out of the store immediately in the case of a small specialty store. In addition, the cash register system must link the store directly with the online shop, for which each item must then be provided with a barcode. With 20,000 items in a store, this can quickly become a killer criterion. In addition, the online shop requires permanent maintenance and, of course, the orders have to be packed (Ibid.). Another experience is that the online turnover cannot compensate for the loss in the store by far. That is why it may be better to make quick use of an Instagram account, showcasing yourself, your offer and your phone number wherever you can. There were merchants in the Corona crisis who were available day and night, using all social channels and self-delivering. As a result, retailers affected by the shutdown

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managed to make up for much of their lost brick-and-mortar sales. They would not have generated these sales in this way with their own online shop or on marketplaces such as Amazon and eBay. In this respect, Instagram or Facebook is advisable as a shop window and stage. This doesn’t require an initiative that spends hours explaining to brick-and-­ mortar retailers how to do it. In addition, the existing business model can perhaps be converted without much effort. Just a few days after the first shutdown, an owner-managed company from the Lower Rhine region quickly and pragmatically changed its business model from a high-end restaurant to a delivery service. Thus, the restaurant focused entirely on delivering to its regular customers. Of course, this presupposes that the operator knows who his customers are and how to reach them. The key here is to be creative and exploit the possibilities. Every retailer can do this, for example, by – quite simply – picking up the phone and offering home delivery to his customers. Their own staff can organise short-time working and take over the contact and delivery. Or retailers can use an outsourced call center for this purpose. The non-food sector is not exempt from this delivery service model. However, this requires creativity and entrepreneurship. It is important to look for alternative revenue streams, such as expanding online activities – even without an online shop via Instagram – and especially the delivery service. Some examples, such as “retailers go mobile” in Mönchengladbach, have shown this (Rheinische Post HMM, 2020). In Fig. 3.15, all measures resulting from the options are shown separately according to sales measures and cost measures. In relation to a USP (sales assurance program), the five To-Do’s Online-Booster, Store-Uplift, Shop-Home-Support, Service-Catcher as well as Local-Delivery-Hero are shown. For the KSK (cost special command), the Liqui-­ Taskforce, the personnel cost cut, a rental payment drop, the supplier lobe as well as the government aid package are listed as bundles of measures. Otherwise, it will be tight for the non-store retailer in the city. Most of these retailers – around 250,000 according to DHL – do not yet sell online (DHL, 2020). In this regard, the developments of recent years have been accelerated somewhat by Corona, but the trend is no different than before. The market share of these local retailers with non-food assortments may eventually be halved from the current 15%, but this will then be absorbed by the chain stores, which at the end of the pandemic will probably be just as present in the city centre as they are today. After all, customers are voting with their feet or thumbs, as it were. Pity, idealism or local patriotism are simply not sustainable principles of success for a store. So consumers will have the least problem and will continue to find what they are looking for.

3.3.2 Multi-Channeling Versus Omni-Channeling Options Multi-channel retail refers to the combination of stationary format and online shops under the same name (store brand). Increasingly, the term omni-channel retail is also used synonymously. Most multi-channel retailers have their origins in the digital transformation

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USP –Revenue Protection Program

Online Booster – Instagram, WhatsApp, Marketplaces, Shopdaheim.de, (Online Shop) Store-uplift – drive-in, bring-to-door, order&collect, cross/upselling discounting Shop-home support – curated selections, day-bags, live chat advice Service-Catcher – delivery service, pick-up service, 24/7 call center, home office packages. LocalDelivery-Hero – cooperative occupation of the last mile (“ship-from-store”) KSK –Cost Special Command

Liqui-Task-Force – purchase ban, CEO single document release, reversal of standing orders Personnel cost cut – immediate capacity and legacy reduction, max. short-time work Rent payment drop – taking advantage of 6-month rent debt, immediate rent negotiation Supplier cudgel – acceptance stops, order cancellations, radical renegotiation State aid package – tax deferral, express guarantees, KfW loans

Fig. 3.15  USP – Sales Increase Program and KSK – Cost Special Command

from brick-and-mortar providers (stationary retail) to “click-and-mortar retailers”. Multi-­ channel systems are undoubtedly considered the most complex form of retailing due to very different competence and capability requirements. On the other hand, large parts of stationary retail see multi-channeling as the right answer to Amazon & Co, which can also play off the core competencies of stationary business (Böckenholt et al., 2018). However, how exactly multi-channeling works is interpreted very differently. This also leads to ever new terms that ultimately mean nothing other than multi-channel retailing (Schramm-­ Klein & Wagner, 2017; Böckenholt et al., 2018; Heinemann MCH, 2020). Therefore, a differentiation of multiple-channel commerce, multi-channel commerce, omni-channel commerce as well as no-line commerce is needed. The bottom line is that there are different levels of consideration that should be taken as a basis. A distinction can be made between a more horizontal, integrated and vertical understanding of the term (see Fig. 3.16). Multiple-Channel Retailing Versus Multi-Channel Retailing The first evolutionary stage of multi-channel retailing is represented by multiple-channel retailing and describes stationary formats with an additional distance retail channel under a different name. In contrast, multi-channel retailing is a combination of stationary formats with an additional online shop under the same name (Heinemann, 2008; Heinemann MCH, 2020). A typical feature of multiple-channel retailing is that the sales channels are managed separately from one another. Thus, an integration of the channels is deliberately avoided. Furthermore, the distance retail channel is not necessarily an online shop (Schramm-Klein & Wagner, 2017; Heinemann MCH, 2020). In addition, the channels are

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Horizontal

Multiple Channel Trading

Multi-channel commerce

Individual channels as brands

Online/offline channels of a brand

Brand A

Stationary

Brand B

Online

Brand C

Mobile

…

Catalog

Integrated

Omni-channel commerce

No-Line Trading

omnipresence of a brand

brand channel integration

Stationary

Stationary

Online

Online

Mobile

Mobile

Apps

Apps

Multiple-Distribution

Multi-channel distribution

Sales channels of a manufacturer

Vertical

Closed No-Line System: Resolution of all Channel boundaries

Also manufacturer’s own retail

Wholesale

B2B

Export

B2C Online

Licensing

B2C Offline

…

B2C Mobile

Fig. 3.16  Levels of consideration in multi-channel retailing. (Source: Based on Schramm-Klein & Wagner, 2017)

given their own sales channel-specific retail brands. Thus, they pursue different sales channel goals and usually address completely different target groups (Heinemann, 2017; Schramm-Klein & Wagner, 2017; Heinemann MCH, 2020). Strategy is that with this customers are not irritated by the price or positioning differences in the assortment. In this case, customers see the channels as separately acting, independent entities. An example of multiple channeling, which is still relatively rare, is Media-Saturn’s Redcoon, but it has been discontinued. Arcandor (formerly Karstadt Quelle) also operated with the separately acting formats Karstadt and Quelle. However, mergers at the back end are not mutually exclusive. Purchasing or logistics activities can certainly be bundled in order to realise synergy effects (Zentes & Schramm-Klein, 2006; Heinemann, 2017; Heinemann MCH, 2020). In contrast, multi-channel retailing necessarily involves the combination of a bricks-­ and-­mortar store and an online shop under a uniform brand umbrella (Heinemann, 2017; Heinemann MCH, 2020). As a rule, an attempt is made to realise an assortment connection between the channels and to additionally expand these in each case with channel-specific

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assortments. The aim in multi-channeling is to serve a certain intersection in the target groups for both channels. In addition, the aim here is that customers can also switch between channels during the purchasing process and thus engage in smooth channel hopping as part of ROPO (Heinemann, 2008, 2017; Heinemann MCH, 2020). In Germany, most chain stores today are multi-channel retailers such as Thalia, Douglas, Tchibo or MediaMarkt-Saturn. This may well be complemented by an additional catalogue, as is the case with IKEA, for example. Successful pure online retailers are also increasingly realizing this. Many of them notice that their chances increase significantly if they supplement their channel with stationary stores or outlets as well as catalog activities. The fact is that most customers are still to be found in bricks-and-mortar retail. Therefore, it is to be expected that some of the pure online retailers will sooner or later go offline as well and additionally fuel the trend towards an integrated multi-channel system. However, the stores will probably look different, namely like the Amazon Bookstore: thoroughly digitized and reinvented. Omni-Channel Retailing Versus No-Line Retailing The distinction between multi-channel and omni-channel commerce is based on the number of channels used. Compared to multi-channel retailing, omni-channel retailing is more likely when the presence under the same brand name is given in as many channels as possible and these are networked. This applies not only to the brick-and-mortar store, online shop or catalogue or mobile shop and apps, but also to all possible customer touchpoints including social networks. Additional forms such as pop-up stores, showrooms or vending round off the picture. The aim here is to achieve the greatest possible intersection with the target groups by making the company “omnipresent”. A much stronger product range connection is also sought here. However, most omni-channel retailers do not have any further channel linkage, but at best networking (Heinemann, 2008, 2013a; Schramm-Klein & Wagner, 2017). The situation is different in no-line retailing, where customers are no longer aware of and no longer care which channel the retailer uses (“channel doesn’t matter”). In this respect, no-line retailing rather expresses the degree of channel merging and thus no-line systems can also be seen as the highest evolutionary stage of multi-channel retailing. This results from cross-channel management, when all sales channels are maximally networked and integrated (Heinemann, 2013a, b; Heinemann et al., 2019). However, the condition is that an integrated mobile shop, which consumers can also use via apps parallel to stationary shopping, is available. No-line retailers enable their customers to compare prices by scanning the EAN code, for example. They also offer them the maximum possible range of multi-channel services via the mobile shop and/or shopping app. Cross-channel management plays a central role in the implementation of no-line trading. This includes all activities that are geared towards the coordination, harmonization and/or integration of all channels. At a minimum, the three “web-to-store” services such as availability check, item reservation and click & collect must be offered (Accenture/eWeb Research Center, 2012; Heinemann, 2013a, b, 2017). These multi-channel services represent the three most

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important – from the customer’s perspective – of the more than one hundred conceivable channel linkage forms. According to an Accenture study, customers would even be willing to pay a retailer significantly higher prices if he provided these services. However, the willingness to pay varies depending on the product group (see Fig. 3.17). Multiple Distribution Versus Multi-Channel Distribution In the case of manufacturer-owned retail as well as vertical suppliers, an additional variant must be distinguished for manufacturers, which results from the integration of wholesale and retail (Zentes et al., 2017; Bolz & Höhn, 2019; Heinemann et al., 2019). This equally affects hybrid franchise systems, which are often operated in combination with own stores (Ahlert et al., 2009). A traditional sales channel system tends to function as a multiple distribution, which strictly distinguishes between the different B2B sales channels and also usually serves multi-level distribution systems (Ibid.). Therefore, many of the well-­ known brand manufacturers have strongly pushed manufacturer-owned retail in recent years. Suppliers such as Nike, adidas and Boss now generate more than 50% of their sales from D2C business (Heinemann OH, 2021). In addition to wholesaling – i.e. B2B business – D2C or B2C usually includes own stores as well as online shops and is thus operated as multi-channel or omni-channel retailing. In addition, the goods are often sold via franchising. This is a multi-channel distribution that represents a combination of B2B offline, B2B online and B2C multi-channel trade (cf. Fig. 3.18). This is also referred to as B2B2C and can be integrated primarily into selective distribution forms (Bolz & Höhn, 2019). In this context, coordination between channels is very difficult (inter-channel flows). The type of coordination within channels also differs greatly depending on whether the business is B2B or B2C (intra-channel flows). In franchise systems, for example, antitrust law also does not allow direct influence by franchise partners. Price fixing is also

MC power

Top 1

Top 2

Online Availability check

Media/recording media/Consumer electronics 1,43%

Camping 1,42%

Return in all Channels Shopping cart online collectively place

Furniture/ Decoration 3,35%

Camping 1,43%

Top 3

Top 4

Top 5

Housewares 1,20%

Hobby/Games/ Leisure articles 1,93%

DIY/garden/ DIY store 0,89%

DIY/garden/ DIY store 3,08%

Camping Housewares 2,64%

Housewares 2,32%

Hobby/Games/ Leisure articles 1,93%

Housewares 1,35%

Media/recording media/Consumer electronics 1,26%

Clothing 1,02%

DIY/garden/ DIY store 0,89%

Fig. 3.17  Most important multi-channel services in no-line retailing from the perspective of customers and their willingness to pay for them. (Source: Accenture/eWeb Research Center, 2012; Heinemann, 2017)

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B2B

B2C

Online Retail B2C

Downstream Flows

Wholesale

Provider

Retailers

Own Branches

End customer

End customer

End customer

Inter-Channel-Flows

Upstream Flows

Sales agent

Intra-Channel-Flows

Fig. 3.18  Multi-channel distribution. (Source: Based on Wirtz, 2013)

prohibited, as it is for all intermediaries in wholesale. Exceptions are only possible if they are selective – for example via depot systems (Ahlert et al., 2009). The consequence is that multi-channel distribution is predominantly not integrated and is hardly sustainable in a purely vertical form. Status of Multi-Channel and Omni-Channel Retailing in Germany The status of multi-channel and omni-channel retail in Germany can be determined by the online penetration in stationary retail on the one hand and the implementation status of multi-channel services and in particular web-to-store digitalisation on the other. According to a study by ibi-Research, around one third of all retailers in Germany operate an online shop. Not all of them are mobile-optimized (ibi, 2020). As of the end of 2020, around 86% of all retail sales will still be made offline. In non-food retail, however, not even more than 76% of revenues will be generated stationary. In view of the accelerated online growth, the pressure to act is increasing to upgrade digitally as quickly as possible. Even in 2020, brick-and-mortar multi-channel retailers only grew by 4.9% and thus failed to benefit from the online boom. Their market share in the online market is only around 13% (bevh, 2021). However, most local retailers and many of the medium-sized manufacturers are still practicing a kind of defensive attitude with a pronounced digital allergy. There is still a widespread opinion that even three-tier distribution systems have a long-term future. Only now are well-known luxury brands such as Lange & Söhne beginning to implement online retail as an option.

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Despite the total penetration of the Internet among the population, German retailers are still insufficiently aware of the problems associated with the digital transformation. This is shown by the survey of ibi research (ibi, 2020). For digital investments, 88% of retailers have no explicit budget and, according to surveys by the Bonn Chamber of Commerce and Industry (IHK Bonn), 76% of local retailers operate without an electronic merchandise management system, i.e. do not even begin to meet the system-related requirements for genuine online and thus multi-channel retailing (IHK-Bonn, 2017). This is more than a cause for concern, as the current bevh figures do not reflect the hybrid sales that result from the participation of multiple channels. For example, non-food retail sales are increasingly coming online with a previous store visit (“showrooming”). They are classified as multi-channel sales, as are the stationary sales generated by web-rooming. They now account for the largest share of non-food sales and are listed in Fig. 3.19 using fashion retail as an example (Heinemann et al., 2019; HDE Online Monitor, 2020; bevh, 2021). The reason for such hybrid sales are channel switchers, who usually prepare their stationary shopping on the internet and follow the ROPO pattern. In addition, not only since Corona have considerable online sales been generated by customers picking up their goods in the stores themselves (“pick-up”). Ceconomy AG publishes that at MediaMarkt-Saturn, 47% of online orders are already picked up in-store, which is a large volume given online sales of around EUR 2.9  billion (Ceconomy, 2020). Or the market research agency Forrester predicted years ago that by 2020 more than half of all retail sales in Europe, including groceries, will be online-related (Forrester, 2015). “The online fair share for fashion is around 34.3%, so the online market for Apparel to reach nearly 19 billion euros in sales as of 2019” Development of market volume for clothing and shoes in Germany in billion euros 47

50

54

55

Pure online

11%

14%

21%

24%

multi-channel/ Omni-channel

9% 33%

Purely stationary

44%

53%

… of which 1/11 OnlineSales … of which 10/11 Offline sales

80% 50%

2010

2014

31%

2018

18% 2019

Online market volume B2C: online market share 2019 = 29 percent of total + 5.3 percent store-to-web = 34.3 percent of total = 18.9 billion euros

Fig. 3.19  ROPO drives multi-channel sales – the example of fashion. (Source: Own representation based on HDE Online Monitor, 2020; bevh, 2020)

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As of 2019, only around 18% of fashion sales were purely offline sales in which the internet was not involved. This figure was still 31% in 2018 and continues to decline accordingly, as stationary sales are increasingly online-induced and lead to further increases in multi-channel sales, which are not included in the previously reported online figures. Multi-Channel Business Models Figure 3.20 shows the common business models of multi-channel retailing. These are compared according to revenue potential and implementation effort. The experiences are based on eBay’s cooperation with local retailers as well as the pilot project “eBay Local” in Brooklyn, which was also the model for “MG at eBay” (MG.Retail2020, 2015). Instant pickup characterizes true click & collect, which can only be done from store inventory and must allow access into the store’s inventory management system. The same applies to online purchases in the store at the terminal or via smartphone and usually requires an enormous implementation effort as well as high-performance merchandise management systems without generating significant additional sales. In any case, however, they improve the customer’s shopping and service experience across all channels. In addition, typical channel advantages of online retailing can already be used for offline customers. In contrast, ship-to-store requires at most a pick-up station in the store and is often used by customers because of the savings in shipping costs (kaufDA, 2018), so as a self-pick-up

Low

Sales potential

High

“Ship from Store realizes the highest sales potentials with comparably low implementation effort” eBay Experience USA

2. Associate StoreOrdering

4. Onlinebuy Pick-upinStore “Click & Collect”

1. ShipfromStore

3. ShiptoStore

1. ship from store* > 20 % additional turnover + efficiency gain Easy implementation (3–4 months) 2. associate store ordering Up to 5 % additional branch turnover Frontend adaptations necessary 3. ship to store Sales effect varies Assortment/acceptance critical to success 4. online buy + pick up in store Hardly any sales effect, limit on number of

“Click & Wait”

High Low Implementation effort

branches Inventory accuracy/front end critical

*Ship from Store with additional -33 % Share of previously inactive articles -30% fewer transcripts for bums -80 % t+1 delivery, 96 % t+2

Fig. 3.20  Multi-channel business models. (Source: Heinemann, 2017 based on eBay enterprise, 2014)

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without time advantage it is more a form of self-service and also does not lead to significant additional sales. In contrast, ship-from-store, i.e. immediate delivery to customers from the local store, thus realizes the highest revenue potential with comparatively low implementation costs. Overall, the multi-channel business models already indicate different directions, namely a “web-to-store” orientation in the case of Click & Collect and a “web-in-store” orientation in the case of online buy-in-store. Not shown, however, is the “store-to-web” direction, in which a customer showrooms in the store and then buys on the Internet at home.

3.3.3 Web-to-Store and Store-to-Web Digitisation When it comes to customer acquisition, the customer journey is always highlighted and discussed, although it is difficult to depict the dependencies between different advertising media contacts. For example, not all aspects of a customer’s journey can be tracked and measured until the purchase is completed. Also, the effect of social networks on the customer journey should not be underestimated. Facebook campaigns cannot be tracked as easily as banner or Ad-Words campaigns, for example. However, the same applies to advertising media contacts from the offline sector, such as television advertising, newspaper ads or billboard advertising (Heinemann, 2017; Heinemann et al., 2019). Therefore, the customer journey approach should always bring together the online and offline worlds. Against the background of increasing hybrid sales, it makes perfect sense to focus more on conversion. This refers to the purchase acts completed in relation to the visit frequency and is an important indicator for the success of online shops and the effective skimming of the visit frequency. However, the type of purchase abandonment up to the completed purchase act can be graded differently. For this reason, a distinction is increasingly being made between “hard conversion” and “soft conversion”. The “hard conversion” refers to the actual purchase, while the “soft conversion” expresses different behaviours that take place after the first click. Therefore, online retailers should also increasingly move towards analysing conversion paths as part of web analytics (Kreutzer, 2014; Heinemann OH, 2021). These are exemplified in the form of a typical conversion funnel in Fig. 3.21. The conversion funnel includes not only the conversion steps, which can occur onsite or offsite, but also the different purchase types. Multi-channel retailers no longer only make purchases online, but increasingly offline as well, although this is often not taken into account when calculating the conversion rate. It is even more critical if the Internet presence does not complement the overall presence in terms of a coherent “customer journey”. This is where the web-to-store multi-­ channel services come in, which are placed in the online shop of the multi-channel retailer and thus focus on the conversion funnel.

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soft conversion

Click on an online Advertising material or a link; Scan a QR code; Entering a www address

Pre-sales actions on the website – leads

hard conversion

Activities of the Internet user

Online and offline Information offers

2 1 3

Sales on the website/ Buy online Buying impulse on the website/ Offline purchase – Sales Showrooming in the store/ Online purchase – Sales

provision of Information on the Corporate website/one specific landing page Offer to register, for download, for Recommendation, for Request for quotation

Activities of the supplier

Conversion

Search for information, products, services

Online sales (type, turnover, contribution margin) Offline sales (type, turnover, contribution margin) Online sales (type, turnover, contribution margin)

Multi-ChannelSales

Tracking of the desired actions across all channels to online/offline purchase

Fig. 3.21  Conversion Funnel. (Source: Based on Kreutzer, 2014)

Web-to-Store Multi-Channel Services According to all studies on this topic, brick-and-mortar business is already significantly driven by the online channel (kaufDA, 2018). It can be assumed that the ROPO or web-to-­ store effect will become even more important due to increasing smartphone use. The ROPO effect is a central argument for the holistic consideration of online and offline business and the targeted use of the following web-to-store multi-channel services: • Store Locator: The store locator function is now almost a basic application of a retailer’s website or app, as it is a great help in attracting customers to the store in the easiest way possible. It is also a mandatory component for the online shop of a multi-channel retailer. Using GPS positioning, the location of the smartphone user can be precisely located and compared with the information available on the network from his surroundings. This way, a retailer can point out his shop or the nearest store. Any customer can thus find the location automatically no matter where they are (Heinemann, 2017). It is an opportunity if a service application automatically provides notices and offers as soon as a customer is in the vicinity of the store. This is easily possible based on geo-­ targeting, but requires the customer’s consent via opt-in. But Google services are also helpful and usually enriched with local and contextual information. It is therefore advisable to register the local business via Google Places and to map the address, opening hours and photos. This is relatively easy to do and the least local merchants should do to be found on the web. All Google products now mesh together to promote local listings. This makes it possible for stationary retailers to place local ads, for example, via Google Ads, which then appear in search queries in the vicinity of the store. In the

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interaction of Google Places, Google Local as well as the Google Maps app, it is possible for customers to get access to opening hours or even reviews if needed. Thus, Google transfers online mechanisms to stationary shopping, which can be used to promote the store locally. However, whether local retailers use this to offer relevant information to prepare for a purchase depends largely on the real-time availability of their data feeds. Unfortunately, most of the brick-and-mortar retailers are not able to display up-to-date product availability. On the other hand, consumers appreciate the efficient finding and comparing of searched products (kaufDA, 2018). • Virtual shopping lists: Shopping lists are widespread, because no one can remember all the items for the weekly shopping over and over again. But these are annoying, because customers have to constantly write new notes, although actually the same products are needed again and again. But for this, there are now tools and apps that make shopping easier for customers. The range is now huge, whether Bing, The Shopping List, Buy Me a Pie, Pon or Milk for us, there is something for users depending on their preferences and interests. In comparative tests, Pon scores among the best. Thanks to geofencing, the app can remind customers of unfinished purchases as soon as they get close to the relevant store. Pon can automatically sort assortments in the order in which they were last clicked on, separately by store. In addition, the sorting of the shopping lists themselves is improved with each application. But the barcode scanner for reading in items is also practical, as it saves time and typing. And on the entry screen, offer prices and periods can be entered (Spoenle, 2017). So what can brick-andmortar retailers do with it? They can at least recommend these apps to their customers, or develop their own app and integrate it into their own shopping app. • Click & Check – availability check: increasingly, customers would like to be able to see the product availability of stores online (59% in 2018 to 52% in 2017). With 64% agreement, almost two-thirds of respondents would like to use the service of having currently unavailable goods from city centre stores delivered to their home free of charge – according to the kaufDA study in 2018 (kaufDA, 2018). In 2017, only about half of adult shoppers agreed, at 52%. Just over half of respondents (51%) want all store information to be available online (47% in 2017). And 47% of respondents would like town centre shops of interest to them to have a web shop (47% in 2017). It is striking that all of the above values increase in 2018 compared to 2017. In particular, the younger target groups expect digital-based, local communication offers, although the majority of over-50s also do. Above all, the availability query is highly relevant for younger customers. For example, 43% of consumers in this age group want to be able to check product availability online at any time. A retailer website would make it easier for 45% of customers to plan their next purchase (37% in 2017) (Ibid.). However, one thing should be clear: real-time availability is only possible with high-performance merchandise management systems. This is not possible on the basis of inventories. And even if platforms or marketplaces display availabilities, it is no different. But nothing is worse for customers than being lured into a store with false availability information and then having spent a lot of time on it. These customers are likely to be lost forever (Heinemann, 2017).

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• Click & Collect – Immediate pick-up: As a typical multi-channel service, Click & Collect offers customers the opportunity to research products online, buy them online and then pick them up in a stationary retail store of their choice, if possible on the same day. As a technical feature and separate option, this service is usually offered in the online shop of the multi-channel retailer during the payment process (Accenture/eWeb Research Center, 2012). One advantage of “Click & Collect” is that it takes away the need for customers to walk through the store and find the goods they want by allowing them to already pick out their products online and then pick them up on site. Some retailers even charge extra for this service, such as IKEA.  True Click & Collect is undoubtedly the supreme discipline in multi-channel retailing and has become even more well-known and popular thanks to Corona. It requires not only the most modern merchandise management systems that can be controlled decentrally, but also excellent implementation in the stores. Pick-up stations have proven their worth as dedicated service points where customers can quickly get their goods. However, if there is a lack of personnel capacity and the customers have to put up with waiting times or even the wrong goods, the shot will immediately backfire. This was precisely the problem initially encountered by the department store concepts at Karstadt and Kaufhof or the drugstores, where frequently only overworked personnel sat at the checkout and then didn’t know what to do. The US retailer REI (Requiational Equipment Incorporation), which has set up its own multi-channel service points in its stores, is considered exemplary in this area (Heinemann, 2008). During the Corona crisis, Click & Collect was a way to maintain loyalty to local retailers affected by the shutdown and still be able to shop. Except for Saxony, this service was allowed nationwide during the lockdown. • Ship-to-store  – self-collection: Ship-to-store exists if the retailer operates a central online shop with a separate central warehouse from which customers can have the ordered goods delivered to a store of their choice. There, they then pick up the package after several days, but not immediately. The implementation in the store with e.g. a “multi-channel service point” is similar to Click & Collect. It is not uncommon for brick-and-mortar retailers to introduce new in-store pickup concepts that are mistakenly called Click & Collect, but are for the most part “ship-to-store services”. • Click & Reserve – item reservation: In addition to the availability query and Click & Collect, customers also expect above all an item reservation (Accenture/eWeb Research Center, 2012; Heinemann, 2017). After all, if only one item is still shown as available, there is a risk that it will be out of stock by the time it arrives in the store. Should the items be exclusively stocked in the store, there is an additional risk, namely the “fight for the last item”. It is good if customers can select items and reserve them for a certain period of time without obligation to buy. This time period should definitely be specified, because it could cause an apparent short sale for the retailer and thus opportunity costs if the customer does not pick up the item after all or cancels his order with a time delay. In the backend, the function can be activated for certain customer groups or the number of items that can be reserved can be limited. Ideally, you can also limit the number of items reserved per item. For the article, it should be possible to display both

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the total stock (without reserved portion) and the number of reserved articles. Other customers can also see until when the reservation is valid. Reserved articles should also be reservable by other customers. If the customer with the first reservation jumps off, the second customer then receives an e-mail stating that he is the lucky one and that the shop operator is committed to the reservation until the specified time expires. It is also conceivable that customers with article reservations bounce off and reserve again when needed. However, they should then queue up again when making a new reservation, provided there are second or third reservations. However, it can make sense that for certain and particularly sensitive articles a reservation possibility is excluded. In any case, all mandatory information about the article should be provided in the online shop at the respective location where a reservation button is found. It is particularly evident in the case of article reservations that multi-channel services must be precisely regulated (Accenture/eWeb Research Center, 2012). • Online booking of consultation appointments: What is now possible for banking products also lends itself to multi-channel retailers, namely being able to book a specialist consultation for a specific time slot. If this is excellent, it also serves to increase customer loyalty. This option is increasingly being offered, especially for products that require a lot of consultation, such as bicycles, computers or cars. Apple is a role model for this, in whose stores it has always been possible to book personal advice. Especially in the case of time-consuming consultations and high shopping basket risks, retailers should not give away this service but charge a separate price for it, irrespective of the sale of goods. Studies show that customers are willing to pay for good quality advice. Not for bad advice, of course. Those who provide the service free of charge are encouraging “advice theft”. Premium department stores, such as Breuninger in Düsseldorf, arrange consultation appointments. At a few large sports retailers, such as Globetrotter or Engelhorn, potential customers can also test climbing or water sports equipment directly on site in a specially designed environment. This changes the role of the store, which thus becomes a meeting point. Customers who make the trip to the city expect an event character or other added value when shopping. They also expect the city to “make itself nice and clean” – in this respect, the appointment idea with advice also fits (kaufDA, 2018). The specialist advice can also be offered as online advice with an appointment. This is then a live video chat consultation, which is addressed separately as part of the “digital-in-store” services. • Returns services: Returns services also represent a large niche from the customer’s point of view. A “service point” could be set up in the stores as a contact point for customers. At this point, they should then be served quickly and easily, including cash payment  – also for credit card purchases. Ernsting’s family reportedly manages to return 80% of online shop returns to stores, where the returning customers are then resold an average of two to three new items (Accenture/eWeb Research Center, 2012; Heinemann, 2017; Gassmann Welt, 2021). • Customer journey platform: The kaufDA/MeinProspekt offering from Bonial, for example, provides a customer journey platform with location-based services for

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brick-­and-­mortar retailers. These services provide retailers with access to consumers with a local connection by using kaufDA’s mobile network to provide consumers with convenient, daily updates on all aspects of local shopping. This works on all major operating systems. Users of kaufDA can browse and compare brochures, offers and opening hours from their immediate vicinity online. The company is part of the Bonial. com Group, which reaches consumers in eleven markets with a team of over 330 employees: in the USA, Germany, France, Sweden, Denmark, Norway, Brazil, Spain, Mexico, Colombia and Chile. The company is part of Axel Springer SE (Handt & Heinemann, 2019). Since its founding, consumers have accessed more than twelve billion digital prospectus pages on kaufDA and the MeinProspekt brand, which also belongs to the Bonial.com Group. In the process, information from around 247,000 retail stores in 12,000 German cities and towns is constantly updated in Germany alone. Every month kaufDA and MeinProspekt reach 8 million users. The German marketing newspaper “Horizont” described the market leader kaufDA as the “saviour of stationary retail”. Of course, the display of local availability of goods is also a major lever for the added value of product search. Only if the customer can be sure that the desired product is in stock is the quick trip to pick it up from the local stationary retailer worthwhile (Heinemann App, 2018; kaufDA, 2018). Web-to-Web services represent the most important channel links from the customer’s point of view and are particularly suitable for profiling the retailer (cf. Fig. 3.22). Store-to-Web Services The preparatory function for online purchases is performed by bricks-and-mortar retailers in particular for those products which, from the customer’s point of view, have a high risk of being purchased incorrectly. This is the case if the suitability of the items can only be assessed to a limited extent on the basis of technical data, descriptions and illustrations alone, such as cameras, video cameras and televisions. However, fashion, home textiles and hard goods are also increasingly included (Maier & Kirchgeorg, 2016; Heinemann, 2017). In this context, customers seek out a store to take advantage of its distinctive services in terms of merchandise presentation, demonstration and expert advice. In doing so, they reduce the risk that the respective purchase will not meet their expectations after all. At the same time, the stationary “shopping experience” is often still important to them, even if the Internet has already been established as a purchasing channel for them. This opportunistic change of channel from brick-and-mortar to online is not infrequently linked to supposedly lower prices on the Internet. However, customers also see many other advantages that they can often only use in the context of an online purchase (Ibid.). These include, for example, greater transparency and comparability, delivery options, greater choice and more comprehensive product information and reviews (Ibid.). If customers are not yet able to decide on a stationary purchase in the store and engage in showrooming, retailers should not simply let them go, but retain them by all means in the purchasing process. For example, the customer who is not yet ready to make a decision can be

3.3 Smart Stores and Channel Linking

159 Example media, sound carriers, UH-Electr.

Differentiation potential of multi-channel services High

As standard offer!

challenge for Trader: continuously new Ideas for the Differentiation … and bring them in!

For differentiation use!

Online Availability query

Online reservation of articles

use of Multi-channel Services

Use more apply! Discount coupon in all Redeem channels

Avoid!?

Return in all Channels possible Specialist advice book online Online shopping cart compile Online code according

to Offline consulting

Low Low

Additional willingness to pay

High

Fig. 3.22  Options for action for retailers regarding multi-channel services. (Source: Accenture/ eWeb Research Center, 2012)

accompanied home and into the online shop – whether by an agreed call at home or by sending the last consultation stand. The subsequent purchase on the Internet must also be incentivised or supported in some way. This is the purpose of the so-called store-to-web services. The following Store-to-Web services are in use: • Online purchase support: For online purchase support, it is a good idea to offer the customer a consultation by telephone. Thalia, for example, offers the option of a live video chat. It is also conceivable to give the customer a code after the consultation in the store or to send it to them by e-mail, which also shows them the last consultation status in the online shop. Of course, this presupposes the availability of the article in the online shop. The customer can then carry out their purchase process at home without any time pressure. The point is to immediately bind and inspire the customer at the first contact in the store and to accompany him on his way to the conclusion of the purchase – regardless of the channel – and to “never let him off the hook”. Service offers that go beyond the purchase in the store can also serve this purpose. Particularly for larger and weightier goods, it can be a good idea to enable returns by collection from home, which the customer could initiate via the online shop (Heinemann, 2017). • Online purchase promotion: With regard to an online purchase promotion, innovative services can be offered that can only be accessed via an online purchase. This could include, among other things, personal delivery to the door, the assembly of appliances

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or furniture at the customer’s premises, as well as instructions or even maintenance and repair services. There are still many unoccupied niches in this respect (brandeins, 2014; Heinemann, 2017). It is also possible to provide advice at the customer’s home, for example with appointments made in the store. Many consumers are in principle willing to spend something for additional services around a product – such as installation. After all, many retailers have gradually cut back on some additional services, such as repair services, in previous decades. This also presents tremendous opportunities for new digital-related services. For example, it would be conceivable to set up pick-up stations for customers where they can also collect or temporarily store their packages ordered from other online retailers (Heinemann, 2017). • Online purchase incentive: For online purchase incentive, coupons or vouchers can be used, which the customer receives after his consultation in the store and which he can redeem when buying online at home. However, caution is advised in this regard so as not to unconsciously push the online channel and literally push sales from the store to the online shop. In addition, cross-selling and up-selling incentives are conceivable that can encourage customers to make subsequent purchases in the retailer’s online shop even after the purchase in the store. In this respect, complementary tie-in products such as covers for mobile phones or batteries for electrical goods are an option. New business models can also be considered that permanently bind customers to the online shop in the form of subscriptions. Rossmann offers its customers a low-priced shaver subscription. Another “store-to-web” service could be that the customer takes the item home to try it on and then pays for it online. If the item does not fit, another “multi-­ channel service” would be for the customer to return the item brought from the store to a central returns address (Ibid.). • Video online advice: The multi-channel retailer Butlers pioneered video online advice in Germany in 2013. In order to contact an employee in the store, customers had to click the “Get advice now” button. A chat window then opened in which a Butlers employee introduced himself. After typing in the mobile phone number, a callback came directly seconds later. Depending on the question, the employee walked through the store and showed the products with a camera in addition to providing advice (Neuhandeln Randler, 2013). In 2014, Butlers introduced Click & Collect and experimented with elaborate video advice until its insolvency in 2016, allowing online customers to be shown furniture by a member of staff in-store via live video chat (Internetworld Butlers, 2017). After the bankruptcy, Butlers did not continue the consultation. However, video advice has been offered again since Corona by bicycle retailer Rosebikes, via WhatsApp video telephony and Facetime. However, customers can only make use of the video advice by prior appointment (Rosebikes Corona, 2021). Since the beginning of 2021, the Thalia Group has also included digital customer advice via chat in its programme for its book sales. Live advice is provided by employees at selected stores on weekdays and during the day. Contacting the book consultants is simple and intuitive: When online customers open the Thalia.de website or the respective book categories, they will see the live chat icon at the bottom right of the page.

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Page visitors are greeted directly with the chat message after one click, before the individual consultation begins (Buchreport Thalia, 2021). Since February 2021, Germany’s third-largest optician chain Pro-Optik has also been offering live advice in its optician online shop, giving online customers at home the opportunity to enjoy stationary specialist advice in real time (Pro Optik, 2021). • Video live shopping: With video live shopping, consumers can buy the retailer’s products with one click in real-time videos. This works smoothly if the live stream is directly connected to the online shop via a technical interface. The fact that the approach is somewhat reminiscent of teleshopping is no coincidence. Unlike TV shopping, users can buy the goods with one click via their mobile phones, which limits the process in terms of time. By allowing customers to influence the course of the live stream, the format gains authenticity (BI Live, 2020). With live shopping in front of the camera or in livestream videos, products can be presented in a humorous and creative way. A real human counterpart guarantees spontaneity. Especially celebrities and popular brand ambassadors make live shopping successful. The Chinese are pioneers in this field. The Middle Kingdom is obviously convinced of the benefits of the interactive shopping experience, as two-thirds of consumers there bought products from livestreaming in 2020. It is currently becoming apparent that this form of sales is also becoming attractive in Germany (Fashionunited Live, 2020). Switzerland was a pioneer in Europe. Migros specialist stores offered live video broadcasts early in 2020 – such as Micasa, Melectronics, Do it + Garden as well as SportXX. Thanks to live video broadcasting, online consulting promises direct contact with a customer advisor and the same shopping experience as on-site in the store. In the store, the advisor can show the customer what the products found online really look like. Additional use cases are conceivable (Carpathia Live, 2020). In Germany, the company Livebuy has already won Tchibo and Douglas as customers as a service provider in 2020. Customers can access the live shopping stream, which offers special shopping deals from selected brands, via the homepage of the online shops (BI Live, 2020). Thalia Book Group also launched a digital bookstore with live chat at the end of 2020. Customers can contact the bookseller online via live chat. This service is intended to further increase customer loyalty even in times of crisis. The advantage of the new service is the direct dialogue with expert advisors – and in real time. In addition, the user can then order directly in the live chat, thus saving the online ordering process (Internetworld Thalia, 2020). Store-to-Web is classically associated with a physical store visit. Quite a few Internet users seek out the “touch-and-feel” opportunity in-store in non-corona times before making their online purchase, even if they don’t buy there and are then often decried as advice thieves. A certain part of today’s e-commerce sales is certainly not due to the sole performance of the online channel, conversely offline sales in brick-and-mortar retail are also no longer the sole performance of the store. In this respect, brick-and-mortar retail also sometimes takes on the role of a “purchase preparer”. In this case, ROPO can be described as “research offline and purchase online”. The proportion of online sales for which the buyer

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first obtains information in the store is around 5% of total non-food e-commerce sales, equivalent to more than EUR 20 billion (see Fig. 3.19). One problem with store-to-web services is undoubtedly when retailers only offer a rump range online, so that the item found in the store is very unlikely to be available for purchase in the online shop (brandeins, 2014; Heinemann, 2017). Customers report that they were literally forced to buy from Amazon, even though they would have liked to buy the item in the online shop of their preferred retailer.

3.3.4 Digital-in-Store and Web-in-Store Digitisation Today, it is almost normal for customers to be able to use their smartphone in the store. At very advanced retailers, they can even use it to navigate to the desired item – as has been the case since 2019 at MediaMarkt in Gründau-Lieblos, Hesse (“in-store navigation”). In UK retail, such as Argos, it is already normal to buy an item at terminals or with a smartphone online in the store and then pay for it with the smartphone. In addition, customers can use the mobile internet in-store to compare prices and obtain additional information. Via augmented reality as well as virtual reality functions, he can get more precise ideas about the product or generate further ideas. In a virtual fitting room, he is then given the opportunity to use interactive mirrors to gather customer opinions. This may sound like science fiction, but it is already being offered in individual cases. • Interactive touchscreen shop windows: Shop windows usually play an important role in buying impulses. Nevertheless, they have hardly been included in the digitization process of retail stores so far. Although interactive shop windows have not yet had the big breakthrough, their development has gained momentum and is opening up new opportunities. They are an approach to combine the benefits of online and offline and attract customers back to city centres by offering a new shopping experience (Viewneo, 2017). Thanks to the IoT (Internet of Things) and the network expansion that comes with it, different technologies can be combined to create a holistic experience. This will allow on-screen content to respond to set events in real time in the future. By digitizing store windows, new stimuli can be created to draw customers into the store. With this technology, online purchases could be made directly in front of the shop. Perhaps passers-­by are just taking a stroll through town and the shop has already closed, but they want to secure the shoes in the shop window immediately, which would also be possible via smartphone (Heinemann, 2017; Viewneo, 2017). But the interactive shop window offers direct access with just one “touch” and meanwhile even learns to speak, as it now allows customers to interact via voice recognition (Textilwirtschaft, 2016; Heinemann, 2017). With this concept, the company now no longer loses potential customers who could simply order from another supplier via mobile. Interactive areas where customers can access the Internet via touchscreen are also conceivable in the store. This has been tested in eBay’s Inspiration Store, which is also a good example of a showroom with QR code purchasing (eBay, 2014; Heinemann, 2017).

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• In-store navigation applications help customers find their way around stores themselves. Especially in large formats such as hypermarkets, DIY stores or furniture stores with a high number of different products, visitors are often overwhelmed and would like such support. For some years now, this has been possible using RFID chips (Radio Frequency Identification System), among other things. RFID chips are attached to the goods and can thus be located by the customer via the mobile Internet. In addition, the customer can retrieve information about product characteristics and availability that has been stored on the RFID chip (Heinemann App, 2018). This makes it possible for the customer to browse the entire product range in the store and retrieve information about availability and location via the product page. The US department store operator Macy’s has offered its customers in its flagship store in New York’s Herald Square an in-store navigation based on an iPhone app since 2014 (Retail Innovation, 2014; Heinemann, 2017). This was developed by the start-up Meridian. Since mid-2019, MediaMarkt has also been testing in-store navigation. In the future, customers will be able to navigate themselves through the stores via smartphone using a special app that is reminiscent of a kind of ‘Google Maps for indoors’. In addition, the app will also be able to assist with inventory and online order processing in the future. The data thus obtained can also be used for category management and for the central planning of sales areas. The central element of the app is the so-called VLC technology (“Visible Light Communication”). Intelligent ceiling lights emit a light with invisible identification codes that are received and read via the smartphone camera. This allows the location of the customer to be determined. Figure 3.23 shows MediaMarkt’s solution as an example of an in-store app (Horizont IN, 2019; MediaMarkt IN, 2019).

Fig. 3.23  MediaMarkt as an example of in-store navigation. (Source: Horizont IN, 2019; MediaMarkt IN, 2019)

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• Digital price tags and dynamic pricing: Digital price tags also allow dynamic pricing in stationary retail, as was previously only possible with online retailers. Through the use of smartphones, prices from different suppliers, supported by price comparison sites, can now also be compared quickly and easily in bricks-and-mortar stores. Due to the resulting increase in market transparency and the accompanying competitive pressure from the mobile Internet, customers therefore also expect the price margins of suppliers to allow for discounts in stores. In this respect, dynamic pricing will also gain importance in stationary retail in the future (Heinemann, 2017). MediaMarkt-Saturn is ahead of the game with this technology, because ‘Amazon-driven’ constant price changes are the order of the day, especially for electrical goods and electronics. In addition, any Click&Collect system would be doomed to failure if the same products were basically more expensive in stationary retail. If the price tags are connected to the mobile store fashion application, as in the newly opened concept store in Eindhoven, customers can download further information about the offer to their smartphone during the purchase process, order the item online or buy it in-store (Ritschel, 2020). The advantage for stationary retailers is the enormous efficiency benefit, as usually very high personnel costs are tied up by price tag maintenance in the store. At the latest, the 2020 VAT reduction posed major problems for many stationary retailers. For example, they had to change the price tags on the goods in one day if they wanted to pass on the price advantage to their customers. Here, retailers who worked with digital price labels had an advantage. EZL (Electronic Shelf Label) is the name of the technology that gives stationary retail a new face. It not only enables clean price labelling, but also explanatory texts and, in addition to dynamic pricing, improved tracking (Ibid.). • Digital shelf extension: Smart shelf extension is made possible by online and mobile shops that are able to remove spatial boundaries and thus (theoretically) infinitely extend the product range. That’s why suppliers and wholesalers are also promising themselves additional sales potential via digital shelf extension. Often, stationary retailers can only show a fraction of the manufacturer’s assortments and collections because the space is limited. Using terminals or tablets, it is possible to show customers the entire range in the store, although only online, and to order the goods directly online. However, this requires a strong involvement of the sales staff, who ultimately have to draw the customers’ attention to the extended shelf (Textilwirtschaft, 2016; Heinemann, 2017). Furthermore, the increasing fixed cost problem due to dwindling sales per unit area can only be solved by smaller formats, which is especially a problem for product groups such as furniture if they require a lot of display space in the store. This dilemma could be solved by a digital screen that shows customers the remaining product variants online, thus expanding the floor space. The advantage is that the virtual shelf extension can be installed directly at the PoS. In addition, sales staff equipped with tablets can respond to customers’ individual wishes. Customers of the furniture brand Livique, for example, have the option of configuring a single sofa model in many different ways and customizing additional functions as desired. Customers can also find out about products themselves on the spot by holding their barcode under a scanner. Consumers can

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also obtain further information about ingredients, sustainability, fair trade or allergens (Ritschel, 2020; Internetworld POS, 2019). • Augmented reality in the store is based on a technology that connects the real environment with virtual elements in real time via smartphone apps. It can also be described as a “computer-assisted extension of reality perception”. The use of augmented reality in mobile commerce requires a camera integrated in the smartphone that can capture the environment, which is then overlaid with virtual elements on the smartphone display. These can be geocoded so that they can be called up at specific locations. Automatic recognition of objects via the smartphone camera is also possible in this respect. In clothing retail, augmented reality is increasingly being used in virtual dressing rooms of online shops (eTailment AR, 2020). Here, the body is captured by a webcam in real time, so that the garments can be superimposed or virtually placed on it. The integrated cameras usually allow this application on smartphones as well. H & M in New  York used the augmented reality app Gold Run as early as 2010, which asked customers to search for selected virtual garments and then get a discount on them with further interactive actions (Heinemann 2013a, b). Augmented reality can also be applied directly at the point of sale, as LEGO® has practiced, for example, as an innovative form of product presentation. For example, LEGO® had terminals set up in many toy stores as early as 2008 that allowed customers to finish assembling and viewing LEGO® kits that were still packaged. All they had to do was hold the package of a kit up to the terminal’s camera. This worked without geocoded information, but with the help of product recognition by a camera. In stationary retail, this type of product presentation can certainly be applied extensively and across all sectors. In addition to the physical presence and the sensual experience of the products (touching and feeling), this could create a further experience factor at the point of sale. Since 2017, IKEA has been using augmented reality technology with its Place app to help customers find suitable pieces of furniture for their own four walls. Overall, the use of augmented reality in stationary retail is increasing. This allows products to be displayed in only one version at a time to provide the haptic experience. Further product variants can then be tried on, e.g. in fashion retail, via magic mirrors (eTailment FS, 2020). • Magic Mirror: The Smart or Magic Mirror represents a mirror as a shopping advisor. It is an in-store AR solution, but it is only being used by some pioneers to attract customers’ attention. Smart mirrors allow customers to try on products without having to search for the right garment in the store. It also means they don’t have to put products on. The Magic Mirror serves as a kind of “personal shopping assistant”. It provides personalized product recommendations and is especially useful when there are no or not enough changing rooms due to limited sales space in the store. It is intended to enhance the customer experience and promote sales at the same time. At Zara in Milan, interactive mirrors recognize individual products via RFID and make suggestions for accessories and additional clothing items based on this (Internetworld POS, 2019; eTailment AR, 2020; Ritschel, 2020).

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• Virtual Reality in the Store: A major topic at the mobile communications trade fair in Barcelona in February 2016 was certainly the “virtual reality glasses” Oculus Rift. The final version of this wearable has been available to order since the beginning of January 2016 for around €700 and has been shipping since March 2016 (Heise, 2016; Heinemann, 2017). Facebook announced back in March 2014 to acquire Oculus Rift for US$2.3 billion after developer Palmer Luckey presented his virtual glasses to the public. Users are made to feel like they are in reality rather than a virtual world through the Holodeck (Ibid.). Undoubtedly, the Oculus glasses were initially only intended for particularly realistic game displays, but then sparked ideas for other applications, such as in the retail space. Initial tests by IFH Cologne at the Innovation Store in Pulheim, which was set up as a joint project between IFH Cologne and the retailer Knauber Freizeit, were intended to demonstrate possible applications for the future of shopping. However, the first use of the Oculus Rift in retail obviously did not go so well that corresponding potential for stationary retail could have been derived (Locationinsider, 2016; Heinemann, 2017). However, the technology is now being used in US retail. For example, Macy’s customers can select furniture in virtual reality. To do this, Macy’s uses Marxent’s “3D Cloud” solution and virtual reality application. Customers enter the size and floor plan of the room on a tablet, after which the room appears as a three-­ dimensional model. There, they then virtually place furniture that they would like to buy. With VR glasses, they enter the virtual room and try out their furniture (Internetworld POS, 2019). • Digital signage: Info displays and digitized posters with QR codes represent a combination of classic print advertising with digitized additional information and concrete purchase options. While digital info displays are often designed as interactive customer guidance systems, customers receive information and navigation instructions via QR codes on posters and can simultaneously purchase an advertised product directly. For this, however, they need a suitable marketing component on their mobile. Obi uses exactly this concept by hanging posters with integrated QR codes at bus stops, for example on the topic of raised ponds. While customers are waiting for the bus, they have a few minutes to scan the QR code. Such posters are also increasingly found on shop windows or in customer elevators. It is important that companies offer the customer added value via the code, as in the case of Obi with self-assembly instructions for the raised pond (Heinemann, 2017). The virtual fan shops of Hertha BSC also represent a good example. For example, the club has extended its fanshop offer into the Berlin underground by means of posters with QR codes at all 400 Berlin underground stations (Kunhardt, 2012; Heinemann, 2017). Digital signage, in particular, brings ideas for showing moving images to stationary retailers. These generate more attention than static motifs, for which digital signage installations provide a good basis. The use of screens in the checkout area is also conceivable. But also digital menu boards in restaurants and steles in shopping centers are meanwhile an integral part of retail. As a rule, the applications tend to be reduced to playing a ready-made playlist, although technically much more would be possible (Viewneo, 2017).

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• Smart online advertising. In their stores, retailers have numerous opportunities to positively promote the shopping experience. For example, interactive screens can be used. Musti ja Mirri, a pet supply company from Finland, offers RFID tags as dog collars. With this, the animal can be recognized when it enters the store. This makes it possible to greet the dog on a large screen. If data about the animal is stored, individual offers can be made to the customer for his dog. Beacons, or Bluetooth-based signal stations, can also be used by retailers in stores to provide comprehensive information of all kinds about products online, but also to place targeted online advertising. At least in theory, consumers can be addressed at any time via their smartphones. Ideally, a reference is made to the customer’s current situation that is time, location or occasion-­ related. If a customer is in the vicinity of the store, it makes sense to address him with a personalized offer via SMS, e-mail or voice message – ideally with a discount offer on a suitable product category. Due to product availability and proximity, it is likely that the customer will visit the store afterwards. This activation method is also known as geo-fencing and requires a prior opt-in process where the customer shares their data for mobile contact (Internetworld POS, 2019). • Virtual changing rooms in the store are intended to bring the advantages of online shopping to the POS (Textilwirtschaft, 2016; Heinemann, 2017). At Zara/Inditex, the first changing rooms were already equipped with touchscreens in 2016, allowing customers to order their goods in new sizes and styles. At fashion retailer Adler, interactive changing rooms were also tested very early on. Since then, Adler has made self-­service systems available to its customers in the digital changing rooms. This allows them to view item information such as product images, colors, sizes, cross-selling items and availability. In addition, a salesperson can be called at any time. Complete outfit suggestions are made to the customer via a 23-inch touch screen. Otherwise, the system plays advertisements. In the booth area, an attached tablet shows customer service representatives whether the booth is free or occupied. In the booth there is a mirror with touch function or a self-service terminal next to the mirror. Using RFID tags, the system recognizes which items the customer has taken into the changing room. Matching garments from the same category are then displayed in the digital signage. The customer can call up a self-service client via touch function. This then provides further product information, sizes, colours, cross-selling offers or availability. The possibility of a networked changing room, as tested by Karstadt in Düsseldorf, seems particularly interesting for stationary retailers. Here, Karstadt relied on mirrored touchscreens in the cubicles that offered styling suggestions. They also provided additional information on products and access to the online shop (Textilwirtschaft, 2016; Internetworld POS, 2019). • Mobile Payment: Mobile payment is also an example of digital-in-store services. While mobile payment failed to catch on in Germany for a long time, Covid-19 apparently provided the catalyst for mobile payments to now take off in this country, albeit with a severe time lag (Computerwoche, 2016; Heinemann App, 2018). Until now, the cash-heaviness in Germany, among other things, hindered the penetration of mobile

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3  Intelligent Retail Germans pay more by card than cash for the first time In % 50,0

48.3 Bar

46,9 26,3 12,6

Map 48.6, of which: 30.1 Girocard with Pin 10.0 Girocard with Signature 6.9 Credit card 1.6 Other cards 3.1 Other

6,5 1,5 3,1

2017

2018

Fig. 3.24  Sales shares of payment methods in the German retail sector 2018 in percent. (Source: Welt Cash, 2019)

payments. Since 2018, however, more customers have been paying by card than by cash, yet 48.3% still remained with cash. And mobile payment did not appear at all (Fig. 3.24). Since the Corona pandemic, however, almost half of Germans (48%) use mobile payment via smartphone or wearable. The younger the users, the more popular mobile payment appears to be. For example, in the age group of respondents between 30 and 39 years, seven out of ten Germans (72%) already use the smartphone at the checkout, if that is possible. Unfortunately, the lack of acceptance points still depresses the spread, but customers will undoubtedly force the further spread, because major reasons of smartphone payers are convenience as well as the time factor. In this regard, PayPal is the most popular mobile payment application, used by as many as 88% of mobile payers. In second place for mobile payments comes the use of the NFC chip of the mobile device or wearables (23%) (IT-Finanzmagazin, 2020). • Contactless payment and self-checkout: It is not only since the beginning of the Corona pandemic that customers have detested standing in line at the checkout. That’s why more and more stationary retailers are offering mobile self-checkout for tech-­ savvy customers, such as Saturn for the first time in Hamburg. There, customers can use “Saturn Smart Pay” to pay for products directly at the shelf. For this purpose, there is a Saturn Smart Pay app that has to be downloaded beforehand, installed on the smartphone and registered by the customers. With this, customers scan the barcode on the product with their smartphone camera or touch the product’s digital price tag with an NFC-enabled smartphone to access the item. Once all products are scanned, payment is made by credit card, Paypal or Google Pay. Self-checkout is thus done entirely via one’s own smartphone (Internetworld POS, 2019). • Self-scan: For the time being, self-scan is not yet a seamless self-check-out solution in German grocery retailers and selected drugstores, but rather an interim solution. In this context, the so-called Scan & Go was introduced at several providers at the end of 2020. Customers can scan their groceries at the shelf, either with a hand scanner or with

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their own smartphone. However, payment is still made at the checkout, albeit an express checkout, a so-called self-checkout terminal. The Rewe subsidiary Penny was apparently the first provider, the EDEKA subsidiary Netto and then REWE followed. Since January 2021, DM has also been offering Scan & Go – but only in selected stores for the time being. The only catch with REWE and DM, however, is that customers need an active Payback account for this and, in the best case, activate the Payback app or a Payback card while still shopping. If customers do not have a smartphone with them or do not wish to use one, they can scan their Payback card at the corresponding terminal in the entrance area. They will then be handed a scan gun, which they can then use to make purchases. They then also have to pay at a self-service checkout. A code generated by the scanner is scanned at the terminal. The payment method is then freely selectable. If customers use their own smartphone, they have to scan the code with the Payback app at the entrance. This saves customers time because they no longer have to place their goods on the checkout belt. The concepts of REWE, DM, Netto and Penny hardly differ. The only significant difference is that the solutions from Rewe and DM require a Payback card (Chip.de Selfscan, 2020).

Web-in-Store Digitization When ROPO customers have prepared their stationary shopping on the web and visit the stationary retailer of their choice with their smartphone, digitalization must not stop at the shop door. Today’s customers expect to have both Wi-Fi and good reception in the store, as well as being able to use their smartphone in the store without hesitation. However, this also gives retailers the opportunity to run locally based advertising or offer location-based services. At the same time, they will be able to track customers and thus generate valuable customer data. • Locally based advertising: Mobile advertising makes it possible to reach customers on their mobile devices and to play out advertising messages contextually (Heinemann, 2017; Heinemann App, 2018). This allows retailers to target customers in their vicinity. In this regard, the iBeacons solution is repeatedly brought into play and discussed as an alternative to free WLAN in the store. WLAN is certainly more interactive, but allows access to different networks, so that the customer is not always reachable in case of doubt. On the other hand, customers nowadays primarily expect free WLAN and active interaction options from stationary retailers (kaufDA, 2018), so retailers should basically use both technologies. Customers can then be identified in the store via iBeacons and individually played back, which means that this type of advertising is actually more of a modern form of in-store radio and customers are “played back” on one side. Locally based advertising can also use GPS data. Combined with AI, this will make context and proximity an important tool for addressing customers, especially with regard to impulse buyers. However, a growing concern is that 22% of users are using an ad blocker on their smartphone. Push functions are not popular among respondents, as

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they see them as a waste of time and annoying. Customers would rather retain control over the timing of information retrieval and therefore prefer pull functions (Heinemann, 2017; Heinemann App, 2018; kaufDA, 2018). At the same time, consumers definitely want to engage with product information, as long as it is seen as worth engaging with. In particular, suitable personal recommendations are desired. This suggests that push notifications also meet with rejection because of their rather impersonal content. After all, a quarter of the respondents would like personal recommendations that are tailored to their own wishes and interests. Furthermore, they are interested in a simplification of the search (“complexity reduction”) with a local reference. According to this, a quarter of the users expect a pre-selection of the many offers at the location. This shows enormous potential for curated advertising. This can be provided in both push and pull notifications. For retailers and also portals, it is advisable to put energy into relevant content or offers for the smallest customer segments (kaufDA, 2018). • LBS – Location-based Services: LBS are services that use the user’s location information on an app basis to provide them with location-based purchase-relevant information. This makes it easier for customers to shop in-store and gives them an incentive to continue shopping in-store. Furthermore, LBS allow stationary retailers to improve customer satisfaction while reducing the cost of funds (Heinemann App, 2018; kaufDA, 2018). This increases customer loyalty as well as the number of regular customers. Important component of location-based services is undoubtedly the localization function. Provided that smartphone users agree, this can be used to access location- and situation-based data. This can be linked with social information and recommendation processes. This makes personalized and precisely tailored customer recommendations possible. New communication or transaction sites, efficient mobile marketing measures, local assortments and attractive real-time offers are conceivable. However, many retailers do not have any customer data or see “Big Data” as an unsolved problem. Bonial provides assistance in precisely this area with the possibility of controlling local offer communication in a data-driven and personalized manner. This requires no knowledge of location-based services, although the number of respondents who are aware of location-based services is quite high at 44%. The supported level of awareness of kaufDA is nevertheless 46%. Around 33% of the internet users surveyed regularly use the KaufDa app (at least once a month) and 24% use the KaufDA website (kaufDA, 2018). • Data management platform: While print advertising is declining overall, the Bonial app, for example, is increasingly meeting customer demands for a digital marketplace. Typical product features in this regard include searching and finding local offers as well as important store information, such as opening hours and availability. In addition, users can set favourites and link to the online shop of the retailer they are looking for. Moreover, it is possible for them to create a shopping list on the platform (Handt, 2017). In total, Bonial mediates up to 800 million shopping signals per month. These are generated from 33 million app downloads, which are used by 8 million active users in Germany. With 1.6 billion brochure openings and 19 billion brochure pages read, these generate a total of 1.3  billion store visits and 1.1  billion interactions in the

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brochures per month (Ibid.). The massive and at the same time intensive use of the platform enables Bonial to create meaningful campaign statistics and make them available to its customers. These show exactly how many users have read their advertising material during a campaign on kaufDA and MeinProspekt. Leading market research institutes validate the internal measurements. Accordingly, Bonial is increasingly developing into a management platform, acting not only as a location-based service provider to make current daily offers visible on site. In addition, kaufDA also optimizes data-based digital brochure display and provides retailers with a wealth of features that can be used for interactive advertising. Furthermore, the platform enables customers to find their dealer via special search functions and even to be connected with him via a product link. Bonial thus covers the entire customer journey and, in addition to the targeted product and retailer search, also provides customers with comprehensive inspiration or purchase suggestions. In this respect, brick-and-mortar retailers have the opportunity to transport the potential of mobile commerce into brick-and-mortar stores with the help of a multi-channel concept. Accordingly, new technologies and formats offer additional services and interaction possibilities in stores. This is possible, for example, via mobile apps or in-store terminals (Heinemann App, 2018). Especially cross-channel services, such as online information about store inventories, compiling individual assortments, and pick-up and return options in the store, can offer customers real added value. Mobile measures and applications in stationary retail are diverse and are summarized in Fig. 3.25. • Interactive communication platform: The online and offline interactions in connection with the Bonial platforms, for example, increase customer value and create added Areas

Mobile information with local relevance

Localisationof customersvia mobile services

Mobile PoSServices / Digital-in-Store

Digital Services • Mobile local search

Best Practices • Local-focused search (Google Places, -Local)

• location-based service

• Mobile ads (kaufDA/Bonial, MeinProspekt)

• Located social network

• Local/social recommendations (Yelp, Foursquare)

• Local targeting

• Mobile digital displays (Burberry, Douglas)

• Micro localisation

• Push notification near store (Batch; NewStore)

• QR-codes on print

• Virtual increase of assortment (Bonobos, Tesco)

• Instore app/navigator

• Add-on advice (NewStore, Carrefour)

• Shelf stretch

• Cross-/ upselling (Ex Libris)

• Mobile payment

• NFC payment solutions (PayPal, Payback)

Fig. 3.25  Mobile measures and applications in stationary retail. (Source: Heinemann App, 2018 adapted from Haug, 2013)

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value for the retailers. Customers have the opportunity to receive all relevant information from the merchants in their vicinity. They can discover products and special offers as well as become followers of merchants and brands so as not to miss any offers. Not only can they browse, but they can link specifically to a retailer’s store. Customers also appreciate the fact that no paper is used. In contrast, the platforms also create extensive added value for the merchants. For example, the costs per engagement are comparatively low. In addition, engagement generates greater usage, which can be further fueled by push and CRM notifications. As a result, kaufDA and MeinProspekt not only become sources of inspiration for shoppers, but in turn drive omni-channel purchases (Handt, 2017). Examples from the DIY sector show that 47% of users bought only because they had used the digital prospectus, and even 30% bought more because of it. In this respect, the cross-selling and up-selling potentials are literally obvious. In this regard, deep user engagement with content turns out to be a driver of purchase frequency, leading to above-average conversion rates of up to 30%. In addition, many consumers can no longer be reached with the classic handout and Bonial’s platforms tap into new target groups by up to 54%. In addition, the digital formats of the handouts generally work better than the classic formats. While the average increase in the purchase probability of people with contact compared to people without contact is around 1.25 with a classic handout, it is 1.67 and 1.96 with kaufDA and MeinProspekt, respectively. “Bonial Connect” is a new solution that offers retailers the opportunity to increase their reach by up to 44% with their own handout on the homepage. The “Bonial Dynamics” tool also provides companies with detailed analysis data. This allows targeted optimizations to be made to the display in order to increase click-through rates or to replace a product if the click-through rate is too low. Significant added value is derived from the fact that Bonial shows its users a higher average click-through rate than print users. In addition, Bonial users with lower sales share of promotional merchandise buy more than handout users. In addition, buy: Bonial users buy more “leftover merchandise” at the regular price (Ibid.). • Tracking in Store: In online retail, common web analytics tools provide information on the click behaviour of website users, their abandonment behaviour as well as the weak points of the website in comparison to the competition. In addition to visits and visitors, customer tracking can also be used to determine page impressions, conversion rates, dwell times, bounce rates and click-through rates (CTR) (Heinemann, 2017). The data obtained from this provides a good basis for optimizing the website as well as improving navigation. Web analytics methods are therefore an indispensable tool for fine-tuning all online marketing measures. They help to better understand customers and thus to align the shop in a more customer-centric way, and are used to operate an online shop in a targeted manner and in line with the budget. Web analytics thus provides important information for optimizing usability and improving the quality of the online shop (Heinemann OH, 2021). The company Crosscan from Witten (www.crosscan.com) now also enables stationary retailers to carry out a visitor count, walkway recognition as well as a dwell time measurement according to the principle of web

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analytics. Based on the people count, it is possible to measure the store conversion in comparison with the cash register registration. This is done – similar to the walkway recognition – on the basis of WiFi tracking systems or customer flow sensors, which record all movements in the store. This means that dwell times can also be measured and assigned to individual departments or products. For this, iBeacon technology provides the technical prerequisite via which the retailer can also communicate with the customer and point out offers to him. In addition to customer analysis according to visitor frequencies, purchase and visit history, staff scheduling, and weather analyses, store data analysis including sales analysis and assortment performance are also possible. As shown in Fig. 3.26, the findings of the new measurement technology can be used to implement a comprehensive “digital-in-store” concept, which, when supplemented with electronic price labels, is an excellent addition to the “smart store”. It forms the basis for the next step, namely the implementation of ultimate usability and offline customer centricity (Crosscan, 2021). • In-store apps usually go beyond navigation and often combine different applications. US fashion retailer Neiman Marcus has developed an in-store app that allows customers to get in touch with a sales consultant as soon as they approach a Neiman Marcus store. The app, called Connect, also serves as a customer-facing support tool for its sales team. Built on customer location, the app provides sales staff with information about customer preferences, which requires customers to download a customer app beforehand. There are two options to choose from. One is the option that sales staff are informed when the customer enters the store. On the other hand, there is the version that employees can actively go into a check-in when customers want to be personally

1. iBeacon Direct customer communication, hints for actual and special offers

2. Electronic price labels (ESL) Dynamic pricing (for each product in every store)

3. Customer flow tracking WiFi tracking or customer flow sensors

4. Counting of visitors / measurement of visits Counting of visitors/ measurement of visits with WiFi tracking or customer flow sensors

5. Digital signage TV, live.ticker, banner/ trailer promo, instore radio, recommendations, checkout

6. Cross and up selling Identification of customers, individual advices, recommendations, customer interaction

Fig. 3.26  Digital POS – the intelligent store. (Source: Crosscan, 2021)

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advised. This involves informing the sales associate about the customer’s interests and likes, shares and likes, and purchase history, which requires making the customer’s social graph available directly at the POS. On the customer side, it is transparent which employees are currently available or can be booked for a sales call shortly. Customers can also use QR codes to call up special product information and find out about trends or new merchandise. This information is also made available to sales staff, who can then provide customer-specific recommendations and individualized advice. This example shows how stationary retailers in particular can combine navigation aids with personal advice (Mashable.com, 2013; Neimanmarcus.com, 2021). • Online buy-in-store: Online purchase in-store and payment with QR codes have been much discussed topics in this context for years. In-store purchases can be made either via the customer’s own smartphone or at terminals or mobile devices provided by the store staff. Online buy-in-store can lead to both click & collect (immediate takeaway) and ship-from-store (delivery from the store). Here, only the distance to the purchased product is smaller and a touch & feel or even trying on is possible. Increasingly, customers are shopping in-store via smartphone and then having it delivered to their home. The question of why consumers should shop online in-store rather than directly online from home is on the minds of experts, but customers are simply doing so increasingly. Due to online-related sales declines, store formats will likely become smaller in the future. Stores with an attached warehouse, as we currently know them, will probably no longer exist in the future for cost reasons alone. In this respect, it is very likely that stationary store areas will increasingly be transformed into showrooms in which the customer will then have his touch-and-feel experience: Here, all products are on display, but each only once. Customers can test as well as try on and try off at will. If they decide on the product, they can buy it easily and without waiting directly in the showroom with their smartphone, for example via a QR code. A new copy will then be delivered to them – to the store, to their home or to any other location of their choice. This is also the practice in eBay’s Inspiration Store, which was tested in the Weserpark shopping centre in Bremen at the end of 2014 (eBay, 2014). In addition to pure purchasing, payment via QR code has recently also become possible. Paypal, for example, has been offering contactless payment via smartphone and QR code since mid-2020, which is thus also a form of contactless payment (IT-Magazin, 2020). • Ship-from Store: Ship-from-Store refers to the delivery of goods ordered online from the shop or store. Online customers receive the goods of their orders from the nearest store of the retailer. This requires a high-performance OMS (Order Management System) in which all information flows together at a central point across all channels, thus efficiently linking online and offline sales. It can help to reduce high inventory levels in stationary shops. In the case of in-stock consumer goods, delivery from a nearby store is also considerably faster than from any central warehouse and is a potential defensive measure against same-day delivery by the big online pure players. For example, the majority of respondents to the latest kaufDA survey want to be informed about delivery options they could use when buying in-store (kaufDA, 2018). Customers

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are increasingly placing these expectations on stationary retailers as well. Experience shows that Ship-from-Store realizes high sales potential with comparatively low implementation costs. Basically, ship-from-store is already offered in the automotive trade and for household appliances. Customers get the product personally brought to their home and explained to them. This service can also be part of remote services. • Remote Services: Tesla has begun to convert its stores in its home market into pure showrooms with advisory staff and to sell only online. There, test drives are made possible – the customer makes the purchase exclusively on the Internet. Tesla customers are used to ordering things online anyway, he said. For test drives, the vehicle is delivered to the customer’s home and vehicles that need to be repaired are picked up from home. In the U.S., Tesla customers get their new vehicles delivered to their homes within a day after buying them online. If he does not want the vehicle after all, he will be reimbursed the full purchase price if he returns his Tesla after one week and no more than 1000 miles (1609 km) of mileage (AMS, 2019). • What Tesla invented is now also offered by Rosebikes with the possibility of an appointment. With “Rose@Home”, not only a free mobile consultation service is offered, but also the possibility to test the desired bike directly in front of your own door (Rosebikes Corona, 2021). In addition, customers can get advice from bike experts on site. The bike can be ordered directly or an appointment can be made for a later purchase in the store. But ao.com has also long been on the remote service route and offers not only personal delivery and instructions but also the taking home of old equipment, complete installation service, connection service and assembly service (ao.com, 2021). • Fully automated store: Smartphone technology enables the development of completely new stationary formats. US systems provider Hointer already used this to invent the first fully automated fashion store, where customers can shop using the QR scan retail process with their smartphones (Seattlemag, 2018). As a jeans store for men, the first Hointer store opened back in October 2012. At first glance, the store looks like a normal showroom, with one reference piece per product on display. Each pair of jeans is marked with a QR code. Customers can scan this, for which they have to download a mobile app from Hointer beforehand. After scanning the QR code, the customer is asked for the size and color. If the customer presses the “try-on” button, it is checked whether the desired product is in stock. Thereupon, the customer receives the information in which free changing room he can find his jeans. In the meantime, a robot or self-driving shopping cart retrieves the desired product from the fully automated warehouse and brings it in a box directly to the reserved changing room. If the jeans fit, the customer can take them with him or – if he doesn’t like them – put them back in the box. It is then returned to the warehouse in it (Ibid.). Hointer shows a completely new and innovative shopping experience at the POS, in which the previous behavioural patterns are broken. Customers have the opportunity to shop quickly and in a self-directed manner. This is guaranteed at a lower price than in a store with service (Ibid.). The Hointer concept leaves room for further developments. Especially in the Corona crisis, this was gratefully taken up. For example, Migros opened the first fully automated store

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called “Voi Cube” in February 2021. It is a mini-supermarket without staff with 500 items on 18 square meters. Customers shop via app on their smartphone. After downloading the app, customers gain access to the store via a QR code. Goods are scanned via the smartphone and paid for at the self-service checkout. In 2019, the Valora Group already opened a similar walk-in vending machine called Avec Box (Handelszeitung Migros, 2021).

3.3.5 Smart Stores and Smart Business Models as a Freestyle The Smart Store is about bringing together all the individual digital solutions outlined above into a coherent overall concept. A key role is certainly played by the smartphone in conjunction with a master app of the retailer, in which all relevant functions converge. The motto “Every store of the world in the palm of your hand” (Heinemann, 2017) probably best illustrates the outstanding role that the mobile internet will play in the retail of the future. This applies not only to web-to-store, but also to web-in-store, where shopping is then predominantly app-based. The master app unites all retail functions and is simultaneously connected to all systems including the checkout system. It takes into account the fact that customers are inclined to use rather few apps instead of being exposed to the confusing jungle of single app solutions. They enable emancipated, quick and hassle-free shopping. Instead of having to first feed the item found in the store to a salesperson who then hands it to the central checkout where the customer may still have to wait, the payment function can now be done via smartphone. Ideally, the customer, who is pressed for time, even takes the goods out of the store unpaid and only presses the payment button later. Inexpensive RFID solutions, which are also already in development, can be used to ensure control over the goods in case of doubt. As Fig. 3.27 illustrates, five aspects characterize the stationary and app-based shopping of the future: 1. the possibility to find all stationary assortments via mobile and to call up additional product information in the store, 2. to be able to shop everywhere and independently, and to have previously checked availability at store level via smartphone, 3. to be able to pay for products purchased in stores anywhere and independently of branches, and to check them out with a single click, 4. all smart multi-channel services such as Click & Collect and all delivery options, 5. to be able to have his goods delivered anywhere. Smart stores embody the reinvention of brick-and-mortar retail, which interestingly enough is being done by the successful online pure players – for example with the Amazon Bookstore in Seattle, which opened in 2015. It is a bookstore from which other retailers can certainly learn what the brick-and-mortar bookstore of the future will look like. This is not primarily about superficial presentation or merchandising techniques, but the

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Smart-StoreApp

www.goodtogo.me

1 Discover Everything

2 Shop Anywhere

Browse all online Discover store and offline inventory locations that have what you want

3

4

5

Checkout Anywhere

Fulfill by Anyone

Deliver Anywhere

1-Click checkout and payment

Self checkout and choice of all mc/ delivery options

At home or out and about

Fig. 3.27  Smart Store. (Source: Heinemann, 2017; Heinemann & Kollman, 2020)

ultimate digitization of the store. Amazon has consistently made all of its business processes customer-centric, rather than being guided by a functional view (Der Handel, 2016; Heinemann, 2017). In doing so, it becomes clear that key principles of online shopping, and especially the outside-in perspective, can also be transferred to the brick-and-mortar store (Ibid.). Basically, with the Bookstore, customers now have the previously missing building block at Amazon to their customer journey, namely “touch & feel”. First with books, but now also with groceries (Amazon Go, Whole Foods) as well as other non-food items (Amazon Star). Amazon was the first online retailer to use the keyword customer centricity to “make shopping easy” and to position the concept of usability – that is, fast and convenient shopping. Amazon is now applying this usability to the brick-and-mortar space, reinventing brick-and-mortar retail from an outside-in perspective, i.e. with consistent customer centricity. It is a kind of “Ultimate Usability in the Store” (mi, 2016; Der Handel, 2016; Heinemann, 2017), with which a customer can find his product according to his individual search strategy, be it by rating, bestseller or topic. As in online stores, customer tracking can now be the basis for the layout and presentation of merchandise in brick-and-mortar stores, enabling smart navigation. This could provide the essential clues to implement ultimate store usability and customer centricity offline as well. Real-life examples of this are shown below. The Amazon Bookstore is located in University Village, an “upscale shopping mall” in the immediate vicinity of Seattle’s university campus. The shopping center, which is partially accessible by car, comprises around 120 shops on a total of 97,000 square meters.

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The Bookstore is in a prominent location and is the first store in the entry lane, with about 500 square feet (uvillage, 2016). The store has the character of a library with many shelves and hardly any tables. The assortment includes about 5000 book titles as well as Amazon’s complete electric device program (Kindle, accessories, etc.) (Bass, 2016). The titles were pre-selected according to innovative principles, according to which one third is made up of books with at least 4-star ratings. Another third is compiled on the basis of “Amazon Book Club” customer opinions and the third part is based on a pre-selection made by five curators. The “living assortment” forms the basis for comprehensive digitization on the one hand and an excellent service concept on the other: an “app-based digitization” by every trick in the book. In the middle of the store – similar to an Apple Store – the electronic devices are presented on tables, next to which a competent Amazon consultant is always available, even when the store is relatively full. Prices are not visible, but there are signs with codes in front of each of the books, which are presented completely in front. When scanned, the smartphone then displays the prices and provides additional product information. At the same time, Amazon enables precise tracking that can be used for book recommendations. At the entrance, the customer is pointed to the Amazon app, which he can also use for payment in the store. This currently (still) requires registration with an employee, but this will be eliminated in the future. Every Amazon customer can activate his Amazon account when buying in the Bookstore, no matter which country he comes from. The test purchase worked perfectly. The “Amazon toilet” alone, separated into men’s and women’s and with a nappy-­ changing station, would be worth writing its own publication about “basic needs-oriented customer orientation”. In addition, there is extensive seating where customers can and may read for hours. “The really great thing about the Bookstore, though, is the staff: they are extremely customer-focused. The employees seemed so convincing that Amazon could not do better for its online store in Germany than to open its own stores here as well” (Der Handel, 2016; Heinemann, 2017). Amazon employees actively approach customers in the Bookstore and focus 100% on store visitors. There are no fixed info terminals, but the store staff has mobile devices. If the customer wants to order something, it is done immediately, similar to the Apple Store. The Amazon Bookstore is basically the embodiment of “smart retail” and is reinventing stationary retail. It is likely to be the benchmark for brick-and-mortar retail of the future, particularly in the interlinking of employees and technology as well as in the level of service, including “digital-based service”. If the question arises as to why Amazon is so successful online, then it is surely because Amazon has managed to “make it easy” under the heading of customer centricity and to position the concept of usability – that is, fast and convenient shopping. And it is precisely this usability that Amazon is now applying to the in-store space (mi, 2016; Der Handel, 2016; Heinemann, 2017). The “ultimate usability in the store” did not exist like this in stationary retail until now. This means that the customer, even when standing in the middle of the store, no longer has the feeling of being in a salesroom at all. The channel becomes

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irrelevant. Now the customer can find his product according to his individual search strategy, be it by rating, bestseller or topic. And not, as dictated by the inflexible merchandise structure, according to the principle from the fifties: “Outside there’s only pot.” Accordingly, stationary formats must be reinvented from an online perspective. Innovative store formats will have to place particular emphasis on digital applications. The key role here will certainly be played by the smartphone, both for web-to-store and web-in-store – and that in combination with a master app that brings together all shop functions, right through to payment, on an app basis and makes shopping completely independent of time, place and operation. Usability in Store   Against the background of the experiences in online retail, it is actually obvious to apply the principle of usability – i.e. the easy handling of shopping – in stationary retail as well, or at least to try to do so. After all, customers value convenience above all when buying online, which includes, among other things, speed and efficiency of the operating elements. The reduction of time and financial expenditure is the main reason for online shoppers to buy (Maier & Kirchgeorg, 2016; Heinemann, 2017). Convenience results not only from the navigation, the handling of the ordering process as well as the service functionalities, but also from the usability of the shop (Heinemann OH, 2021). In this context, the accurate search functionality is absolutely critical for success, because from the customer’s point of view, the category search should quickly lead to the desired object. For this purpose, search results should usually be able to be focused by relevant filter criteria such as prices, colours, material, brands as well as sizes etc.. An important prerequisite for this is a clear coding of the categories or subcategories. It takes into account the different search strategies of the customers. In this context, usability has a significant influence on conversion, which of course also depends on other factors such as the availability of goods and fees, among others (Heinemann OH, 2021). It has a direct impact on sales, which in turn depends significantly on cross-selling and up-selling. Against the background, Amazon was the first to apply its experience in online retailing and the principle of usability to its new “Amazon Bookstore”. In this respect – as described in detail  – the world’s largest online retailer is currently reinventing stationary retail. Stationary retailers should therefore address the issue of “ultimate usability” on the floor as quickly as possible. Innovative brick-and-mortar formats will have to place particular emphasis on digital applications. The key role here will certainly be played by the smartphone, both for web-to-store and web-in-store services. Ideally, this is done in combination with a master app that brings together all shop functionalities, right through to payment, on an app basis, thus making offline shopping completely independent of time, place and operation. One of the first providers in Europe to understand this is apparently the Swiss multi-channel retailer Ex Libris, which has not only restructured its core business in the course of its digital transformation, but has also virtually reinvented its stores (Röthlin, 2015; Heinemann, 2017). The customer can query the availability of the assortment for each individual store. If he then visits the store, a visitor counter measures the

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frequency. In the store, the visitor then has free internet access via WLAN and can use all location-based services of Ex-Libris via his smartphone, including additional product information and live ticker. After paying, the shopper receives a digital receipt and additional coupons on their device. At the same time, they are identified via their customer card (Migros Kumulus card) and thus receive individual product recommendations at the checkout. These are compared with his last shopping basket contents. With the help of digital signage, customers are also made aware of the latest bestsellers, can view banner and trailer promotions and have access to in-store radio. Smart Channel Synergies in the Store  Intelligent channel linking, such as via the use of tablets, info terminals, QR codes on shelves and/or in-store apps, can also support customers in their product research at the point of sale. Furthermore, a larger product selection, additional and more comprehensive product information or access to customer recommendations are possible. The mobile Internet plays a key role in this respect. In this respect, brick-and-mortar retail should prepare for all possible uses of the smartphone. These concern payment functions that are detached from the space of the store, interactive price tags that can provide customers with additional price offers, and individual recommendations of additional products based on the individual shopping cart. Stationary retail will be able to play channel synergies intelligently here. For example, easy and convenient self-service options on the one hand and optional top service on the other, for which the customer even pays extra (Heinemann, 2017). NewStore  The concept of the system provider NewStore is more or less an extension of the Ex-Libris solution. NewStore has developed a master app that, in addition to the functionalities of Ex-Libris, also integrates a mobile payment function and a virtual customer card. In addition, it enables stationary retailers to implement Amazon’s success factors offline, namely Selection, Recommendations, Reviews, Easy Payment, 1-Time Info Entry and Next Day/Same Day Delivery (Heinemann, 2017). NewStore offers its solution quasi as a “white label” for stationary trade and across all sectors. However, the prerequisite is that the stationary retailers already operate an online shop that maps the entire offline assortment. In this respect, a viable multi-channel concept is only the first step towards the retail of the future. With the mobile retail platform, NewStore also wants to enable stationary retailers to allow consumers to select their desired product online and find out via app which local retailer has it in stock. A push notification will let them know when and where the product is ready for pickup. Local staff then receive a notification as soon as customers are in the vicinity (cf. Fig. 3.28). The app platform integrates well with existing e-commerce systems and thus also enables true omni-channelling including one-­touch purchasing. NewStore is also the basis for a scalable customer base and on-demand provision. Usability is optimized for small screens of smartphones and tablets (eTailment NewStore, 2019).

3.4  Intelligent Supply Chain Omnichannel just became essential.

Endless Aisle Empower your store associates to save the sale by giving them the ability to acess and sell inventory from any location or districution center

181 NewStore delivers Omnichannel-as-a-Service, providing a single global solution that combines order management, mobile POS and inventory management in the cloud

inventory management Gain real time visibility into your inventora across all store and warehouse locations and process transfers, receiving and counts

Clienting Enable your store associates to create a personalized shopping experience by providing them a 360 degree view of the customer

Mobile Checkout Computer transactions without ever leaving the customer’s side, reducing wait times and Increasing sales

Store Fulfilment Provide a full range of omnichannel fulfillment options to improve customer convenience abd maximize profitability

Omnichannel Insights Capture a complete real time view of customers, orders, inventory, revenue and story performance across all channels

Fig. 3.28  The NewStore app. (Source: eTailment NewStore, 2019; NewStore, 2021)

3.4 Intelligent Supply Chain The Corona years have increased the pressure on retailers. The aim is to reduce costs by all means and to make all processes more efficient. At the same time, customer demands are increasing that companies act more transparently in real time and also more sustainably. Many retailers are forced to rethink their business model, accelerate digital transformation and develop programs to improve the efficiency of their productivity (Meier, 2021). The supply chain of brick-and-mortar retailers in particular faces enormous challenges. These also arise from a number of additional influencing factors, such as digitalization, urbanization, the exploding number of smaller shipments and the resulting increase in the share of CEP logistics, among others. The various factors in the areas of multi-channel retailing also need to be analysed and worked through. The main drivers of these developments are consumer expectations and customer centricity. This has implications for distribution logistics. The use of AI as well as blockchain technology can help with this.

3.4.1 Customer-Centric Supply Chain and Quick Response Delivery Hero opened its own inner-city stores for the fast delivery of everyday products and thus made a start. The term Q-Commerce (“Quick Commerce”) was born – a variant of Quick Response. Since then, the new business field of quick delivery of groceries has been making the rounds. Logistics providers are opening locations near customers to ensure the fastest possible delivery of groceries. These are taking the place of picking

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purchases from brick-and-mortar stores owned by traditional retailers. Amazon is also jumping on this bandwagon and will probably make fast delivery of fresh groceries, which is already offered in some cities via PrimeNow, a central part of its Prime membership program in the future via Amazon Fresh (Schader, 2020). Even founders are picking up on the Q-Commerce business idea. Berlin-based delivery start-up Gorillas allows local customers to order groceries via app and have them delivered to their homes in ten minutes (Ibid.). Non-food retailers will follow and customer expectations of Quick Response will rise. AliExpress is not quite as fast as Gorillas yet (for a long time), but the Alibaba subsidiary at least published a 30% reduction in delivery times in Europe on 11 August 2020, apparently made possible by the new eHub in Liege (Cross-Border Magazine, 2020). At the latest since Amazon Prime has been guaranteeing next-day delivery for most Amazon products to the nearly 20 million Prime members in Germany, the bar for stationary retailers from the customer’s point of view is already pretty damn high anyway. Regardless of the possibilities of a lightning delivery like Gorillas, customers fundamentally place higher demands on the plannability and speed of their deliveries (Heinemann OH, 2021). There is also a tendency that offering only next-day delivery no longer meets customer requirements and that the need for same-day delivery is increasing. This development challenges not only the classic, process-oriented operating models of established CEP service providers, but also the entire supply chain of all retail companies. The lack of a pronounced user orientation and focus is already a killer criterion for today’s user needs. As a consequence, not only same-day delivery but also a distinct customer-centricity are already hygiene factors for logistics in the omni-channel era (Jonas et al., 2019; Heinemann et al., 2019). And it’s not just about same-day delivery: speed, time reliability and faultlessness are the new standards for all service offerings. Individual requested date deliveries or reliable time slot deliveries for those customers who are not at home “on the off chance” and do not want to wait for the delivery of the products are also expected as a matter of course. Situation-appropriate offers is the keyword. Once again, Amazon is demonstrating how optimized delivery management can enhance the customer experience and expectations. It’s not just Amazon Prime services that are setting new standards. Delivery by drone is also already being used more frequently than many people suspect on the last mile. On the North Frisian islands, this is already common practice. This, in turn, sets off a chain reaction in expectations and unleashes a further desire for fast deliveries among customers. It is not only becoming essential for pure online retailers to address the issue of speed. Especially stationary multi-channel retailers and smaller providers are forced to join forces to form a reliable delivery system in order to keep up with the increasing pace (iBusiness Trends Online-Marketing, 2016; Yannick, 2017; Heinemann OH, 2021). Without a doubt, this also affects real-time payments. Since the advent of cryptocurrencies and blockchain technology, all credit card institutions without exception have been busy finding solutions for faster transactions and processing that are also secure. In this regard, blockchains enable such flash payments in real time without the intervention of any third party. The money is transferred directly from the customer’s account to the online store’s account and vice versa. No disputes arise in the process. And it’s not just payment

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and delivery that’s all about speed. Currently, the major platforms, i.e. GAFA-TAB’s, are pushing the development of technologies and business with the expansion of their services in the other functional areas through the use of bots-as-a-service (iBusiness Trends Online-­ Marketing, 2016; Yannick, 2017). The expansion of services and digital products of online suppliers will significantly influence the requirements for technology, communication, content and consumer behavior in the coming years. Not without reason, suppliers have already jumped on the fast train. For example, adidas with its Speedfactory, which enables mass customization in a matter of hours instead of weeks (Locationinsider, 2017; Heinemann OH, 2021). Put simply, it is about cycle-time reduction and intelligent complexity management. Cycle-Time Reduction and Complexity Performance The central prerequisite for success in stationary multi-channel retailing is sustainable complexity management, which at the same time ensures the fastest possible processing in the online channel (cycle time reduction). This refers above all to the “inside-out” complexity of the Internet company. The main challenge in this respect is maximum automation (IT and system management) on the one hand, but at the same time channel-specific assurance of the optimal and fastest possible workflows/processes on the other. In the “pre-age” of the Internet, the reduction of cycle time was discussed exclusively from the point of view of complexity reduction. However, the virtual possibilities of Internet technology make it possible to cope with complexity without having to buy a reduction in the scope of services. This is more aptly expressed by the term complexity performance. In the course of the advancing platform economy, vertical integration in marketing will lose importance in the future in favour of focusing on the actual core competencies (Heinemann, 2013a, b; Heinemann, et al. 2019). Stationary retailers are inevitably forced, in view of the changed market environment as well as customer expectations regarding time and costs, to increase effectiveness on the one hand and to realize sustainable efficiency boosts on the other hand in order to withstand the upcoming challenges. In this respect, the speed of internal decision-making and work processes plays a key role in online retailing, for example. The “traditional” retailer must understand that, above all, customer-oriented business processes and unrestricted customer orientation are the No. 1 prerequisites for success in retail. However, speed, transparency and service orientation are topics that often still have to be learned in the “service desert Germany”. This demand can only be met if the organization is made leaner, faster and more effective through a process-oriented realignment. In addition, there is the demand for uncompromising customer orientation, which, as a result of drastically reduced customer response times, is a basic prerequisite for competitiveness and forms the basis for dynamic growth. It has been proven that the reduction in throughput times brought about by radical process optimisation can result in efficiency improvements of between 20% and in some cases even more than 60%. This results, among other things, from increased inventory turnover rates, productivity gains, inventory reductions, and significant minimization of non-sales activities (Heinemann, 2013a, b; Heinemann et al., 2019).

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However, this feat will only succeed if not only the cost structures, but also the entire business system is trimmed to the requirements of digitalized retail. Particularly in “traditional” retail companies, there are still significant inefficiencies in processes and structures that are also rooted in a functional organizational structure. Insufficient interlocking of core processes, suboptimal regulations of responsibilities as well as structurally caused delays usually indicate extensive potential for improvement. In the context of customer-­ oriented realignment, all core processes are to be questioned according to time, quality and cost aspects. The goal is to focus on the core functions in order to achieve competitive advantages on the cost and revenue side. Process optimization must be carried out “pointedly” along the core processes in marketing/logistics, central warehouse logistics, distribution/distribution and retro-distribution. In this regard, all process flows must be examined for their success-critical core and realigned. Barriers that prevent smooth and efficient service provision must be removed. Factual barriers (e.g., insufficient MES tools), process barriers (e.g., lack of MES process responsibility), and cultural barriers (e.g., lack of team culture) must be distinguished (Heinemann, 2013a, b; Heinemann et  al., 2019). In this regard, five stages of complexity performance can also be identified for online retailers, following the legendary five stages of lean thinking, which are illustrated in Fig. 3.29 and can help with a customer-centric reorientation (Ibid.). In the course of customer centricity, the aim is to align all processes in the company to fulfil this added customer value. This provides sufficient transparency to define target values (e.g. process speed, cycle time, etc.) and to implement the processes in a sustainable manner. This is helped by the

The first two phases of strategic complexity management are identical to the Start of Lean Thinking – in both cases the customer/consumer is additionally the input provider Customer/ Consumer Perfection aim for

5 Process anchor

1

4 On customers Align

Install Pull

Lean Thinking * 2 Value flow optimize

Target figures define

Strategic Complexity performance 3

Concentration on Customer value creation

Transparency create

Fig. 3.29  Complexity performance in five levels. (Source: Adapted from Womack & Jones, 2003; Heinemann, 2013a, b)

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internet-­specific business system, which enables customer-oriented all-round processing according to the principles of business reengineering (Osterloh & Frost, 2003; Heinemann et al., 2019; Heinemann OH, 2021). In contrast to the previous understanding of complexity management, complexity performance is not about merely reducing complexity, but about managing “irreducible complexity”. While “lean thinking” is still based on the idea that complexity must be reduced at all costs in order to lower complexity costs, the complexity performance approach breaks away from this postulate. It accepts the fact that the business world is becoming more and more complex and that the increasingly differentiated market requirements can only be met with ever greater complexity. However, the new possibilities of network organization (“virtual organization”) also enable companies to manage this complexity and to be successful despite increasing complexity or even precisely because of this increasing complexity (Heinemann, 2013a, b; Heinemann et al., 2019).

3.4.2 Two-Sided Supply Chain as Ecosystem Stationary retail can learn from digital ecosystems. These are characterized by independence from other providers, so that unlike horizontal marketplace partners in the vertical direction – i.e. in value creation, customer contact, data management, etc. – no external partners are needed. In principle, this means maximum in-sourcing. When the first successes in online trading are visible, it has proven to be a successful strategy when individual, separable parts, such as the development of the platform or areas of digital marketing, are brought in-house from outside. This should be done gradually so as not to overburden the internally growing organization. To this end, it is important to agree on flexible models for evaluating success with the chosen outsourcing partners, as it can be assumed that performance will initially suffer a slump when processes are transferred from external to internal. This is normal, as employees and processes must first settle in. In this transition phase, it would therefore be wrong to measure success against the same goals that were agreed at the beginning with the external partner, who usually has more experience. It can also often be observed that service providers/outsourcing partners who were well suited in the situation at the start of the digital project because they offered a wide range of services are no longer the optimal partners when it comes to further growth, because specialization is now important in the later phase so that the company’s digital activities can continue to grow. In marketing, for example, the skills profile is different for the production and successful marketing of a TV commercial or for the successful planning and measurement of a digital customer journey across multiple digital touchpoints; both activities that typically become topical at different lifecycles of a company and its products. Even if the outsourcing route is taken first, it is nevertheless very important to build up internal staff at the start, so that there is internal networking with the business activities of the other divisions on the one hand, and on the other hand the opportunity is taken to increase the degree of insourcing as digital maturity increases. In addition, this

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ensures that there are good “briefings” and management at “eye level” with the outsourcing partners. As described above, it is possible that it may make sense, as part of the digitization projects, to successively build up digital expertise internally and, to the same extent, change the model from more outsourcing to more insourcing in order to benefit even more quickly from the digital opportunities. It is also clear that it can make strategic sense for large companies to test different models with regard to the degree of outsourcing/ insourcing in order to find out what is the right model for the respective activity/situation. With advanced insourcing, the possibility increases to build an ecosystem and, in the next step, to also act as a B2B provider with its own functions. In this way, retailers can become a two-sided ecosystem along the lines of Amazon. This is, after all, the principle followed by Fulfillment-by-Amazon (FBA), in which all logistics activities are offered to marketplace partners for a fee. The same applies to Hermes, which – founded as an exclusive delivery service for OTTO shipping – also offers external customers and clients all services along the retail value chain. Amazon Freight, with which the internet giant went live with its freight brokerage exchange “freight.amazon.com” in 2019, is also heading in this direction (DVZ, 2019). In this respect, Amazon is not only further expanding its own logistics network, but at the same time brokering empty freight space in less busy times at cost price, thereby securing capacities for itself in peak times. This in turn enables the online market leader to lower its logistics cost rates. It is therefore not surprising that the “new” logistics group markets all its supply chain services in B2B to other companies, as shown in Fig. 3.30 (Herda et al., 2018).

The Amazon supply chain ecosystem

Internal logistics Goods

Customer delivery

With the customer

Fast and convenient delivery to the customer

Delivery by logistics service provider

DHL parcel box

Logistics Network Amazon’s Own Cargo Airline

R&D and Production of logistics Systems

Private Delivery partner

Delivery in 2h window

Parcel vending

Smart Door lock

Delivery to the private property with drones

Data

Learning Delivery Routes: Amazon learns when customers are available and optimizes delivery times

Fig. 3.30  The Amazon supply chain ecosystem with services from the Amazon delivery system. (Source: Adapted from Herda et al., 2018)

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3.4.3 Use and Potential of AI in the Supply Chain AI opens up numerous new opportunities for retail companies in the supply chain. Especially for widely ramified networks, such as in retail logistics, AI forms an ideal field of application. For example, it makes it possible to forecast future production and transport volumes, which means that resources can be used more efficiently. Therefore, it should come as no surprise that logistical tasks are increasingly being delegated to self-­ learning digital systems. On the other hand, awareness of the enormous potential that AI brings with it has not yet fully arrived in logistics by a long shot. This is shown by a study conducted by Logistik heute magazine and INFORM. In this study, 123 employees and managers from various logistics disciplines were surveyed (Transport Logistics, 2021). The results are shown in Fig. 3.31. Accordingly, the greatest potential lies in demand forecasting and sales planning (62%). However, production optimization (51%) and transport optimization (50%) are also far ahead. Examples show that by using AI in transport and logistics, tank tours can be organized with filling levels or electric vehicles can be designed under the influence of temperature, topography and traffic. In addition, drones can be used to take pictures to check for damage to containers or distinguish hazardous goods using image recognition. But also the provision of short-term information by means of AI can save time and costs. This applies, for example, to the volume of traffic jams, impending changes in the weather or queues for deliveries. Further advantages result from the possibilities of event-based and dynamic route planning (Ibid.). Nevertheless, only a few retail companies rely on artificial intelligence in their logistics. The reason is probably a lack of knowledge. It is often still assumed that a computer must be fed with data, although AI itself recognizes the path from data input to output. In Use of AI in the supply chain •

Around 90 percent of those surveyed expect to see artificial intelligence a better market position.

•

Only 26 per cent of the companies surveyed use in their logistics processes are already actively using AI.

•

More 54 percent lack AI expertise.Only 12 percent of the Respondents feel well informed about the topic.

62 percent Demand and Sales planning

•

51 percent Production optimization

•

50 percent transport optimization

• •

•

For 46 percent, high costs are an obstacle, for 44 percent insufficient IT infrastructure and for 38 percent a lack of time resources.

Potentials of AI

About 60 percent of the respondents say that the topic of has hardly penetrated the logistics sector to date.

Fig. 3.31  Use and potentials of AI in the supply chain. (Source: Transport Logistics, 2021)

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addition, many times the application areas for AI are not recognized. For example, it becomes possible to use AI in dynamic bidding and pricing, demand forecasting, capacity planning, and autonomous vehicle control. In addition, AI can help to read from booking behavior whether customers are on the move. It is also possible to see how goods can be packed into containers efficiently and in a space-saving manner. For complex value chains, additional advantages arise from a cloud or at least standards for data and processes. The biggest challenge is the familiar mindset. However, many companies still shy away from sharing their data (Ibid.).

3.4.4 Self-Learning Supply Chain While today in trade logistics there is still a lot of telephoning, emailing and faxing, prices are negotiated verbally and static data provides orientation, no human can find out the mathematical optimum. The added value of AI is therefore primarily the self-learning supply chain (Transport Logistics, 2021). This makes it possible, for example, to avoid products arriving from the central warehouse but no transporter is available, which would result in delivery times not being met. The Douglas Group was the first retailer to digitize its entire supply chain management with AI-driven software. The project involved purchasing the entire range of over 100,000 products to improve merchandise availability and inventory. This not only affected the online store, but mainly the company’s stores. Through the use of machine learning algorithms, the software’s forecasting quality became increasingly accurate over time. It takes into account complex data structures such as daily weather forecasts for each individual store location. As a result, the entire supply chain gained efficiency and agility. As a result, the human and machine supply chains are designed for optimal service, speed, flexibility, resilience and cost. In addition to optimizing the entire supply chain, product availability was improved while reducing inventory by up to 20% (Relexsolutions, 2021). Smarter workflows – so-called intelligent workflows – help companies use AI, IoT and automation to transform the way they work internally and externally, while generating value for their customers. New technologies are being used to make processes more efficient and automated. For example, data can be fed into systems via IoT devices in a tamper-­proof way. This makes it possible to ensure that, for example, the cold chain is maintained without interruption when transporting perishable goods. If this is not the case, appropriate measures can be initiated automatically. Due to digital contracts (smart contracts), processes can be automated, which increases their speed and quality. With the help of analytics and artificial intelligence, the potential of the data and insights gained with the new technologies can be used to assess the existing business model, among other things. Self-Learning Logistics The essential step towards intelligent logistics is taken through the use of machine learning or even deep learning. In the supply chain or logistics, corresponding computer

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programs based on machine learning search for the most relevant factors in relation to the most efficient solution for the supply chain at hand. In this process, the algorithms are constantly improving by learning more (Bito, 2021). For deep learning, additional artificial neural networks (KNN) are used for autonomous information processing or advanced pattern recognition. KNN represent algorithms modeled after the human brain. In this process, neural systems are fed with training data. Deep learning is extremely computationally intensive. Trainings can last for months to make good predictions and decisions. On the other hand, Deep Learning solves problems, e.g. in the area of speech, text and image recognition, which would otherwise not be possible. Especially with huge amounts of data, Deep Learning works far better than machine learning based on classical algorithms. In any case, self-learning logistics is becoming increasingly competitive. It will make it possible to detect problems in the supply chain before operations are disrupted. It will also make it possible to reduce freight costs by identifying synergies within multiple shipping networks while improving supplier performance. In addition, economic risk can be mitigated. The best results are achieved by combining different algorithmic approaches, as shown in Fig. 3.32 (Worldstream, 2019; Bito, 2021). This allows the factors that most influence the supply chain to be found. This makes it possible to take appropriate precautions for backup or redundant design. But also inventory reductions and operating cost reductions, improved demand forecasts as well as Meaningful Compression big data Visualization

Recommender Systems

Structure Discovery Dimensionality Reduction

Image Classification

Feature Identity fraud Elicisation Detection

Unsupervised Learning

Customer Retention Classification

Diagnostics

Advertising Popularity Prediction

Supervised Learning

Weather Forecasting Regression

Clustering Targeted Marketing Customer Segmentation

Machine Learning

Real-time Decisions

Population Growth Prediction

game AI

Reinforcement Learning Skill Acquisition

Robot Navigation

Learning Tasks

Fig. 3.32  Connection of learning algorithms. (Source: Worldstream, 2019)

Market Forecasting Estimating Life Expectancy

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extended life spans of machines, vehicles and plants through predictive maintenance etc. are results of self-learning logistics. On the other hand, a lack of synchronization or the failure of one instance can disrupt the entire supply chain and lead to significant financial damage. In addition, the computing time of the algorithms is the biggest challenge for many applications (Ibid.). Application Examples for Self-Learning Supply Chains In addition to speech, text and image recognition, Deep Learning can also be used in logistics for route optimization. In this way, the walking distances of employees in logistics centers can be shortened. Pick routes can also be optimized to create the most efficient path through the shelves. For this purpose, a fashion online retailer generated one million random digital pick lists and labeled them with the picking time calculated for them. The data calculated using algorithms was then fed into a neural network, which was then trained to calculate the path times. The result is that the error rate is only a little over 32 s per hour. An exorbitant speed-up factor can also be achieved using graphics processing units (GPUs). For this purpose, the user uses so-called Convolutional Deep Neural Networks. This enables the extraction of features from product images, which can be used to provide individual customer recommendations (Worldstream, 2019; Bito, 2021; ON4OFF, 2021). KNNs (artificial neural networks) can also be used for robots, for example for perception, segmentation, determination of spatial position and estimation of human position. They can also be trained using rendered images to recognize products under different viewing and lighting conditions. All the data can also be used to train KNN on the GPU-­ based servers, which can further optimize logistics processes and innovations. Deep Learning is also applicable to help companies track financial forecasts, production pace and flow, and order fulfillment. Especially in warehouse management and technology, automation with AI is becoming increasingly relevant. If at some point entire supply chains can be predicted and managed, the digitization of business processes can be considered complete (Worldstream, 2019; Bito, 2021). However, this also requires the use of blockchain technologies. These, in turn, additionally enable a more transparent traceability of products, such as food from the producer to the end consumer. This transparency is increasingly expected by consumers. Customers today want to know how sustainably their goods were produced and transported. The more transparent tracing of assortments also brings great advantages to retail companies. Goods that are no longer curable can be taken out of circulation more effectively and in a more targeted manner by responding more quickly to recalls. Since blockchain, paper-heavy and manual work is finally a thing of the past (Meier, 2021). Trade relationships are based on mutual trust; blockchain technology can completely reorganize trust relationships. The added value can be explained with a short example: A trader asks himself whether the coffee offered by the supplier really comes from a fair trade organisation, as stated. In the future, the answer should be transparent and

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unambiguous with the help of blockchain technology. For this purpose, a trust protocol (greatly simplified) will be created across the entire supply chain. In today’s world, such protocols are often created by trusted intermediaries, such as the banking system. Blockchain technology now allows any data to be stored and transmitted in a tamper-proof manner. As a result, there is no longer any need for intermediaries to vouch for data integrity. Future trade relations will thus become much more efficient (Fischer et al., 2019).

3.4.5 Blockchain Technology in the Supply Chain Blockchain technology is attracting more and more attention. The first concrete examples of use suggest that the new technology will have a lasting impact on trade in the coming years. In this context, distributed ledger technology (DLT) in particular is attracting a great deal of attention across industries. It is seen as having great potential to significantly increase the efficiency of many intermediary-structured relationships in distribution  – even outside of financial transactions. By far the most important representatives of DLT are blockchains. They embody a technical construct that results from the combination of already existing information technology developments. These relate in particular to cryptography and P2P network technology. The joint use of both technologies makes a transaction network (P2P) without authorities possible, in which an always-on data consensus is found among all participants. For a long time, blockchain technology was also synonymous with the cryptocurrency Bitcoin. The disassociation of blockchain technology from bitcoin did not occur until the blockchain was recognized as an innovative electronic registry for digital records and transactions. In this process, the blockchain is controlled chronologically and block by block. Verification and continuation of the blockchain describes block formation. Both basically establish the consensus of a majority of the participants. Without going into the technical processes and details – which are beyond the scope of this work and would justify a separate publication – the Blockchain enables sustainable efficiency increases and improvements, especially in the supply chain and logistics (Fischer et al., 2019). Supply Chain and Logistics It can be assumed that tomorrow’s supply chains will no longer be based on a division of labor, but will instead run in collaborative systems that allow for real-time information and updating of work steps (Casey & Wong, 2017; Fischer et al., 2019). Blockchain technology thus opens up numerous possible applications and enables the following added values: • • • •

Moving away from static and closed databases, Cost reduction through a dynamic supply chain network, Transparency and partner control, Time and cost savings in traceability and control.

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A significant added value for retailers and customers lies in the supply chain traceability. The transparent transaction process enables retailers to control suppliers and the flow of information between logistics partners. The blockchain technology not only ensures the traceability of the product value chains, but also allows retrospective proof of exactly who carried out the respective transactions or contributed information. Confidential information can be encrypted. The coalition of nine leading food companies formed in 2017, including Walmart, Dole, Tyson Foods, Nestlé and Unilever, as well as technology company IBM, also recognized the benefits of blockchain technology. And Alibaba is also using blockchain technology in several areas, including cloud services, micro-payments, supply-chain tracking, and anti-product piracy, among others. Lynx International, a subsidiary of Alibaba Group, has integrated blockchain technology into its cross-border logistics processes, tracking all relevant information on imported goods including details on production, transportation, customs, inspections, and third-party verification (Fischer et al., 2019). Monitoring Sensitive Supply Chains The use of blockchain technology to monitor sensitive supply chains, such as pharmaceuticals, is also being intensively examined. Particularly in the case of medical products, patients are grateful if they can be sure of the authenticity, genuineness and effectiveness of the products in times of pill piracy and confusing supply networks. Thus, without a doubt, the threatened traceability between the individual stages of the value chain is one of the greatest risks of the pharmaceutical supply chain. The supplier downstream in production can change the product data at any time retrospectively so as not to jeopardize his own supply. This exactly is no longer possible in a blockchain, or at least involves a disproportionate amount of effort. Thus, the blockchain replaces paperwork during the handover of preliminary products, components and deliveries with forgery-proof digital “papers”. Proof of origin is assured with Blockchain secured deliveries with near absolute traceability and anti-counterfeiting (Process Technology, 2019). Accordingly, Pfizer and Genentech, for example, who have launched collaborations with other pharmaceutical companies, technology firms, and logistics providers, among others, proclaim that their blockchain will revolutionize the management of the pharmaceutical supply chain. So far, the use of blockchain technology has not been particularly widespread. This is due to a certain degree of uncertainty, but also to the danger that blockchains will align existing power relationships. Existing power imbalances are at risk if everyone in a supply chain knows everything about everyone else thanks to blockchain. In addition, enormous computing power is required so that the blockchain system can fully automatically check all data blocks in the chain in a fully transparent manner. Although this is a huge cost factor, on the other hand the effort is low compared to the alternative scenarios, such as damage caused by pill pirates, spoilage of supplier products noticed too late, loss of sales and image due to drug scandals. Moreover, the issue is not just something for the ‘big players’. If such giants as Pfizer need lots of cooperation partners to set up a blockchain, this also affects medium-sized and small companies (cf. Fig. 3.33). The question is undoubtedly no longer whether the blockchain will come, but how quickly (Ibid.).

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Financial flow

payment service Blockchain

Contracting party A

Financial institution

smart contract service

Contracting party B

WE-control

WE-control

Material flow Blockchain Information flow

WA Outgoing goods WE Goods receipt CPS Cyberphys. System

Fig. 3.33  Blockchain-based supply chain network. (Source: Process Technology, 2019)

3.5 Intelligent Employee Qualification and Recruitment The digital transformation in retail is also causing a historic paradigm shift in the world of work. Stationary retail is particularly hard hit by this. One of its greatest weaknesses is its low attractiveness as an employer for qualified workers. This has been proven in studies and affects academics and digital talents in particular. Accordingly, the German retail sector is facing a noticeable shortage of skilled workers. However, measures that can actively counteract the lack of suitable employees are rarely introduced. At the same time, retail in particular has good opportunities to position itself as an attractive employer. To do so, it must make its digital needs visible and work on its employer branding. If it fails to do so, the online pure players will win the war of talent for themselves. This is a major threat, as the ongoing digitization is creating a huge demand for qualified workers in brick-and-­ mortar retail. Both the shortage of labor and the changing skill requirements pose major strategic challenges for HR management in brick-and-mortar retail. Above all, attracting and retaining qualified employees is turning out to be a central competitive factor in winning the “war for talents” described by Amber and Barrow as early as 1996. This involves five topics, namely repositioning employer branding, increasing attractiveness as an employer, active sourcing to recruit staff and increase loyalty, creating “digital attractiveness” as an employer, and winning the battle for IT talent (Ambler & Barrow, 1996).

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3.5.1 Addressing the Skills Shortage in the Retail Sector The top 50 retail companies in Germany had advertised up to 50,000 vacancies in 2019 – i.e. ‘before Corona’ (Düthmann, 2019). Skilled workers continue to be sought in particular in the branches of the stationary trade. There are major bottlenecks, especially among trainees. For example, three quarters of HR managers find it difficult to recruit junior staff for jobs on the floor. As a result, retailers are lowering their expectations in terms of school education and German language skills of new recruits and are happy to find people at all. Especially in the expensive metropolitan areas, the situation is getting worse. In the Munich area, for example, the job market is completely empty. There is a shortage of cashiers, sales staff and counter staff. The shortage is even likely to lead increasingly to automated shops without staff (Ibid.). At the same time, however, it leads to a declining level of qualification. The shortage of skilled workers is therefore a priority for the HDE. Thus, the leading association wants to present the industry in a modern light with the initiative “Jetzt schon Profi” (“Already a professional”). Young professionals are to be enticed with earning opportunities, career opportunities and also the climate commitment of the trade. According to the company’s own data, more than 60% of German retailers were already affected by the shortage of skilled workers in 2016. This was the result of a representative survey conducted by ECC Cologne among 416 retail companies. The ECC-­ Köln study, which was conducted for the HDE, also provided information on measures taken to combat the shortage of skilled workers (ECC Köln FM, 2016; Wiehler, 2016). According to the survey, 41.7% of retailers retain their employees by increasing their attractiveness as employers. A further 29.6% of companies want to expand their further training offering (cf. Fig. 3.34). At least the majority of retailers are thus attempting to make themselves visible as employers. Although the retail sector is clearly aware of the shortage of skilled workers, 25% of retail companies are not taking any measures at all to counter this. However, the situation continues to worsen. And while most retailers are concerned with classic professions, such as retail clerks, cashiers, as well as butcher and bakery sales assistants, the drama is taking its course especially for jobs that are not even retail-specific, but which will decide the future of retail, namely digital professions. Here, the battle for talent is in a completely different league. Stationary retail companies do not even appear in the employer ranking of the most attractive companies for IT professions and computer scientists. This is despite the fact that more than two-thirds of all companies across all sectors in Germany are already having difficulty finding IT specialists (Heise IT, 2020). This figure is rising rapidly, as just four years earlier 46% of companies had reported problems of this kind. At the same time, every fifth company in Germany with more than ten employees employs its own IT specialists. As a result of the shortage, companies are outsourcing more and more IT tasks. According to the study, one in two companies is outsourcing special IT security-related activities such as security tests or the elimination of security incidents to external providers. The positive news is that the growing demand for IT specialists in companies is also triggering increasing interest in appropriate training. For example, the apprenticeship occupation of IT specialist rose from 20th place in the

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195

Question: How will you counter the looming shortage of skilled workers?

Measures Shortage of skilled workers 41,7

Strengthening employee loyalty through greater attractiveness

29,6 25,6 20,5 19,0

Expansion of the range of further training courses Recording the wishes/expectations of the employees Offer more apprenticeships Introduction/extension of family-friendly measures Creation of perspectives for older employees

17,3 12,8

Post-qualification of employees without a degree

8,3 8,3 6,4 5,8 4,5 2,6

Closer cooperation with schools for recruitment Expansion of the recruitment of university graduates Closer cooperation with vocational schools for adaptation Qualification and employment of refugees Targeted recruitment of skilled workers from abroad Other

38,5 Question: How strong is your Company from Skills shortage Affected? n= 416

We have none to find Problems, suitable Professionals to be found

We have Difficulties, suitable professionals

26,2

37,3

25,0

We will not initiate any targeted measures 0% Basis: n = 156; multiple answers possible Filter: Only dealers with a shortage of skilled workers

We are currently unconcerned

10%

20%

30%

40%

50%

Fig. 3.34  Shortage of skilled workers in the retail sector. (Source: ECC Cologne FM, 2016)

ranking of the most occupied apprenticeship occupations in Germany in 2009 to 8th place in 2019. Coincidentally, this occupation also had the largest increase in the number of new contracts signed: while the number of new training contracts signed in 2019 fell by 1.6% overall compared to the previous year, the number of IT specialists rose by 8.4% to 16,210. In addition, there are increasing numbers of students studying computer science and computer and information technology. The number of students in these subjects at German universities has increased by around 80% over the past ten years, from 126,000  in the winter semester 2008/2009 to 227,000  in the winter semester 2018/2019. However, whether graduates start their jobs after graduation in brick-and-mortar retail and not rather at Amazon or Zalando depends on whether retail can successfully reposition its employer branding (Heise IT, 2020).

3.5.2 Repositioning of the “Retail” Employer Brand Employer branding has long been an important topic for HR managers at GAFAs and in large and progressive industrial and service companies (DGFP, 2013; Hördt & Brickwedde, 2019). In contrast, the retail industry is only discovering employer branding for itself so slowly – and hopefully not too late. The model for employer branding is the concept of identity-oriented branding, which here should be understood as employer branding (Petkovic, 2007; Hördt & Brickwedde, 2019). Just as companies want to differentiate

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themselves from their customers by branding their products in competition, they now also want to use their brand to position themselves attractively as employers in the labour market (Petkovic, 2007). In this context, employer branding is defined as “the identity-based, internally and externally effective positioning of a company as a credible and attractive employer” (Deutsche Employer Branding Akademie, 2018). This comprises a bundle of measures to position the company as an attractive employer for current and future employees. In this respect, employer branding measures represent much more than the previous personnel marketing activities. The latter are usually short- to medium-term in nature and pursue the goal of drawing attention to currently vacant positions in order to encourage potential employees to apply. In contrast, employer branding measures are holistic, strategic and long-term. Their objective is more abstract and focuses more on building an employer brand. They relate more to potential employees in a larger time horizon and pursue as a core idea to position oneself as a unique, distinctive employer (Kanning, 2017; Hördt & Brickwedde, 2019). This is becoming increasingly important, as attracting and retaining qualified employees is a competitive factor critical to success in order to win the “War for Talents” (Ambler & Barrow, 1996). Employer branding can help with this. Experience has shown that companies hope that employer branding measures will, for example, improve their employer image, attract the right candidates and also reduce recruitment costs, thus bringing overall productivity benefits. However, this requires a strategic process that positions the company as a whole in the perception and on the wish list of qualified employees. This process should be systematically developed, adapted to changes in the world of work, and designed for the long term (Baum et al., 2012; Hördt & Brickwedde, 2019). Employer branding is therefore a matter for the boss. It must be used as a success factor at the top management level to ensure future viability and the generation of competitive advantages. However, many retail companies find this extremely difficult. Especially in SME companies, the understanding is often not yet given. Here, employer branding is often seen merely as a side issue of HR and marketing departments and less as a strategic task of top management (Behrends & Baur, 2016; Hördt & Brickwedde, 2019). Indeed, employer branding only comes to full fruition when the responsibility for it is anchored at the highest management level. Above all, the CEO has a key role in this process and is a multiplier. It is not without reason that Jeff Bezos has personally taken part in recruitment events at Amazon. In addition, employer branding costs not only time but also financial resources, which runs particularly counter to the “cheap is cool” mentality of many German retailers. But employer branding requires perseverance and patience, because the corresponding process can take between three and five years from conception to effectiveness. Retail is actually well positioned to develop and manage an employer brand. The opportunities presented to it are great, because all it has to do is transfer what it already does to its own business as a whole. That which distinguishes retailers and is their strength  – namely, advertising their merchandise – they may now transfer to advertising their entire company. Germany’s top retailers are, of course, also represented on the net as employers. Companies such as Lidl, H&M, Ikea, Hagebau, Alternate, notebooksbilliger, EDEKA,

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REWE, Kaufland, Aldi, Rossmann, Globus, DM, S.Oliver, Bonprix, Tchibo, Conrad and, of course, Amazon, OTTO and Zalando are already vying for customers’ favour on the Net. Every visitor to the website is also a potential applicant. Therefore, it is naturally obvious to use this potential with the appropriate reach. But even on websites with more than 30 million visitors, there are no references to career prospects anywhere. In the footer, of course, but who scrolls there unless they are looking for a job. Even the best rated career website is of no use. Prominently placed references to jobs and careers are often missing. Only the key accounts in the food retail sector – i.e. EDEKA, Lidl, Kaufland and Aldi Nord – manage to place the link to the career website at least in the meta navigation. However, this is in an area that is hardly noticed by the user. Some companies, such as notebooksbilliger, at least manage to place the career link in the margin column. Experience has shown that the perceived importance of the job decreases in proportion to the amount of scrolling. Even applicants who already have the company on their radar as a potential employer and who are prepared to search a little longer for the redeeming link should not be made the path to the possible new employer too difficult. Otherwise, they will quickly be gone again, especially since the next employer is only a mouse click away. Just to be clear: Around 84% of job seekers consider a company’s reputation as an employer important when deciding where to apply for a job (Müller SM, 2020). Sometimes, however, it can be difficult to apply traditional employer branding measures such as conferences and plant tours, as the Corona crisis dramatically demonstrated, for example. This is where social media comes into play. Social media are arguably the widest-reaching channels for mass communication with easy access to the smartphone and laptop screens of hundreds of thousands of professionals. This makes them indispensable tools when it comes to employer branding. There is no doubt that the website is an important medium to present oneself as an employer. However, it offers only a fraction of the reach that social media enable as viral multipliers. The user figures in Fig. 3.35 make it impressively clear that the majority of potential candidates use social networks to find out about companies and potential employers. This underlines that ignoring social media as part of an employer branding strategy is fatal!

59% of all candidates use social media to research the companies they want to apply to. 48% of all candidates used social media in their search for their current job. 49% of all professionals follow companies on social media to learn about job openings.

Fig. 3.35  Job candidates use social media. (Müller SM, 2020)

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3.5.3 New Digital Attractiveness as an Employer It is undisputed that the future of almost all retail companies depends on their ability to attract young talent for digitalization. The retail industry in particular faces the challenge of competing for skilled workers and digital talent. In the cross-industry competition for qualified IT personnel and computer scientists, the market is shifting from an employer market to a candidate market. That’s why applicants are now setting the rules of the game, not the bosses at the head offices of commerce. The crucial question for securing competitive advantages is therefore how retail companies can become more attractive to the target group of junior staff and, in particular, digital junior staff (Hördt & Brickwedde, 2019). In this respect, retail undoubtedly has a serious disadvantage in the race for the so-called “digital talents”, because among academics in general and especially among graduates of technology-related courses of study, its image as an employer is not good (Trendence, 2017 in LZ, 2016c; Buhl & Koch, 2018; Hördt & Brickwedde, 2019). On the other hand, Zalando & Co. show that retail, as an industry with great innovation potential, actually has good chances to position itself as an attractive employer. It only needs to stand out as an employer in the competition and thus play out its competitive advantages in the so-called “war for talents” in attracting and retaining high potentials. This is also urgent because the baby boomers of the 1950s and 1960s will retire from the labor market in the next ten years. This alone will reduce the potential labour force by 300,000 per year (Bundesagentur für Arbeit, 2017; Hördt & Brickwedde, 2019). Even immigration will not be able to stop the demographic change, but at best cushion it. By 2030, there will be approximately 3.5 million fewer workers available to the labour market. This will reduce the labour supply for trade by 12.2% from the current 5.5 million workers to around 4.8 million. The war for talent will therefore intensify. On the other hand, further automation will be able to reduce the number of necessary sales staff by around 940,000 (PWC and Wifor, 2016; Hördt & Brickwedde, 2019). Both digitalization and technological change are accompanied by changes in the skill requirements of the workforce. As the results of the study by PWC and Wifor show, there will be an estimated shortage of between 7% and 13% at the qualification levels “skilled workers”, “upper skilled workers” and “academic professions” by 2030 (Ibid.). That is why the automation risk for simple occupations is also increasing and already amounts to about 70% in the retail sector (IAB, 2015; Hördt & Brickwedde, 2019). This concerns activities in the areas of cashiering, consulting or in-­ house logistics such as shelf replenishment. Not least due to the automation pressure induced by this, the demand for academics is also increasing. Digitalization is also creating new job profiles, including experts in virtual reality and mobile payment processes as well as e-commerce professions. Accordingly, the number of university graduates needed will double. Despite rising numbers of graduates, the retail sector will be short of around 50,000 academics by 2030 (PWC and Wifor, 2016; Hördt & Brickwedde, 2019). In addition, the increasing importance of e-commerce also has an impact on stationary retail and its qualification requirements. At the point of sale, the classic salesperson and the conventional cashier will most likely no longer exist in the future. Here, the customer

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expects “product experts” who bring a high level of specialist knowledge (Ibid.). In this respect, digitalisation is having an impact on the requirements for stationary sales. As a result, the demand for qualified workers is growing. Above all, employees with academic degrees and digital skills are sought after. Creativity and a willingness to develop throughout one’s life and to react flexibly to changes round off the requirements picture. Therefore, retail must do everything it can to get qualified employees. In this respect, the retail sector is not only competing with each other, but also with all other sectors of the economy. It is forced to present itself as an attractive employer, especially for digital professions. It is therefore worrying that the retail sector has probably the worst image as an employer. While, for example, not a single German retail group has appeared in the employer rankings to date, the GAFAs, including Amazon, are to be found in the top five places (cf. Fig. 3.36) (Arbeitgeberranking, 2021). This is an alarm signal because these occupations are about the future. However, this is not new. In its surveys, the market research institute Trendence has concluded for years that the retail industry is not one of the employers of choice for young professionals (LZ, 2016b; Trendence, 2017). A special evaluation by Trendence shows that the retail industry is not

Top employer in the IT and information technology sector Top 100 for students

1

Google

2

Apple

3

Microsoft

4

SAP SE

5

Amazon

Fig. 3.36  Most attractive employers for IT and information technology in Germany. (Source: Arbeitgeberranking, 2021)

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among the employers of choice, especially among the so-called “Digitals”. In contrast, the awareness levels of retail groups are right at the top. It is striking that in no other industry is the discrepancy between awareness levels and employer attractiveness greater than in retail (Mussmann, 2016; Studitemps and Maastricht University 2015 and 2017; Hördt & Brickwedde, 2019). For example, the study by Studitemps and Maastricht University shows that the surveyed students are very familiar with retail companies. H&M and Ikea even reach 100% awareness, DM Drogeriemarkt scores 99%, Aldi 89%, Peek und Cloppenburg 91%, Rewe 86% and Zara 84%. In contrast, only 27% of the respondents consider a career in the above-mentioned companies to be worthwhile. Above all, the negative external perception is cited as a reason. For young people, retail obviously evokes associations that can be described as “old-fashioned” and “conservative” (Sommer et al., 2017; Hördt & Brickwedde, 2019). In addition, when young people think of retail, they think of what is visible to customers in the supermarket when they shop, such as cashiering and putting goods away, among other things. They don’t see the behind-the-scenes work or the aspects of why retail could be interesting and challenging for digital high potentials. That’s why the retail industry needs to radically rethink and provide completely different information in order to be perceived as an attractive employer. In this context, employer branding plays a key role in making known the critical success factors for recruiting talent (Stumpf, 2016; Hördt & Brickwedde, 2019), because image and attractiveness as an employer has central importance for attracting and retaining high potentials. Companies that are considered attractive employers and thus “employers of choice” are the potential winners in the “war of talents”. However, what specifically should be understood by attractiveness in individual cases and how this is operationalised is not entirely clear (Evertz & Süß, 2017; Evertz et al., 2018; Hördt & Brickwedde, 2019). Creating Digital Attractiveness as an Employer The situation requires looking inwards, thus focusing on the strengths as an employer and working these out clearly. This requires a strong reflection on one’s own company. There is no doubt that retail has the potential for “digital attractiveness”, but this does not work for most potential and digital talents. Retailers are still dominated by the image of “working hard at the checkout” and “stocking shelves”. In reality, however, retail today is much more digital than many assume. For example, retail companies have highly complex and digital processes in purchasing, procurement and logistics. In many cases, qualified IT and technology experts as well as communication specialists are already working in the background. Retail in particular is currently characterised by the dynamics and intensity of competition and is significantly affected by the accompanying changes in digitalisation (Textilwirtschaft, 2016; Hördt & Brickwedde, 2019). There are good opportunities to attract digital talents, but this requires a radical change in the external image of retail.

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3.5.4 Personnel Sourcing and Employee Loyalty Effective employer branding begins with the analysis of employee needs (Hauke, 2016; Trost, 2018; Hördt & Brickwedde, 2019). It is important to clarify which candidates the company wants to retain currently and in the long term for which positions and which candidates should be recruited in the future. In this context, the current situation shows that the retail industry has a high risk of employee attrition and turnover. Studies show that especially those employees who are currently working in retail and have an academic degree and up to four years of professional experience show a high willingness to change jobs and at the same time are highly sought-after poaching candidates (LZ, 2016b; Trendence, 2017; Hördt & Brickwedde, 2019). It becomes clear that nine out of ten management trainees are open to a new job  – with increasing dissatisfaction with their employer. Of them, 73% say they have received a job offer from another company in the past twelve months. Reasons for dissatisfaction include salary, management style, lack of appreciation and poor work-life balance. Junior managers who were willing to change stated that they also hoped for attractive tasks, personal development and better career prospects from their future employer. If companies want to establish themselves as a strong employer brand, they should address the expectations and wishes of high potentials. This requires a change in management systems and processes as well as corporate culture. The future requirements of the retail industry affect all occupational groups in the digital world – software developers, e-commerce specialists, logistics experts, platform specialists and website geniuses. There is also a demand for professions that, due to the rapid pace of development, cannot even be named today. Targeting can range from apprentices/ interns, young professionals to executives. In any case, employer branding measures for personnel recruitment should focus on the applicant target group of Digitals. However, these are by no means won with outdated methods of applicant targeting (Bludau, 2017; Malcher, 2017; Hördt & Brickwedde, 2019). Some of the digital target groups can be addressed proactively, e.g. by means of active sourcing via social media channels. Companies that rely on passive search for applicants will most likely be shipwrecked. Only about 15–20% of the job market is still reached via advertisements, and only for “actively seeking candidates”. Three times as many candidates (approx. 30–50%), namely the “latently seeking applicants”, will not be reached by this means. These are characterized by the fact that they would be quite positive about an offer if they were found and approached. This allows a proactive search with Xing, LinkedIn, Facebook, blogs, Twitter, YouTube channels or even snapschat. Proactive recruiting and the use of active sourcing are not yet as prevalent among retail companies. While more than half (56%) of companies consider Active Sourcing important, only 31% of retail companies are well or very well positioned there  – according to the ICR Quo Vadis Recruitment Survey. Indeed, active sourcing is more costly and time-consuming in the short term than passive employee search, but ensures the company remains competitive in the long term. In this respect, Fig. 3.37 provides an overview of the importance of active sourcing in an industry comparison (Brickwedde, 2017a, b).

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3  Intelligent Retail Active Sourcing: Importance and positioning in comparison to other industries Line-up (good and very good)

Importance

46%

Information Technology

55% 57%

Production of consumer goods 31%

Total trade

79%

56% 48% 52%

Berating 38%

Automobile and vehicle construction 20%

30%

54%

40%

50%

60%

70%

80%

90%

100%

N (all sectors) = 850, n (trade)= 79)).

Fig. 3.37  Active sourcing: importance and positioning in an industry comparison. (Source: Hördt & Brickwedde, 2019 based on the ICR Active Sourcing Report, 2018)

Use of technology in recruiting All Sectors

Trade

61%

Applicant management system/ATS (software for applicant administration) Software to search for applicants (e.g. social networks, Xing talen manager, LI recruiter)

47%

Multi-job-posting solutions (enter job once and post to 50–250 job portals)

54%

29% 32% 25% 24%

Social media management solutions Employee recommendation platforms (e.g. firstbird, recommendation manager from XING, Talentry)

21% 23% 20% 21%

Software for the selection/assessment of applicants

18% 20%

Mobile recruiting solutions Video interview solutions (e.g. cammio, viasto, not skype)

13%

Employer branding services

13% 9%

Candidate Relationship management software Talent search engines (in 50–300 communities, e.g.: talentwunder, openwen, talenbin, search)

7% 6%

Onboarding software

n (all sectors) = 850, n (trade)= 79).

72%

0%

10%

19% 17%

13% 13%

12% 20%

30%

40%

50%

60%

70%

80%

Fig. 3.38  Use of technology in recruiting. (Source: Hördt & Brickwedde, 2019 based on the ICR Active Sourcing Report, 2018)

The study reveals a lot of untapped potential in recruitment. Many retail companies are well aware of the problem, but they have a problem implementing it. The comparison of the use of modern recruiting technology also shows this challenge (see Fig. 3.38). Retail is below average in all possible areas of use for modern recruiting technology. There is no doubt that new recruiting channels also place new demands on a recruiter who, in terms of type 2.0, is more of a salesperson and consultant than an administrator or job recruiter. Early cooperation with schools and universities is also a good way to draw the attention of

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potential candidates to the company as an employer. In addition, processes should be checked at all levels, because authenticity is a hygiene factor for successful employer branding. Experience shows that branding is always questioned when processes do not match the alleged image. This is the case, for example, when an applicant discovers that the contact form on the Internet is actually a contact prevention form because it is barely tradable (Martin et al., 2011; Hördt & Brickwedde, 2019).

3.5.5 Strategies for the “War for IT Talents” in the Retail Sector When it comes to employer branding, the retail sector suffers from a homemade problem. It does not even come close to exploiting its communication possibilities. Most retail companies have so far failed to position themselves visibly enough for potential applicants. There is a lack of creativity in presenting themselves as an attractive employer brand to the potential applicant (Wiehler, 2016; Müller SM, 2020). However, to increase visibility as an employer, a well thought-out recruiting strategy is needed. In it, retail companies need to make their benefits as an employer clear to all website visitors. This will allow them to be perceived as an authentic employer brand for the potential employees and fully realize their immense potential (Ibid.). Multi-channel retailers, in particular, would have an easy time leveraging their sometimes very high reach for a recruitment drive. Their websites usually have very high visitor numbers, often several million per month. This means that a huge potential of possible applicants also visits the sites. In many cases, however, the companies do not react to this. There are no references to vacancies or immediately accessible possibilities for interaction. The visitor only gets hints about the topic “career” in the footer of the website – if he scrolls down and then reads the “small print”. This highlights wasted potential on a very large scale (Wiehler, 2016). Every retailer should realize that every visitor is a potential employee, and with that comes great opportunities and high probabilities that there are people looking for jobs among the website visitors. With active onsite communication and, of course, aggressive offsite advertising, companies can draw additional attention to themselves as employers. This has a great effect on potential employees – especially if they might not have applied there on their own and visited the website with a completely different intention. Hardly any retail group uses its charisma as a well-known and, above all, popular store brand for employer branding, although this is absolutely necessary. If a visitor already shops regularly at a popular company, why shouldn’t he work there directly? Often, all it takes is a little push to get potential applicants to engage with the company. A reference to vacancies in the sidebar can quickly secure the attention of visitors. In addition, nowadays the career section belongs well visible in the main navigation (Wiehler, 2016; Müller SM, 2020). The more retailers try to recruit young professionals and digital experts, the more they encounter completely different, new competitors. Without a doubt, Amazon and Zalando are considered the employers of choice in retail. Both companies are best practices that have innovated or introduced e-commerce. They are considered disrupters and innovators

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3  Intelligent Retail Active Sourcing: Which industries are looking for itlers? 2%

2%

2%

4%

INFORMATION TECHNOLOGY 26%

4%

CONSULTING (EXCLUDING PERSONNEL CONSULTING) INTERNET ECONOMY TOTAL TRADE

6%

ELECTRICAL ENGINEERING AND MECHANICS AUTOMOTIVE AND VEHICLE CONSTRUCTION MECHANICAL AND PLANT ENGINEERING FINANCIAL SERVICES

7%

MEDIA INDUSTRY TELECOMMUNICATIONS 11%

7%

MANUFACTURING INDUSTRY TRAFFIC, TOURISM

7%

10%

(n (all sectors) = 850, n (trade)= 79).

Fig. 3.39  Active sourcing: Which industries are looking for itlers? (Source: Brickwedde 2018a, b; ICR Active Sourcing Report, 2018)

that have “unhinged” the analog retail world. That is why they are attractive to digital talents. There, they can be sure to help shape the digital business models/processes and innovations themselves. However, a traditional retail company that only looks at Amazon or Zalando when analyzing its competitors is falling far short of the mark. Figure 3.39 shows that the entire retail industry is looking for IT professionals (LZ, 2016b; Trendence, 2017; Brickwedde, 2018a, b; ICR Active Sourcing Report, 2018). The aspects that are important for developers can also be used as a checklist for seeking employers. The following things are relevant (Stackoverflow, 2017; Hördt & Brickwedde, 2019): • • • • • • • • • • •

clear development opportunities within the company, clear team leadership, competent colleagues, state of the art technical equipment, Products and projects that inspire, Ownership, adequate office equipment and working environment, defined corporate goals, Support for creative work, Work from home, fair and transparent salaries.

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Every employer must check whether they can or want to meet these expectations. It is particularly important for digital talents to be able to work in an environment that consistently and sustainably focuses on digitalization. Although the size of a company and a strong public perception are also essential, it is above all the digital work content that has a lasting effect on the attractiveness rating. In particular, the constant and also disruptive own renewal gives companies the branding to secure future-proof competitive advantages. Such digitization efforts should be massively adopted by retailers in their employer branding. Retail groups must position themselves as digital “powerhouses”. This involves the permanent renewal of business models as well as the flexible adaptation of technologies and internal processes to new challenges. These can certainly also lead to internal disruption, e.g. through the use of robotics and augmented reality in goods picking or the use of artificial intelligence in consumer analysis. Digital-based forms of work, such as various forms of agile work, are also part of this. This is the only way to shape the dynamics and flexibility of rapidly changing business models and processes in retail. The previous motivating factors of secure jobs and performance-related remuneration are no longer sufficient. Above all, it is also a matter of making the meaning of the work clear and putting the internal corporate culture in the foreground. However, this requires an understanding of leadership on the part of superiors that moves away from hierarchical leadership with departmental thinking and towards more employee participation, personal responsibility and team orientation. These changes in the understanding of roles are not self-­propelling and must be exemplified. That is why corporate culture must also adapt to the changing demands of the business model and the expectations of employees, otherwise the digital fit will no longer be right. As part of the corporate culture, new generations of employees increasingly expect to receive an answer to the “question of meaning”, what exactly this company stands for, what purpose it pursues (“Purpose”) and why it is worth working there. Time is pressing, however, because the image of retail is still anything but digital and attractive.

3.6 Intelligent Online Marketplace Sales There is no doubt that marketplaces are the trend and the winners of the Corona crisis. Of all the online forms of commerce, they grew the most in 2020 with over 20% growth and account for almost half of online commerce in Germany. Their success is creating desire on two sides. On the one hand, on the supplier side, which is reflected in a veritable marketplace fever – because hardly a day goes by without a marketplace being founded. On the other hand on the demand side with the sale of own products on external marketplaces. But what constitutes the role of a marketplace partner and what advantages and disadvantages this has in contrast to previous business pipeline models is not at all clear to many stationary retailers. In addition, it should be clear to a marketplace founder what the laws of success of self-operated online marketplaces are. These differ significantly depending on the type of marketplace. In this respect, regional or local marketplaces play a special

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role that needs to be clarified. Relatively new are cloud-based SaaS-enabled marketplaces (SEMs), which are certainly no longer comparable with the previous online marketplace models.

3.6.1 Online Marketplaces Versus Platforms Marketplaces and online platforms are expanding their platform ecosystems to more and more trade sectors and ever wider areas of the consumer’s living environment. Cause and effect are network effects that are thoroughly positive for both providers and consumers. The primary point of contact for the more than 66.5 million adult Internet users are platforms that provide them with benefits and guarantee them an ultimate information advantage. This is why platforms are in vogue, which in turn fuels these very network effects. The consequence is the platform economy, which is not only taking hold in commerce, but now also in all other industries (Heinemann et al., 2019). It is explained by the theory of two-sided markets, where two interacting partners are connected, similar to exchanges or auctions. The more users a platform attracts, the more interesting it becomes for providers or platform partners who use the platform as an intermediary. In order to be present on the relevant platforms, companies pay considerable fees, otherwise the turnovers of GAFA’s and TAB’s would not be so gigantic. This is also worthwhile for the providers as long as the revenues grow. That’s why the platforms are doomed to grow. On the other hand, the growth in turnover in turn leads to an expansion of the offers and this in turn leads to an increase in the number of visitors, which ensures the platform operators ever better scaling advantages. Indirect network effects come into play between partners, which are causal for scaling and drive revenues, which in turn enable investments in the platform, which in turn attracts more and more users (Herda et al., 2018; Heinemann OH, 2021; Schramm-Klein, 2020). This infinite spiral sets in motion a kind of two-way escalation that does not start automatically, but has to be pushed with significant investments. Google (Alphabet Inc.), Amazon, Facebook and Apple, as well as eBay, Zalando & Co, have undoubtedly invested most of their initial investment in kick-starting the network effect. Each click has to be bought at around €0.5 per click until the frequency gains original momentum. This is why the development of online marketplaces also requires significant marketing investments – especially if there are already well-functioning marketplaces and there is no longer a need for additional e-marketplaces. In the meantime, platforms and online marketplaces can be found in almost all industries. For example, Airbnb offers apartment owners the opportunity to make their apartments available to holidaymakers as landlords and supports them in initiating the business. In doing so, holidaymakers often receive a cheaper and at the same time better alternative to hotels (cf. Fig.  3.40). In this respect, the platforms’ offer is attractive for both sides (Herda et al., 2018). Therefore, the platform economy represents a business model that uses information technology to map two-sided markets and enable value-adding interactions between external providers and customers. The core function is to offer easy access

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Customers

Manufacturer (complement Product) Communication Room Host

Host Profit

Room

Room Presi

Request

Service fee (3%) Rental price

Rental price/ Fee(6–12%)

Market access

Airbnb Plattform Data

Guest

Room Market access

Social currency (data/feedback)

Matchning

Manufacturer (original Product)

Added value (goods and services)

Digital Platform

Facebook and Google offer for advertising company a attractive number of consumers for your customized Advertising on, while these Consumers the offered use digital services for free can.

Airbnb offers landlords, Apartments of a large number of holidaymakers available and supports them with the initiation of the transaction, while the holidaymakers have an often cheaper alternative to hotels in attractive residential locations. Thus, the offer of the Platforms for both sides attractive.

Fig. 3.40  Principle of the platform economy using the example of Airbnb. (Source: Adapted from Herda et al., 2018)

for interaction partners via an open infrastructure. For this purpose, standards are defined and then “matching” is carried out. Goods or services are provided on the basis of an exchange of information either in exchange for remuneration (marketplace model) or data access (Facebook, WhatsApp, Google) (Herda et al., 2018). In this context, platforms usually pursue a horizontal expansion of offerings that benefit from network effects and are basically a natural consequence of them. In addition, platforms are also increasingly showing a trend towards integration in the direction of ecosystems. These result from the interaction between providers, customers, platform operators and other partners (who, for example, provide additional applications as providers). A characteristic of digital ecosystems is their independence from other providers. In the vertical direction – i.e. in value creation, customer contact, data management, etc.  – external partners are no longer required. In addition, platform operators can act as providers themselves, as illustrated by the example of the Amazon supply chain (Herda et al., 2018). Marketplaces are platforms, but not all platforms are marketplaces. This is shown by Google or Facebook, which are anything but marketplaces. And portals are not marketplaces as well as platforms, because they do not offer a direct purchase option. They are considered more like ad websites. Price comparison portals (billiger.de, guenstiger.de, idealo.de etc.), eBay classifieds or Craigslist classifieds can be listed as examples. They bundle offers and are predominantly visited specifically (Reyes, 2017; Heinemann OH, 2021). In contrast, a platform model, like a marketplace, represents an aggregation of different business services and is clearly transaction-based. In this context, the business concepts can differ significantly. It can be extended e-commerce, as represented by the

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Amazon platform, for example, by adding video and music services to the original retail business. But e-context is also conceivable, as with search engines, e-content as with publishers, or e-connection as with marketplaces. In B2B business, platforms for brokering deals or finding suppliers (e.g. freight brokerage platform) are also conceivable (Kollmann, 2013, 2019; eTailment AL, 2019). Experience shows: The more atomistically suppliers and demanders are distributed, the more susceptible the industries are to the success of electronic marketplaces. This is often the case in the consumer goods industry. As the size of the platform community increases, both the frequency and the network benefits for all rise disproportionately, which can lead to a so-called “winner-takes-all” constellation, as with Amazon: In this case, it is no longer worthwhile for multiple platforms to exist, especially since building up the frequency and thus the network effect would also hardly be affordable. With over 4 billion clicks from Amazon in Germany and a CPC (cost per click) of around €0.5, this corresponds to a marketing equivalent of €2 billion. However, this is only of value if a minimum conversion takes place, which in turn depends on the size of the offer. It should therefore come as no surprise that Amazon has around 500 million article offers on its platform in Germany alone and is therefore also used as a product search engine (Amazon KMU, 2020). From the perspective of network effects, this makes perfect sense. It is also theoretically advantageous for all parties involved if all suppliers and demanders meet on an online marketplace in order to maximise the network effect, because they profit from this to a large extent and are at the centre of the digital economy with their dominant market position for a reason. They dominate the so-called platform economy, which is therefore also referred to as the “GAFA economy”. Their lead in the market as well as their enormous financial power meanwhile lead to a monopoly-like position, which is due to a high number of users and their data worldwide (Herda et  al., 2018; Heinemann OH, 2021). Facebook and Google, for example, provide advertising companies with an attractive number of consumers for their tailored advertising, while these consumers can use the digital services offered for free (Herda et al., 2018). In this way, digital and two-sided platforms differ from the so-called traditional “pipeline business models”, where the offers reach the customers sequentially from manufacturers via retailers (Schramm-Klein, 2020). Especially since the Corona crisis, marketplaces are opening the door for SME traders who want to offer goods online. In return, they even reduce the effort required to make this possible and provide additional financial incentives. This opens the door for merchants to access not only national, but often international online customers. However, the enormous market power of Amazon & Co. also promotes the economic dependence of small and medium-sized retailers in particular. In addition, the online marketplace also increases competitive pressure, because international retailers can also gain access to the domestic market via online marketplaces. For example, marketplaces operating in this country generate considerable cross-border sales in imports. In this respect, selling on online marketplaces is both a curse and a blessing (Schramm-Klein, 2020). At the same time, they change the role of the stationary retailer selling there to that of a kind of supplier, as online sales are only indirectly generated via the platform (cf. Fig. 3.41).

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“Future Characteristics of Platforms and Merchants.”

Characteristics of a genuine platform Use

New role of dealers as suppliers

From Services

Offer of services

Control

Dealers/ Supplier

Plattform

Customers Offer of Banking Products

operation

BI and Billing

Implementation status

Has: Products, Budget Will: Sales, earnings, Funding Platforms must Pull generate to be used as Mediator between Customer and platform get elected Today especially Focus on customer Pull, in the future also on partner pull

Fig. 3.41  New role of dealers as suppliers of platforms. (Source: Adapted from Brindöpke, 2018)

3.6.2 Own Online Marketplace Versus Selling on External Marketplaces In the case of an “online marketplace project”, the first question to ask is whether this means founding one’s own marketplace or selling one’s own products on an external marketplace. Both are undoubtedly in vogue at the moment and new marketplaces in particular are springing up like mushrooms almost daily: Following the Amazon model, various retail groups are making their online platforms available to other retailers. Among them are retailers such as AboutYou, Breuninger, Douglas, Engelhorn, H&M, Otto and Zalando. With the acquisition of Hitmeister, the Metro subsidiary Real was able to become one of the top providers practically from a standing start and generate the greatest momentum by opening up to other retailers. With the sale to Kaufland, the way should now also be paved for a significant marketplace of its own in the Lidl-Schwarz Group, especially since Lidl. de has already been able to catapult itself into the top 10 of German online retail with around one billion euros in German sales in 2020. The EDEKA Group is also in the starting blocks since the acquisition of Bringmeister in 2016 and the investment in the e-food start-up Picnic. International marketplace cooperations continue to take place. For example, the European online marketplaces real.de, Cdiscount (France), eMAG (Romania) and ePrice (Italy) have jointly launched the International Marketplace Network (IMN) after a one-year test phase. This network unites 30,000 merchants with close to 230  million potential customers in Europe and operates technical interfaces between the marketplaces, through which merchants can synchronize their offers and orders in real time across marketplaces (Liening, 2020; Heinemann OH, 2021). Merchants do not incur any additional fees for connecting to the other European marketplaces. While IMN provides for a fully automated exchange of data already transmitted to the home marketplace, merchants no

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longer have to use an extra interface for each new platform (Liening, 2020). In addition to the universalists such as Amazon, eBay, Otto or Real, Douglas, AboutYou and Zalando show that a marketplace offering focused on singular product groups can also work. Douglas, for example, launched in 2019 with an exclusive partner program. This made the perfumery group the first European marketplace for beauty products and the range grew by around 10,000 additional items, while around 50,000 products are offered in the Douglas online shop. With the partner program, Douglas offers its customers one-stop shopping without having to build up additional inventories themselves and thus assume the merchandise risk (Ibid.). The formula for success sounds simple enough: acquire partners, bring them on board, hold out a hand and that’s it! In addition, the product range can be expanded without having to invest or take any merchandise risks of one’s own. The only question is why retailers didn’t think of this sooner. Own Online Marketplace Completely contrary to the dream of quick marketplace luck is what experience from the VC scene says: Among incubators, the successful launch of an online marketplace is generally considered to be one of the most difficult things founders can start with in the start­up scene. Without extreme specialization as well as a complementary “frequency driver”, such models are anything but a guarantee of success. In this respect, it is not surprising that successful marketplaces were actually founded and launched in the rarest of cases as a “pure marketplace”, but always in combination with a “killer feature” and “killer services”. There is no other way to get the necessary network effect going. For example, eBay was also only able to build up its online marketplace through the auction business. Amazon, on the other hand, is regarded as a “product search engine” that offers by far the largest range of products and was only able to build up the enormous frequency through the combination of its own retail business and the “first-to-marketer” effect. Accordingly, the retail platform now generates more product-related searches than Google. This shows that in addition to a killer assortment, killer features or killer services, only frequency determines the success or failure of an online marketplace. And this does not fall from the sky, but must be built up with a lot of effort. Presumably, only Zalando and Otto currently offer sufficient potential here in Germany. Marketplace start-ups would therefore have to invest massively in advertising in order to quickly build up a relevant reach. However, this poses the next problem, since the reach generated by advertising only has a lasting effect if there is no disappointment when the portal is visited. In this respect, a vicious circle threatens. Above all, the question arises why potential marketplace partners should selflessly feed new marketplace alternatives if these cannot yet offer attractive reach? Another problem is that “affiliated” online marketplace models often take the approach of excluding competitors and competing products. Presence of other chain stores of the same product category is viewed very sceptically, although these are the magnets for a marketplace. If the range of products on offer is too limited and there is no competition,

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the online marketplace is additionally threatened with disaster, as customers will then lack a sufficiently large range of products. However, this is the main incentive to visit the platform. In addition, traders often offer the same products on their marketplaces as the large platforms – but then often more expensive than them. With regard to the prerequisites on the marketplace partner side, the question must be addressed in particular as to what the potential added value is for stationary retailers compared to existing platform solutions. In this regard, reference should first be made to the cooperative models of the association groups. Often, the marketplace business idea is not new, at least in this respect. However, numerous comparable approaches have failed so far because, in addition to resistance on the part of retailers, the technical prerequisites with regard to checkout systems, WWS and interface solutions were lacking. In addition, there are fulfillment deficits, since local retailers in particular are generally overburdened with the issue because they either do not register incoming orders or do not prioritize their processing enough. They also usually do not cope with returns processing and often annoy their customers in this regard (Heinemann, 2017). Even outsourcing solutions will not be able to prevent customers from returning goods to stores and taking up valuable resources there. However, experience in comparable constructs also shows that a basic fee is unlikely to be enforceable on the retailer side. Experience shows that the “psychological price limit for such fees” is a maximum of 100 euros per year, but more likely 50 euros. The Garant furniture group was not able to enforce these amounts even with members and was forced by them to completely waive fees (Shopmacher, 2012). Therefore, it is recommended to take out the basic fee in a “worst case” scenario, which can mean 1–2 million EUR less turnover. Many local retailers have so far notoriously refused to address the online issue, despite a wide variety of efforts, and tend to be viewed defensively as a potential critical to success. At the same time, from the trader’s point of view, it should not be easy to understand why he should prefer a new marketplace to the much more successful marketplace variants of Amazon or eBay. For comparable fees and with comparable effort, he can encounter a frequency potential of more than 4  billion visits per year on each of these platforms (Heinemann OH, 2021). Experience shows that this traffic service enables him to generate attractive additional revenue, which is likely to be significantly lower for newly established marketplaces with comparable effort (provision of assortments, photos and product information, interfaces, etc.). In addition, Amazon and eBay are currently working flat out to regionalise their services. From a merchant’s point of view, there are also other options that are at least a “competing option” to the business model: first of all, an own online shop, e.g. via a Magento solution, which is also supported by eBay. Furthermore, Google offers every merchant the possibility to local search and will also push this topic (Haug, 2013; Heinemann OH, 2021). There are also local aggregation platforms, such as kaufDA, among others, which are “location-based service” (LBS) providers accessing, for example, local inventory lists. Therefore, it is advisable to consider the business idea of the marketplace very carefully and to back it up with a professional business plan (Neuhandeln, 2017; Heinemann OH, 2021). Only when a realistic break-even and ROI is achieved, taking into account all key figures as well as the operator model, should one get started.

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Sales on External Marketplaces More and more retailers are using online marketplaces as a singular or additional sales channel for the sale of their goods. With regard to the utility of their platforms for SME retailers, the large operators in particular frequently point to sales growth that is higher than the market as a whole. Another advantage cited is the reach, high profile and customer acceptance of the marketplaces. In addition, there is the fulfillment. This usually involves a full service with marketing, payment and logistical processing. The large marketplaces have often built this up at immense expense and make it available for a fee. Which marketplaces are the most popular among retailers, the Online-Händlerbund surveyed more than 1000 online retailers in 2019. In addition to Amazon and eBay, there are quite a few smaller marketplaces that are popular with online merchants. Satisfaction with a marketplace results from topics such as usability, support, sales, costs and fairness, among others. In this respect, Fig. 3.42 shows that eBay (84%) and Amazon (63%) lead the field among actively used marketplaces. While eBay is the winner in the usability, support and cost categories, Amazon leads the sales ranking and Real the fairness ranking. In the overall ranking, eBay is number one, followed by Real, Hood and Amazon (Haendlerbund, 2020). German offshoots of international platforms also highlight the opportunity for SMEs to additionally do business abroad. According to Amazon, German SMEs selling on Amazon were able to increase their export sales by an average of 20% in 2018 compared to the previous year. This is equivalent to around EUR 2.5 billion. Globally, around 50% of the products sold on Amazon come from third-party suppliers (Liening, 2020). Amazon Marketplace: Vendor, Seller or Hybrid Model Without a doubt, selling on Amazon can quickly become a success for sellers, but it can also quickly lead to failure. The key success factor is the chosen strategy variant. Which marketplaces are among the more than 1000 traders surveyed best known? Actively used marketplaces

Already tested marketplaces eBay

84% 67%

eBay 63%

Amazon Real

49%

Hood

15%

etsy

4%

Which platforms are most commonly used?

eBay 2,6

Hood 3,0

Real 3,0

Rakuten

21% 4% 2%

Yatego 2% Check24

Hood

33%

16%

Rakuten

Amazon 44%

17%

Real Yatego

Amazon 3,3

Rakuten 3,4

etsy

1% Dawand.

1%

Other:

Other:

Cdiscounts, Otto, Crowdfox, Kayamo Fairmondo, Smartive, Booklooker

Check14, Otto, Allyouneed, Smartive, Dohero

Fig. 3.42 Most popular marketplaces in Germany from a trader’s perspective. (Source: Haendlerbund, 2020)

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Accordingly, selling on Amazon is possible as a vendor (also called first-party seller) or as a seller, and here again as a defensive or offensive seller. Theoretically, every merchant can sell as a seller after creating a seller account. As a Vendor, the whole thing is a bit more complicated, because here the merchant is not free to decide whether to become a Vendor. The Vendor program is only available by invitation from Amazon, but they tend to target larger manufacturers or brands (eTailment VS, 2017; Liening, 2020). • Vendor program: Vendors act more as a supplier to Amazon, selling their items in bulk to Amazon and thus transferring ownership of the goods to the platform. This then has the thumb on marketing, sales and prices of the products. In that case, the items are marked “sold by Amazon” on the product page, implying reliability and quality among customers. Undoubtedly, customer trust in a vendor is higher than in a third-party seller (third party seller). Moreover, through the Vendoren Central program, first-party sellers have the opportunity to participate in additional marketing programs, such as “Subscribe & Save” or “Amazon Vine”. These involve exclusives for gaining feedback and product reviews. On the other hand, vendors have no influence on price changes via Vendor Central. Whether the pricing practiced by Amazon is compatible with that of the merchant is irrelevant. The lack of communication between the merchant and its customers can also be a problem. As a typical supplier, it cannot obtain direct seller feedback or contact the customer after the purchase of the goods, with regard to after-­sales measures or quality problems (Ibid.). It is also incumbent on Amazon to sell to either B2C or also B2B customers. Figure 3.43 shows the strategic variant “Vendor B2C and B2B” and is characterised there according to eight strategic features (Hübner, 2020). • Seller program: For most SME merchants, the question “Vendor or Seller” does not arise at all and usually the Seller program is the only option. In addition, sellers can use many more options in the optimization for themselves and also determine their prices themselves at any time with just a few clicks. For many merchants, Amazon Seller is

Vendor B2C-B2B Strategic motivation Geography

Sales performance Germany Country

Brand Assortment

Appearance/Firming Logistics Pricing

Pan-EU

Individual selection

Core brand

Self

Amazon brand

Bundlings

Partial range B2C

Passive

International

Secondary/online brand

Full range

Business division

brand presentation

presence and learning

Covert Self Prime

UVP (-near)

Services

Amazon Business Seller

Vendor

Fulfillment DL Self FBA-Mix Dynamic Pricing

Fig. 3.43  Strategic variant “Vendor B2C-B2B”. (Source: Hübner, 2020)

Hybrid

Private Label

Amazon Logist.

FBA / MCF

Price leadership

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therefore the better option, especially since the system gives them a lot of flexibility and only one account is required. Neither a server nor a shop system are required, as well as no negotiations with Amazon. Through the Seller Central interface, listings can go online immediately and item information can be changed effortlessly. In addition, the product margins can be calculated cleanly. In addition to a relatively low monthly fee, 7–15% commission is due depending on the product group. Sellers can rely on a quick payout every seven or 14  days, while vendor payment terms can be up to 90  days. Depending on the range of products and the number of countries, the seller program can be run either defensively or offensively. A defensive strategy is more appropriate for remaining stock or partial assortments, while offensive sellers tend to use the Amazon marketplace to build up reach or as a spearhead for launching in foreign markets. Figure 3.44 shows the strategic variant “Seller offensive” and is also explained there according to eight strategy dimensions (Ibid.). • Hybrid model: In hybrid sales models, providers act simultaneously as vendors and sellers. The hybrid model combines the two sales forms and attempts to use the respective advantages and avoid their risks as far as possible. However, it requires careful preparation and considerably more effort. For this, marketplace partners should either consider building an internal team to manage their seller account or outsource the work to external agencies. Without a doubt, the hybrid model promises more flexibility and greater security. With the help of a well thought-out marketplace strategy, sellers can take advantage of the model (Frielingsdorf, 2019). These include ensuring product availability, better control over pricing, faster listing of products, specific analytics data via Seller Central, and logistical benefits. Since Amazon classifies some products as problematic for various reasons and refuses to stock them (e.g. dangerous goods), these can then be distributed via a Seller account in the hybrid model. In this way, CraP status can also be avoided if products are classified as unprofitable on Amazon – internally

Seller offensive Strategic motivation Geography Brand Assortment

Sales performance Germany Country Core brand

Appearance/Firming Logistics Pricing

Pan-EU

Individual selection

Bundlings

Partial range B2C

Passive Self

Covert Self Prime

UVP (-near)

International Amazon brand

Secondary/online brand

Full range

Business division

brand presentation

presence and learning

Services

Amazon Business Seller Fulfillment DL

Vendor

Hybrid

Selbst+FBA Amazon Logist.

Dynamic Pricing

Fig. 3.44  Strategic variant “Seller offensive”. (Source: Hübner, 2020)

Private Label FBA / MCF

Price leadership

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referred to as CraP products (“can’t realize any profit”). Causes can be price pressure or relative shipping and inventory costs. The combined hybrid model needs to be well thought out, because it also has some dangers. For example, Amazon may not tolerate the seller account or may block individual products from being sold through it. Therefore, the main challenges for the hybrid model are that an increased amount of work is to be expected, which also results from the fact that country-specific laws have to be observed, and that sellers can quickly come into competition with their own customers who, in case of doubt, also sell on the platform. Nevertheless, in some cases, the hybrid model is a viable sales option that allows companies to take advantage of both vendor and seller programs. Unfortunately, however, Amazon is increasingly restricting the freedom of choice between the two programs and dictating to sellers whether they should sell as a Seller or a Vendor. It cannot be ruled out that both programs will be merged into a “One Vendor” model in the foreseeable future (Frielingsdorf, 2019; Liening, 2020). Neither the EHI online shop rankings nor the Destatis figures record the GMV of the platforms. Behind this, however, there are always real online sales of sellers who pay commission to the marketplace operators. For this they do not necessarily need their own online shop, but present themselves and their goods – as do many eBay power sellers – sometimes only on marketplaces. However, the online sales realised by a seller on a marketplace must not be disregarded under any circumstances. So far, for example, no statistics in this country show the real marketplace turnover of Amazon and the actual online turnover brokered by eBay. Given the eBay commission sales of around EUR 1.1 billion in Germany, this should result in at least EUR 10  billion in net trading volume, which is equivalent to around EUR 11 billion in online sales by the trading partners. Amazon’s corresponding online trading volume is likely to be at least EUR 30 billion (Amazon, 2021; eBay, 2021).

3.6.3 Online Marketplace Forms and Their Market Significance An online marketplace is a platform that usually bundles goods from a wide variety of suppliers under one brand or domain and sells them to customers for a commission (“e-connection”). Alibaba, eBay, Rakuten or the Amazon Marketplace are examples. They list offers from a large number of suppliers in marketplace-specific categories. A distinction must be made between structured marketplaces with a sector focus (e.g. Schuhe.de) and open marketplaces with universal selection (e.g. eBay). Although marketplaces are intermediaries and not online traders, online trading is always initiated by them and takes place with the marketplace partners. With a market share of almost 50%, marketplaces and shopping portals have undoubtedly gained an outstanding importance in e-commerce. As these can vary greatly in terms of both the type of competitive relationship and the intensity of the customer relationship, it makes sense to take a differentiated look at the corresponding forms (Heinemann OH, 2021).

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• Shopping portals represent marketplace forms with direct competitive as well as indirect customer relationships. The marketplace activities are at the same time in direct competition for the marketplace partners, as a result of which overlapping product ranges are generally offered on the same platform. As shown in Fig. 3.45, Amazon, Otto and Zalando, for example, can be characterised as shopping portals. They therefore do not allow partner companies to have a direct customer relationship on the marketplace, as they control or operate the transaction themselves. They also manage the customer data, which requires a high level of trust. Shopping portals are characterized by a very high traffic volume and a comprehensive offer in mixed segments. • Platform solutions of the alliance groups represent marketplace forms with both direct competitive and direct customer relationships. These are usually operated as a central online shop, which the association member can then pass off as its own shop on a commission basis. This is not infrequently done under their own name – for example Sport-Mayer – or co-branded – for example Mayer-Intersport. At the same time, the customer has direct access to the uniformly branded Intersport online shop. However, this also creates a competitive relationship with the affiliated group, although no affiliated group has yet really caught up in online retailing (Gerth, 2017). • Private shopping portals have exclusively indirect customer and competitive relationships. They usually pursue a positioning in the segment of branded goods bargain hunters, for which restants are usually relevant. Examples include Vepee (formerly Vente Priveé) or Brands4Friends. These are predominantly community-based and can therefore be regarded as highly interactive. Private shopping can certainly also be regarded as a form of social commerce, and is therefore not to be regarded as completely overlapping with the social commerce platforms. • Auction brokers such as the eBay auction business or virtual marketplaces such as the eBay marketplace can be regarded as marketplace forms with an indirect customer relationship and indirect competitive relationship. Other examples are Rakuten, Yatego or etsy. With more than 80% fixed price share, the marketplace business now even predominates on eBay. Auction brokers have predominantly discount positioning to date, but are increasingly pursuing repositioning via branded shops. Farfetch and etsy broker unique items and/or small series with a community orientation on their marketplaces, but have a comparatively low traffic volume. They can also be seen as a form of social commerce (Heinemann App, 2018). However, this is less about social media aspects and more about the nature of the product range. Currently, marketplace start-ups are experiencing a real boom (Telecom-Handel, 2020). It feels like not a day goes by without a marketplace being founded. The formula for success sounds simple at first glance, but it depends on the form of the marketplace. If Amazon is the role model and a shopping portal is the goal, one thing should be clear: There is no way around an excellent and stand-alone-capable online shop and no investment. Only then will this become marketplace-capable, as Zalando and perhaps Otto are now likely to be. Hitmeister was also able to develop above average after being renamed Real.de and

Yes

Direct competition

Direct

Virtual Marketplaces

anwr

Composite platforms

Customer relationship of the partner

Not directly

Private Shopping

Shopping portal

Conclusion: To build awareness, the following are required especially shopping portals and Auction Broker relevant marketplaces!

Virtual marketplace -Int.Player/high traffic volume -uniques/small series as community

auction broker -re-positioning via brand shops, klass. Dealer, high fixed price share

Interconnection platforms -Platform solutions for members -Industry Specific

Private Shopping -Positioning in the brand segment often relevant for residuals

Fig. 3.45  Online marketplaces and shopping portals. (Source: Own representation based on Heinemann & Boersma, 2014; Heinemann OH, 2021)

Note: Control over the customer relationship can be part of a be the outcome of the negotiations.

No

Shopping-Portal -Very large traffic volume -Established as a trading partner

3.6 Intelligent Online Marketplace Sales 217

218

3  Intelligent Retail NMV in Mrd. Euro

Shopping Portale

Interconnection platforms

2014

Marketplaces D 33,6 Mrd. Euro NMV

2015 2016

..two of them >92%

2017 2018

No

Direct competition

Yes

2013

Private Shopping

Virtual Marketplaces

Rest

21,1

2019 0%

20% Amazon MP/FBA

Not directly

Direct

Customer relationship of the Partners

(11,7) 40% Amazon Retail

60%

10,1

1,5

80%

100%

eBay Festpreis

Fazit: Der Markt ist besetzt

Real 0,6 GMV Rest

Note: Control over the customer relationship can be part of a be the outcome of the negotiations.

Fig. 3.46  Market shares of the top online marketplaces. (Source: Own estimates based on Amazon, 2021; eBay, 2021)

affiliated to the Real online shop, but still remains a dwarf compared to the two marketplace giants Amazon and eBay with around EUR 500 million GMV. After takeover by Kaufland and probably also renaming to Kaufland.de, Real.de could then develop into a genuine marketplace initiative (cf. Fig. 3.46).

3.6.4 Regional and Local Online Marketplaces Regional or local online marketplaces – or local commerce platforms – have been beacons of hope for some time, namely for retail, for local media houses, for urban development. But it turns out: Not all hopes will be fulfilled – because local patriotism is not a buying argument. The idea of local commerce pursued with the regional online marketplaces represents a further development of the e-commerce idea. Since in local commerce the inhibition thresholds for an own online shop as well as already for an own website are still quite high  – as already mentioned several times only about one third of all traders are online at all – it is obvious to facilitate the step into the online world via a cooperative local solution and thus via a local online marketplace. The Online City Wuppertal, which was launched in 2014 on the basis of the platform solution Atalanda, is considered a pioneer of local online marketplaces, but these are actually no longer a very new trend. Comparable pilot projects by local players have existed before, e.g. with Hamburg@Work in Hamburg’s trendy district “Schanze” in 2011 (Geffken & Heinemann, 2017; Heinemann OH, 2021). In the case of regionally oriented online marketplaces, the main aim is to make it easier for

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local traders to take the step into the online world by means of relatively low barriers to entry. The primary goal is not to sell goods online, but to connect brick-and-mortar stores with the Internet and thus bring customers to them. Local commerce thus represents the dovetailing of e-commerce in a regionally cooperative form and sales in stationary local retail stores. This can take the form of “digital shop windows”, apps with discount promotions or even regional online marketplaces. All solutions in this direction are intended to encourage consumers to continue using local retail without having to forego the advantages of the Internet as a source of information (Ibid.). At the same time, local marketplaces also want to offer customers an alternative to online pure players of the type Amazon or Zalando, which they see as having an advantage over them primarily through stationary services as well as multi-channel services – such as item availability on site. In this respect, local commerce should actually be the “squaring of the circle” for German retail, as it offers – at least in theory – a “win-win constellation” for both customers and retailers. And not only that: the trendy topic of local commerce has been associated with the hope in many a city council and many an economic development agency that the combination of local retailers and e-commerce can prevent the desolation of city centres. The hope: customers drive into town to try on and ultimately buy clothes ordered in the click-and-­ collect process. Or they compare different electronic devices in a specialist store in order to make their decision at home in peace and order the goods via the webshop of the specialist store. Many regional media companies also have high hopes for local commerce. In recent years, they have suffered serious losses due to the migration of advertising revenues to the Internet and hope to be able to at least partially compensate for these losses by participating in local online marketplaces. Newspaper publishers have long-standing business relationships with local retailers and use cooperations with regional online marketplaces to integrate local shopping opportunities on their websites. Or they develop their own solutions, as for example the Sächsische Zeitung does with KaufLokal (Ibid.). Local commerce platforms are basically a sub-form of virtual marketplaces, i.e. with indirect customer relationships and indirect competitive relationships. These also take different forms, differentiated according to city focus and product range focus (cf. Fig. 3.47). • Cross-city and cross-assortment regional marketplaces work with predominantly local partners from a wide range of industries, but do not require a log-in for a specific city. A typical example was the start-up Locafox, in which Holtzbrinck Ventures was also involved and which officially launched in April 2015 and then merged with the Metro offshoot Simply-Local. However, this no longer appears as a marketplace today. Other examples are the platforms Atalanda, which is also used by Online-City Wuppertal and now connects more than 18 cities in Germany, and Sugartrends.com, which offers local shops for global customers (Heinemann OH, 2021; Atalanda, 2021). • Cross-assortment and city-specific regional marketplaces work with predominantly local partners from a wide range of industries and require a city log-in for the city in which the marketplace partners are located in each case. This local marketplace form is quite common and can be found in almost all major cities. Whether Hannoverhelfen.de

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ReBoS Landshut-shopping.com

assortment mix

Wirvonhier.net

City Points

“Mia gehn online” Munich

Local Pioneers Muensterland.com Lokalka Shop-lueneburg.de Locamo

Locafox.deKauf-im Allgaeu.de

My-Heilbronn.de

Atalanda

Supportyourlocal.online.de R.I.O.

Hannoverhelfen.de

Lokalos.de Arando

Lozuka

Koomio.com

Bavaria online

Finding

Flensburg-Shopping.com

Handeln-fuer-pfortzheim.de

SatellesMobilwebguide Local

Shopdaheim.de

Lozuka Siegen

Local Heros MG

and regional Handeln-fuer-pfortzheim.de Marketplaces koelngeschenk.de Stuttgartsindwir.de

Yategolocal.com

Specialized

industry focus

Seaworth-mv.de

Local-is-online.com (telecom dealer)

Christkindlesmarkt.de Kiezware.de muenchener.-stubn.de Helfen.berlin Kiel-helps-kiel.de Knoth, Neuer Weg, Kiegmo.hamburg.de Schöningh

thedorf.de

cities over

cities specific City Focus

Local marketplaces -up to now max. 100.000 articles per platform

- rarely more than 100 dealers - no information about P&L - Substantial subsidies - White Label is NOT operator - atalanda is only technical platform - atalanda now anwr (silent prayer.) - High dealer turnover - chain stores taboo/partly not represented - Own online shops as no alternative - Coop. Logistics also possible otherwise

More than 100 local Marketplace Initiatives, thereof 79 direct transactional

Fig. 3.47  Local and regional online marketplaces. (Source: Based on Heinemann OH, 2021; Telecom-Handel, 2020; iBusiness Local, 2020)

or Mein-Heilbronn.de, Shop-Lueneburg.de, Landshuteinkaufen.de, Flensburg-­ Shopping.de or Siegen.lozuka.de – usually the names of the city are also used as URL for these city-specific marketplaces. • City and assortment-specific regional marketplaces are not so frequently represented, since the double focus strongly contradicts the actual marketplace idea. A typical representative is the book trade cooperative Würzburger Buchhändler, which operates such a platform under the name “Lass den Klick in Deiner Stadt”. Recently, however, there has been an increase in the number of start-ups geared towards gift shops or regional speciality shops, such as Christkindlesmarkt.de, Koelngeschenk.de or Stuttgartsindwir.de. • Assortment-specific and cross-city regional marketplaces also contradict the marketplace principle in their monostructure. This form is also accompanied by an exclusivity principle, according to which only one retailer of the same product group from a city may be a partner and the local delivery services are also always tailored to this local partner. Examples of this form are typically the association group platforms such as Intersport.de, Expert.de or Euronics.de, among others. All previous approaches suffer from the fact that many retailers are not able – or not willing – to prepare their product data in sufficient quality and quantity for their web shop in the respective portal. This preparation requires resources that not every retailer can keep ready in addition to their – stationary – day-to-day business (Geffken & Heinemann, 2017; Heinemann OH, 2021). In addition, all new portals start from scratch  – in terms of

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awareness and image – and therefore first have to build up reach among relevant customer groups in order to be attractive to local retailers in the first place. In addition, regional online marketplace models often take the approach of presenting only regional retailers and their products. The presence of chain stores is viewed extremely critically, although they are undisputedly the magnets in stationary retail. If chain stores are dispensed with – and perhaps a (still) limited number of retailers from the region  – a marketplace is in danger of failing quickly. Customers lack a sufficiently large assortment – and thus the incentive to visit the portal. After all, they usually go downtown to shop because they can find both local retailers and chain stores there. And it often turns out that retailers in local marketplaces offer the same products as online retailers – but usually more expensive than them. This disadvantage can only be offset, if at all, by a better shopping experience and better service. After all, customers are unlikely to stray to a regional online portal without advertising. However, reach generated by advertising only has a lasting effect if there is no disappointment with the product range when visiting the portal. This threatens a vicious circle: without well-known brands, there is a lack of customers, and without customers, not enough retailers come to the platform to make it attractive to customers (Ibid.). Without an attractive (overall) assortment, customers therefore stay away from online marketplaces; without sufficient reach of the marketplaces, traders in turn shy away from the additional effort for an additional online distribution; as a result, the offer of the marketplaces remains unattractive for customers. The problem of the missing network effect and thus the lack of reach remains. Cooperation with an established and wide-reaching online brand seems promising here. The eBay platform, for example, offers such an online brand. In the case of the Mönchengladbach pilot project “MG bei eBay”, a large proportion of the sales are consequently achieved with customers outside Mönchengladbach; but this is not surprising, because customers on the Internet generally do not search for local patriotic motives, but without borders. In this respect, regional marketplaces can only be successful if they offer customers added value in terms of service and product range and, to this end, simplify the preparation and implementation of product data for retailers as much as possible (Ibid.). Conclusion: “Think Local and Act Global” There is no doubt that the ideas for regional and local marketplaces are justified. However, it is invariably a battle between David and Goliath. Moreover, there is a lot of naivety involved, because network effects and reach do not build up by themselves. City-specific approaches are consistently doomed to failure because focusing on one city does not allow for network effects. Cross-city approaches do have potential, but not as bad copies of Amazon or eBay, but as innovative approaches. According to previous rules of experience, however, the sum of the target turnover must be invested and this is where it usually fails, because the experience of 25  years of e-commerce cannot be ignored. Wuppertal, for example, was among the first cities to set up a marketplace with Online-City-Wuppertal. But city developers cannot come up with a regional marketplace, as happened in Wuppertal, and say that the marketplace partners do not need a merchandise management system. In

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this respect, it should not be surprising that in Wuppertal, with 56 traders, 1–2 parcels a week are sold via the marketplace. The misunderstanding is that there are enough established marketplaces. If traders say it shouldn’t be eBay, there are alternatives like real.de, which even created a German marketplace that ranks 3rd. Otto runs something similar, Zalando does it this way and cooperates with local retailers and schuhe.de. Cities don’t need to and shouldn’t get another bloody nose and throw subsidies out the window only to find out: It didn’t work. The main mistake is that there is obviously not a single example from the scene where such a start-up, and it is nothing else, is based on a business plan. In it, questions have to be answered such as: Who runs the model? If a city is generous, it is left to an employee in the economic development department. Why should he be able to do it better than a start-up entrepreneur? The cooperation with an established and wide-reaching online brand seems promising. All in all, the question remains whether the goal of generating frequency for city centers can be achieved by bringing in online-seeking and stationary-buying customers. However, it does not take a retail expert to recognise the contradiction between the possibility of generating more online sales for local retailers and the desire to revitalise city centres at the same time. What is annoying is the fact that public money is still flowing into local marketplaces. At the same time, all hundred initiatives together do not even make as much turnover as a well-functioning Aldi store. Some of these initiatives are shown in Fig. 3.47 and arranged according to the marketplace forms just outlined.

3.6.5 SaaS-Enabled Marketplaces (SEM) Online marketplaces usually act as intermediaries between customers and merchants. They live primarily from the fact that they have customer access. The marketplace or platform operator sets up the infrastructure and “rules for trading” on the platform. They make money on every transaction that goes through the online marketplace. Innovative and “SaaS-enabled” marketplaces (SEM) combine the benefits of platforms and their network effects with the benefits of SaaS.  For example, Software as a Service (SaaS) provides software in the cloud that can be used to efficiently map companies’ core processes. The use of the software has “zero marginal costs”, i.e. hardly any marginal costs. This enables SEM to quickly build up multiple revenue streams with comparatively high gross margins from SaaS services. They thus gather potent business customers on their platform who are either providers or buyers in the marketplace. While simply building a marketplace is anything but trivial, building SaaS-enabled marketplaces is akin to a Herculean task. The prerequisite is an extremely high level of technology maturity, which in turn requires large development teams. Added to this are the long sales cycles, high churn rates and, as a rule, international competitors. The following conditions must be met for SEMs to emerge (Kallerhoff, 2020; Nowak, 2020):

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• Start with one thing: Either from SaaS to marketplace or vice versa, because it’s hard to build the SEM model natively. Successfully addressing the challenges of both business models in sync is likely to be nearly impossible. More likely to succeed is for a SaaS business to reach critical size at some point and then offer the marketplace as a service, as Atlassian did with a freelancer marketplace, for example. Conversely, it’s conceivable that marketplaces will give their vendors tools to help them sell better. However, with the exception of Amazon and AWS, very few marketplaces manage to successfully market such tools stand-alone. In any case, the software used should also be competitive stand-alone (Ibid.). • Mature industries: The way is paved for SEM only in mature industries, where consumers can find all providers digitally and contact is also predominantly made digitally. Mature industries are usually more competitive. Examples are professional services, real estate or healthcare services. Here there is a lot of pressure on providers to perform well. Such environments are ideal for SaaS-enabled marketplaces. They enable providers to perform better and generate a competitive advantage. On the other hand, markets must not be too digitally mature, as is the case in B2C online commerce. Therefore, it should not come as a surprise that there are actually no examples of SEM here. B2C e-commerce is already so mature that one software can hardly fulfil all requirements and there is usually special software for the different functions (Ibid.). However, if it is no longer a matter of classic multi-label commerce, but of D2C or products that are linked to complex services, there is also great potential for SEM here. Bathroom outfitters such as Reuter.de, which (can) also link their products with trade services, would be predestined for this. • Complex services: SEMs need services with a high value-added depth, such as in complex projects or in plant construction. Such services are difficult to assess objectively and hardly comparable. Here, the willingness to pay for good services is higher. In addition, customer relationships between marketplace participants are long-term. For this reason, it is worthwhile for providers to invest in expensive software. Market networks are typical, but difficult to set up. They assume that different professions/ trades are involved and that the different trades recommend each other as a matter of course. Conceivable examples are the construction industry, interior design or project business (Ibid.). SEM examples for companies that both operate marketplaces and offer a SaaS service with which marketplace sellers can digitally map their business can only be found predominantly in non-retail sectors (cf. Fig. 3.48). However, the first retail-related best practices are available, for example with Floom, Treatwell and Honeybook (Ibid.): • Floom with FloomX started as a marketplace where local florists sell their flowers online. It quickly became clear that the SaaS software Floomx used, which enabled florists to digitally map their entire business operations, was predestined for an affiliated marketplace. Today, the Floom marketplace and the FloomX SaaS business

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Agricultural products

School/teaching

Servives

Health Real Estate

Procurement

Other

Tourism/Travel

Construction

Fig. 3.48  SaaS enabled marketplaces. (Source: Kallerhoff, 2020; Nowak, 2020)

complement each other perfectly and both businesses bring leads to each other. Part of FloomX is of course an interface to the marketplace Floom. • Treatwell. With the Treatwell app, appointments for wellness and beauty can be booked quickly and easily. Over 600 salons are connected in Hamburg and the surrounding area. In addition, Treatwell also offers salons a suitable SaaS to manage their business, which they can use for a monthly fee. Included are functions such as appointment management, accounting, inventory management, evaluations, etc. The Treatwell app would, for example, be an ideal addition for Douglas & Co. • HoneyBook.com is a market network for the event industry. Here, an event planner creates a profile that serves as his professional home on the web. The HoneyBook SaaS workflow is used to send offers to customers with their own CI and to sign contracts digitally. Subsequently, the event planner integrates other professionals with whom he collaborates on the project. These can be beverage suppliers, florists or photographers, among others. These also use profiles on HoneyBook. Everyone can exchange information with each other in a kind of marketplace, team up with customers, send each other offers, sign contracts and be compensated by everyone else. Linking book stores, such as Thalia, with HoneyBook would make perfect sense. SEM need mature digital markets, but not too mature, as is the case in e-commerce. Nevertheless, Shopify might make it here one day as one of the few providers. The software provider now offers a wide range of services for retailers, such as shops, payment and

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logistics. The “Shop Pay” payment system is now also to be offered outside the company’s own platform, albeit only in the USA for the time being. Merchants can also use the payment process on Facebook and Instagram. To do this, Shop Pay hooks into Facebook Pay. Wholesale for purchasing products is in the pipeline. Although the marketplace is still missing, Shopify is also active in this regard with its Shop app (Kallerhoff, 2020; Nowak, 2020; Locationinsider SP, 2021). Zalando is also apparently on its way towards a SaaS-­ enabled marketplace. The partnership with Nike announced at the NRF in New York at the beginning of 2020 envisages, among other things, that Zalando will also organise connected retail for Nike in Europe as a white-label solution (NRF, 2020; Zenithmedia. com, 2020).

3.7 Channel Egal and Connected Retail as the Highest Stage of Evolution The distribution between online and offline research will become increasingly blurred in the future and lead to new formats with a “no-line experience”. In this respect, completely new retail approaches are emerging that vie for the customers’ favor with a high degree of integration of the touchpoints. These include the increasingly discussed showrooming approaches, in which the customer prepares himself in-store and then buys online. At the same time, customers also expect ultimate usability of mobile and interactive technologies. In this context, understanding the online channel is key to the no-line business model, where “channel doesn’t matter”. In this respect, UK UE retailer Argos set the benchmark quite early on. Figures 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18, 3.19, 3.20, 3.21, 3.22, 3.23, 3.24, 3.25, 3.26, 3.27, 3.28, 3.29, 3.30, 3.31, 3.32, 3.33, 3.34, 3.35, 3.36, 3.37, 3.38, 3.39, 3.40, 3.41, 3.42, 3.43, 3.44, 3.45, 3.46, 3.47 and 3.48 shows Argos’ no-line system architecture. The linking of all channels and the central management of customer data make it possible to track customers’ purchases in all channels. In combination with the customer card, targeted CRM prompts can be given. The goal is to make shopping on all channels as pleasant and easy as possible for customers. The fully integrated no-line system represents a unique competitive advantage for Argos, backed by a highly complex supply chain system that cannot be easily copied by competitors. Accordingly, Argos has integrated its sales channels into a closed overall system that allows customers every opportunity to switch channels. It is worth noting that large proportions of Argos’ total sales are online sales, which are ordered online in stores, either by smartphone or at terminals. The largest proportion of all sales at the UK’s prime example already come from customers using more than one sales channel at the same time. This points to the trend already outlined in retail, namely the merging of online and offline worlds into “no-line” systems in which the forms of operation merge into one another.

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Retail as a Vision of the Future With the “Connected Retail” program, German fashion retailers have been able to sell their local inventory online with Zalando since 2016. The official kick-off for this was a partner agreement with the ANWR Group platform Schuhe.de in 2017. Through the cooperation, the inventory of retailers connected to Schuhe.de is made available in the Zalando shop in Germany. Each cooperating retailer has the opportunity to use the additional sales channel via Zalando, while Schuhe.de networks the stationary specialized trade and makes visible more than 6000 stores from the shoe, sports and leather goods sector that are partners of the ANWR Group (Heinemann & Glaser, 2019). Following the successful pilot with local shoe retailers, Zalando launched a cooperation with fashion retailers. This allows brick-and-mortar retailers to also sell their fashion products via the Zalando platform. As a result, local fashion retailers become a potential outpost of Zalando. As of the beginning of 2021, around 2000 specialty stores in Europe are participating, offering up to 500 items from their assortment and accounting for around 6% of Zalando’s GMV. With an average price of €60, up to €100,000 in net sales can be generated per year (Zalando Connectedretail.de, 2021). A system from Gaxsys that functions like a “marketplace for the Zalando platform” is the technical basis. With this, open Zalando orders are displayed in a retailer backend to all participating retailers who are activated for the respective brands and have the goods available. Depending on defined criteria, orders can be assigned to retailer groups. This has been linked to other online shops of brands and retailers for years and connects retailers to suitable online shops. This facilitates the fast rollout of the Zalando extension. In addition, Gaxsys makes a quick connection possible with just a few clicks. The connection of offline partners via gaxsys is particularly advantageous for smaller stationary shops. At the same time, inventories of all fashion companies can be fully integrated into the Zalando platform. Software integration services enable the distribution of branded merchandise via the Zalando platform – including Anatwine and Tradebyte, which Zalando has acquired (Heinemann & Glaser, 2019; Zalando Connectedretail.de, 2021; Corporate.zalando.com, 2021). Zalando takes care of everything digital, i.e. content, customer support, payment processing, platform and infrastructure or software. There is no need for expensive system integration. The stationary retailer only needs to carry out an automated export from its own ERP (Enterprise Resource Planning) system and, of course, have a high-performance ERP system. Fixed costs do not arise. Commissions are only due for completed, non-­ returned transactions, which correspond to normal market conditions. In addition, the stores have full control over the assortment offered on Zalando at all times. They can accept the order, pack it in a Zalando branded box and ship it directly to the customer. The return slip, which is made out to the retailer, is placed in the box by the retailer. The customer then sends the return back to the retailer. If the item is not available at the retailer and the order cannot be accepted by a retailer within a specified deadline, Zalando takes over delivery centrally. Retailers who are interested in cooperating can find a list of brands with which they can participate.

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No fees are charged for the connection. Monthly fixed fees are also waived. There are no obligations to accept orders. At the beginning, there is a short training on the functionalities of the system before it is activated (Ibid.). To help retailers in the Corona crisis, Zalando waived commission for all new and existing connected-retail partners. Moreover, Zalando paid out the revenue from the program on a weekly basis to improve retailers’ liquidity. Especially during the Corona crisis, brick-and-mortar fashion retailers were looking for new sales channels to sell their merchandise online now. Those who used Zalando as a sales platform did not have to laboriously set up and advertise their own online shop. On the other hand, Zalando benefits from the fact that its online range increases thanks to its partners – without having to build up stocks itself. For example, despite its size of over 600,000 items, Zalando’s assortment covers only about 50–70% of the assortment available in brick-and-mortar stores. By connecting retailers to the platform, Zalando allows customers to access items that Zalando had not previously listed. In this respect, Connected Retail is extremely intelligent and smart – for the online retailer. Zalando can thus expand its assortment, both in depth and breadth, without having to take any risks itself: Merchandise, rental, packaging and shipping costs are, after all, the responsibility of the retailers. But the program can also be a great deal for retailers, especially in times of shutdown. After all, Zalando offers access to millions of customers (Ibid.). Fashion Connect as a Pilot Test At the beginning of 2019, Germany’s second-largest online fashion retailer, Otto subsidiary Bonprix, opened a Future Store, the “Fashion Connect”, in Hamburg’s Mönckebergstraße. The pilot store closely follows the Amazon stores, but for the first time demonstrates the application of a thoroughly digitalized store for fashion. The advantages of stationary shopping are combined with those of online shopping. Bonprix is considered one of the gems in the Otto Group portfolio, generating annual sales of EUR 1.74 billion in 2019/2020. In its core business, Bonprix, as a former mail-order company, operates online retail and eight stationary stores on the side. Offered is cheap fashion for women between 30 and 59 years. One item costs an average of €24. Customers love to buy online, but at the same time they want to experience and touch products, look at them and try them on. Bonprix tries to offer both in its new Fashion Connect store. Despite all the criticism, this is also remarkable because it is the only store pilot test for fashion by a German retailer. The Fashion Connect store offers around 350 items, while Bonprix has over 22,000 items in its range online. Shoes and accessories are presented on cube-shaped tables. Hanging merchandise is only available in one size at a time and spaced so far apart on the hangers that customers don’t have to take them out to look at them. No doubt Nike Concept is light years ahead, but Bonprix is again light years ahead with the Fashion Connect than any other German fashion retailer. The pilot store has the following features (Wolfram Bonprix, 2019) (see Fig. 3.49):

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How shopping works in bonprix’s new fashion store

Select the size you want

Open store mode in bonprix app, scan your ticket and start shopping!

Without trying It on

Enjoy a drink and some style inspo untile tere’s a fitting room free.

Different lightening? Different size? Fashion assistant? Coming right up

Has everything in it with no unwanted extras. All thanks to RFID technology

Quick and easy using your preferred payment method

Fig. 3.49  Fashion Connect. (Source: Fashionretail.Blog, 2019)

Check-in the store: Customers cannot shop in the Bonprix Connect store without a smartphone and downloading the Bonprix app, as they have to scan their mobile phone at a pillar at the entrance when entering the store and thus check in. Advice in the store: The employees in the Bonprix store are called Fashion Assistants. Nine of them work on the floor, seven in the warehouse. Because of the small assortment – the articles are not visible in every color or size on the shop floor – they can focus fully on the customers. They also help out when the technology isn’t working or customers are having trouble using the app. Search for matching items: The articles in the store are provided with QR codes. If, for example, a customer likes an item and scans the QR code on the product, the dress appears on her smartphone in various sizes. After selecting the size, the item can be placed in the shopping cart. Ordering a changing room: If the customer wants to try on the dress, she orders a changing room via the app. The waiting time of about five minutes is shortened by the fact that she is informed via smartphone that employees will fetch the products and place them in the ordered changing room. As soon as the cubicle is free, the customer receives a message.

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Fitting in the fitting room: The selected articles are already hanging in the fitting room as soon as the customer enters. The customer can use a display on the wall to request an employee. With the interactive mirror, she can ask if the dress is available in a different size and change the light to suit the situation in which she is wearing it. Digital gadgets: Transparent lockers with Bluetooth codes are located at the changing rooms. There are boxes with goods that customers have ordered and can pick up in the compartments (Click & Collect). Even those who do not use the changing room can pick up their bag directly from a compartment. Shopping companions can sit down in the basement and pass their time with an available tablet PC. There is also a drinks dispenser where customers and/or companions can draw their own fruit spritzers. Purchase and payment: In the example, if the customer wants to buy the dress, she puts this item in the shopping bag provided in the changing room. On the way to the checkout, the products in the bag are recorded via RFID. There, the customer can pay in the self-checkout either at a card terminal or with PayPal via app. Optionally, there is also the checkout with employees. The Fashion Connect is a digitally supported store that blurs the line between online and offline. After check-in, the mobile phone guides customers like an assistant, checks item availability, books a fitting room and makes payment possible by thumb. All this works contactless and in self-service if necessary. In this respect, the new Bonprix Future Store offers an innovative shopping experience supported by technology (Wolfram Bonprix, 2019).

4

Examples for the Stationary Retail Trade of the Future

Abstract

In particular, the major platforms and online retailers, as well as international D2C brands, are leading the reinvention of brick-and-mortar formats. For each of these formats, Machine Learning lends itself to stationary retail. This will be explored in more depth with the ON4OFF project example. However retailers deal with the results of such future projects, one thing is clear: there has been no shortage of digital retail initiatives since the start of the Corona pandemic. But even before the pandemic, there were numerous digital retail projects, the most important of which are briefly presented. This also shows that brick-and-mortar retail and city centres are a community of fate, which is why the topic of Smart City is also relevant for Intelligent Retail. And what the Smart City means for city centres on the one hand, is the intelligent shopping centre on the greenfield site on the other.

In particular, the major platforms and online retailers, as well as international D2C brands, are leading the reinvention of brick-and-mortar formats. For each of these formats, Machine Learning lends itself to stationary retail. This will be explored in more depth with the ON4OFF project example. However retailers deal with the results of such future projects, one thing is clear: there has at least been no shortage of digital retail initiatives since the start of the Corona pandemic. But even before the pandemic, there were numerous digital retail projects, the most important of which are briefly presented. This also shows that brick-and-mortar retail and city centres are a community of fate, which is why the topic of Smart City is also relevant to Intelligent Retail. And what the Smart City means for city centres on the one hand, is the intelligent shopping centre on the greenfield site on the other. © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 G. Heinemann, Intelligent Retail, https://doi.org/10.1007/978-3-658-38316-9_4

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4.1 Future Formats of the Stationary Retail Trade Visionary retail formats can be found in the form of future supermarkets, for example, in the Chinese metropolises at Hema/Alibaba. The online retail stores of JD.com can also be found there. Such stores are reminiscent of the Amazon formats in the USA, where b8ta also presents its showroom stores. For the first time in Germany, Vaund is now also attracting attention with innovative showrooms, similar to the approximately 1000 NIKE stores, which are “label-driven”, while Warby Parker is “start-up-driven”. The latest trend in connection with sustainability are the efficient transparent stores with the examples of Everlane and Glossier.

4.1.1 Future Specialist and Supermarkets: The Example of Hema/Alibaba The reinvention of the supermarket is apparently taking place in China and the US. In this “East-West battle”, China seems to be at least three years ahead of the USA when it comes to the integration of online and offline. And yet the US is already at least three years ahead of German retailers. Without a doubt, Amazon in particular has made a splash with its first Go Store in 2018. However, Alibaba opened its first Hema supermarket of the future back in 2015. Hema, which means “Freshippo” in English, is a high-tech supermarket designed around the smartphone. This is needed for everything when shopping there, such as adding items to a digital customer account while shopping, retrieving product information, such as ingredients, among other things, and making payments. Hema is part of Alibaba’s “new retail strategy,” which calls for full integration of online and offline shopping, logistics, and a data-driven supply chain. Accordingly, Hema stores also act as fulfillment centers for online orders. Customers enjoy the shopping experience at Hema based on the shopping app, which has already been used by more than 11 million. And that’s with “only” 150 pilot stores as of June 2019, 55 of which are in Beijing. By comparison, in the same period that Amazon opened eight Amazon Go stores, Alibaba launched 100 Hema stores. It plans to open 2000 stores by the end of 2022. Figure 4.1 shows a typical Hema store in Hangzhou, which the author visited there in 2019. Part of Hema’s success is the store’s customer-centric design around the smartphone app, which also accommodates the high mobile internet usage in China (98% China versus 43% US) (eTailment Hema, 2017; McKinnon, 2019). 1. scan and go: To shop at Hema, customers need to download the Hema mobile app. This allows them to scan a QR code on any product in the store that they wish to purchase, which adds the product to their digital customer account. At the same time, the customer is informed with information about the product including the expiry date as well as the delivery date to the store. Other data can also be queried, including ingredients, customer ratings, recipe suggestions from other customers, and delivery options in case the customer wants the product delivered to their home.

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Fig. 4.1  Hema store in Hangzhou. (Source: Heinemann, 2019)

2. personalized shopping recommendations based on artificial intelligence: the Hema app stores shopping behavior and uses it to make personalized product recommendations for customers based on machine learning. 3. digital price tags: The store uses only digital price tags that are updated in real time. These are good to use for short term promotions in the store or for recalculations due to changing spot market prices. It also allows for harmonization of online and offline prices as well as dynamic pricing. All products are equipped with readable chips to speed up the checkout process. The company is also testing another development that tracks sales via shelf sensors. 4. stores as fulfillment centers: The employees in the store also pick the online orders there. These are placed on a conveyor belt that runs through the entire store at ceiling height (see Fig. 4.1). At the end of the conveyor belt, the order is made ready for dispatch in the back office. 5. Contactless payment including facial recognition: When customers want to complete their purchase, they can pay by thumb with the Hema app. This is linked to Alipay. The Alipay app is used by more than one billion people in China, making it by far the largest payment platform in the world. In selected stores, customers can also pay by facial recognition, for which customers must first identify themselves by mobile number. Payment with cash is also still possible. Cameras are installed in the company’s own self-checkout terminals for facial recognition.

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6. fast SDD delivery: customers who have shopped online at Hema or who would like to have the goods delivered to their homes after visiting the store will have them delivered without charge within 30 minutes, provided that the home address is no further than three kilometres from the store. In comparison, Amazon manages “only” two hours at best. 7. stores as delivery hubs: To improve its delivery capabilities in China, Starbucks is partnering with Hema in selected stores. The partnership allows Starbucks to accelerate its deliveries through Hema, turning the store into a delivery hub for third-party vendors as well. 8. experimental retailing: Hema is constantly experimenting in its stores and testing format improvements. For example, restaurants have been set up in some stores where customers can also have fresh produce prepared from the store. 9. automated service with robots: Hema is currently testing the automation of service with robots in its restaurants. The concept is not fully automated, but also provides for the use of employees if necessary. Provided customers are looking for a seat and want to be served by robots, they can check in at a kiosk via Hema app. At the table, they scan a QR code to make themselves identifiable and can order there via app. Hema’s supermarket of the future impressively demonstrates how online and offline can merge in an uncomplicated way, day and night, with a 24-hour delivery service. Customers who live within a radius of three kilometers of the location can also order between 10 p.m. at night and 7 a.m. in the morning – and have them delivered – when the stationary store has already closed. Alibaba knows from experience that there are consumer demands, especially at night, because more than 80 million visitors are on the Tabao and T-Mall sites between midnight and four in the morning. In the process, Hema has also opened the “Hermones” channel for “adult products” for Shanghai on the app.

4.1.2 Showroom Stores: The Example of b8ta and Vaund Despite all the digital innovations, brick-and-mortar retail only has a right to exist if it continues to offer a world of experience in which customers enjoy spending time. For this, all senses must be addressed and customers must be able to touch the products. They should be inspired by scent and sound or have the opportunity to participate in events or product demonstrations. This way, they can also meet people with similar interests. The desire to shop can be (re)awakened through the integration of digital worlds by means of new technical tools. On the other hand, retailers will no longer be able to afford the high fixed costs in the future. As a result, most stores will have to carry less inventory. Showroom stores point a way out of this crisis. Zero-inventory stores will therefore be the topic of the future as an online-offline symbiosis. To this end, existing space can be transformed into a consumer-oriented experience center where customers can test, try on and try out at will. This ideally complements the use of new technologies such as virtual or augmented reality. This allows products to be displayed in just one version at a time to

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convey a haptic experience. Further variants of the products can then be tried on, e.g. via magic mirrors (eTailment FS, 2020). The innovative showroom stores of B8ta, Vaund and Dyson provide a glimpse into the future in this respect. The pioneer here was undoubtedly B8ta. Founded in Silicon Valley by former employees of Google subsidiary Nest and equipped with fresh venture capital of US$50 million in 2019, B8ta initially offered mainly tech products from start-ups and now also sells products from other industries (brandeins, 2020). The Californian Start-Up B8ta In addition to an online shop, B8ta operates around 20 of its own stores, 18 of which are in the USA, one in Dubai and one in Tokyo. In addition, B8ta has 70 store-in-store concepts (as of 2020). It doesn’t matter at all whether customers spend money there. Nor are there billboards or special offers there, not even price tags or even salespeople. The stores look like a gallery, each with an exhibit on wooden tables. These are products such as home robots, wireless speakers or electric toothbrushes, immersion heaters for sous-vide cooking or even nutritional supplements. It doesn’t matter where the customers end up shopping, whether in the store, in the company’s own online shop or at another retailer – in this respect, “channel doesn’t matter.” B8ta virtually invites the customer to come to the stores just to touch and try. There is no obligation to buy. Unlike conventional retailers, the start-up does not live off the turnover of goods, but charges manufacturers a monthly space rental that is calculated per running meter or table. In addition, B8ta provides the trade as a service. This is interesting for manufacturers, as they no longer have to operate their own expensive mono-label stores or wholesalers with a costly sales force. In addition, manufacturers have a direct influence on what is happening and receive immediate data on customer behaviour and sales figures. In this respect, it makes sense to set up a retail chain like B8ta, which sees itself as a service provider for the manufacturers – with showroom stores into which each brand can rent flexibly and for a limited period of time, just like an app store. This enables the collection of data in a similar way to online retail. All of B8ta’s stores are equipped with high-resolution 3D cameras that constantly observe how customers engage with the products, what they try out and how long they do so in each case. An iPad is available for each product, which customers can use to find out more. This can be used to compare prices and read reviews, just like online shopping. There is even advice available. The suppliers, or better tenants, have access to all data and can follow live how many customers are interested in their products in which store. They are also in contact with B8ta via a communication platform. Every sale is reported via chat bot. Not surprisingly, the concept of B8ta was born from an online perspective. It is aimed at manufacturers who originally sold their products exclusively via their own web shop and are now pushing into stationary retail, such as the US supplier Quip. Quip pays around US$ 2000 per month for the placement of its products at various locations and is highly satisfied with the results. In this respect, B8ta cleverly combines the advantages of stationary with those of online retailing. Because brick-and-mortar sales are incidental, there is no need for large inventories. Also,

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Fig. 4.2  B8ta store in Seattle at University Village, Vaund in Hanover and blaenk in Cologne. (Source: Heinemann, 2018, 2020; Locationinsider RS, 2021)

regular customers do not get bored because new products are added to the assortment every month (brandeins, 2018; Handelsjournal B8ta, 2020). Figure  4.2 shows a typical B8ta store from University Village in Seattle, which the author visited there in 2018, as well as a presentation at Vaund in Hannover 2020. Retail-as-a-Service with Vaund B8ta made the start with the showroom stores in the form of Retail-as-a-Service (RaaS) and Vaunt the copycat. RaaS is still a relatively new field in Germany, unlike in the US, where the topic has been setting new standards since 2015. In this country, Vaund was one of the first to launch RaaS in 2019. In addition to the first store in Hanover and the so-­ called Brand Spaces, the company recently also conquered fashion retail and now offers a shop at Engelhorn in Mannheim (TW Vaund, 2020). Like B8ta, Vaund also focuses on a special atmosphere and sees itself as a mediator between manufacturer and consumer. Therefore, not only the revenue the company makes from sales in its stores is passed on, but also its knowledge. That’s why Vaund also logs all the consultations with visitors to the showroom store, for example. Vaund thus also serves as a research project in which customer behavior is observed and analyzed. There is no doubt that most consumer goods manufacturers also sell their goods via their online shop and thus also have more direct

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customer contact. Nevertheless, they lack presence and the visibility that a store in the city center can offer. That’s why even large companies like Melitta are increasingly relying on direct contact with customers and customer feedback. Obtaining this in a compressed form was also the reason for a presence at Vaund. Own stores would require too high investments and would not make a scalable business possible (brandeins, 2018). Even premium brands like Jura, Teufel, Bosch (HiFi), Märklin, Pelikan, SMeg or even BMW are on board at Vaund and present innovative products from the areas of life smart home, eMobility, sports & health, household, gaming and tech gadgets. Solutions from micro-brands, each matching the other, complete the range. The portfolio is trendy and generously spread out over 750 square metres and is constantly changing. As a result, store visitors always discover something new or can enjoy a coffee in the coffee bar. Another major advantage of Vaund is that the new retail concept is ideally suited to the so-called direct-to-consumer trend. More than ever, consumer goods brands are dependent on establishing a direct relationship with their consumers (WuV Vaund, 2019). With the “blaenk_Store”, another operator of a showroom store can be seen in Cologne since the end of 2020, which shows products from 40 brand manufacturers on an area of 450 square meters. The three Cologne start-ups Wild Baboon, Ella & Witt and CORK + CROCHET (Koeln.Business, 2020) will also be there.

4.1.3 D2C Mono-Label Stores: The Example of Warby Parker and Nike Manufacturer-owned retail is the trend. Manufacturers avoid the price markups of middlemen and can offer their products to the customer at a lower price by bypassing the classic retail trade as an intermediary. Fashion and sports brands such as Boss, NIKE and adidas are leading the way. There is hardly a leading fashion brand left without its own stores. In addition to individual flagship stores, many manufacturers now operate quite large outlet networks (Morschett, 2020). These types of D2C mono-label stores are “label-driven”, i.e. manufacturer brand-driven. However, with the unprecedented opportunities in online marketing and commerce, more and more D2Cs are emerging as start-up, so-called direct-to-­ consumer brands. These are “start-up-driven”, i.e. founder-driven. Label-Driven Mono-Label Stores Manufacturer brands as D2C providers are usually also wholesalers or B2B providers and thus operate multi-channel distribution. This is a “B2B2C”, whereby further channel mixing results from hybrid online activities and the verticalisation of manufacturers. Within wholesaling, it is not uncommon to find further sub-forms, for example when franchising is operated (Heinemann OH, 2021). The construction of a franchise system is a particular challenge and therefore requires a cooperative e-commerce solution, otherwise the advantages of a multi-channel system cannot be played out and, above all, “counterproductive” conflicts with franchisees are pre-programmed (Heinemann B2B, 2020). After all, the previous advantages of D2C direct selling are that pricing can be done by the franchisees

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themselves and prices can be adjusted very quickly if necessary. This is not the case in wholesaling, where a manufacturer does not sell its products to the end user but to socalled sales intermediaries. These are, for example, wholesalers and retailers or also craft businesses. In indirect distribution, it is not possible to set retail prices, as price fixing is prohibited by antitrust law, so that the intermediary usually calculates his own margin on the purchase price of the goods. In this respect, a coordinated D2C omni-channel distribution is required. In this context, a separate sales as well as customer service department should be established in all variants of multi-channel distribution, i.e. in both direct and indirect sales (Kanalegal, 2014; Gründer-Welt, 2017; Heinemann OH, 2021). It is not without reason that NIKE has decided to cooperate with Zalando in Germany as a white-­ label solution and thus to merge all B2B2C activities in D2C omni-channel distribution in terms of systems technology (NRF, 2020). Start-Up-Driven Mono-Label Stores Direct-to-consumer brands are self-manufacturing start-ups. This is undoubtedly the trend, because it has never been so easy to build a brand and sell it directly to the end customer without a detour (and revenue sharing from the wholesaler) (iBusiness D2C, 2020). In traditional marketing theory as well as practice, it has always been said that it takes a lot of money and staying power to build a brand as a direct sales brand. In contrast, the Internet offers anyone who is committed to promoting a business idea a stage with a wide reach. Successful examples and pioneers of such D2Cs include the razor blade service Harry’s, the eyewear brand Warby Parker, the pet food brand Tails.com and Caspar Matratzen, which was founded in 2014 (eTailment D2C, 2020). In the meantime, there is even a growing conviction that only vertical online retailers and thus D2C companies have what it takes to compete against Amazon & Co. in the long run. In addition, more and more manufacturer brands are calling their B2C and retail activities D2C businesses. In this context, a manufacturer-owned online shop represents the evolution of a manufacturer into a retailer. This means a substantial expansion of the business model, whereby the technical implementation of an online shop – for example on the basis of standardized shop systems – is still the least of the challenges. If you want to be successful as a direct-to-consumer brand, you have to take a number of points into account: The brand has to get itself talked about again and again, even with traditional marketing methods. In addition, the business model should be simple and at the same time innovative for customers, offer excellent customer service and always keep an eye on the Net Promoter Score (iBusiness D2C, 2020). Also, these companies usually rely on digital advertising strategies in reaching out to their target audience. But this, along with product refinement and innovative ideas for the future, is only part of the success. Online alone is usually not enough. That’s why D2C providers often take the step into the real world, where the established brands have grown up, either with their own mono-label stores and/or together with retail partners. Emma Matratzen, for example, has signed up 500 partner retailers across Europe. This way, offline business opens up further customer groups that cannot be reached online. As a rule, founders start with an online shop. In

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addition, the opening of own mono-label stores is becoming more and more frequent with a time lag, so that it is not uncommon for start-ups to launch as multi-channel retailers. The best examples are Warby Parker and Indochino, which both sell online as well as online. Warby Parker with “Start-Up-Driven” D2C Mono-Label Stores Warby Parker started in 2010 with an online shop and opened its first store in New York in 2013. More than 125 Warby Parker stores are now in operation. The “direct-to-consumer” eyewear pioneer was valued at US$3 billion as of August 28, 2020. Warby revolutionized the industry by launching its own and affordable designer eyewear online and then opening stores where customers could pick up their eyewear purchased online and have it remeasured. In Fig. 4.3 is a relatively new Warby Parker store from University Village in Seattle that the author visited there in 2018. Warby Parker’s “Home-Try-On Program” is a sales strategy where customers can choose five frames from the online store to be delivered to them. Within five days, they get to try them out for no fee. In 2019, the company introduced a virtual AR app, which was named one of the 100 best inventions by Time magazine. The app allows customers to upload AR programs with their photos and view the frames virtually via mobile app. Warby Parker designs the products in-house and sells the products directly to customers as a multi-channel retailer. The company manufactures

Fig. 4.3  Warby Parker store in Seattle Universty Village. (Source: Heinemann, 2018)

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its own products in China, which allows it to offer extremely competitive prices. On average, customers buy an average of 1.5 products more than once a year. In addition, lenses, sun glasses and Monocel are sold. All data is stored on the customers including prescription and face sizes. With its own production, the company is very profit-oriented, but at the same time very customer-oriented. Glasses including lenses can be purchased for as little as US$95. Warby Parker’s success is based on three factors (Snacks, 2020): • D2C customer service: free choice of five pairs of glasses, excellent virtual AR assistance, 30-day return policy, and online live chat consultation with specialists. • Experimental retail: The 125 stores look like versions from a Wes Anderson movie. The employees deliberately give themselves a “bartender”-like appearance with a relaxed tone. • Millennial-friendliness: The smart products have cool names, such as “Percey”, “Watts” or “Wilkie”, among others. The brand also portrays itself as sustainable and socially-engaged with initiatives such as “buy a pair, donate a pair,” among others. With its eyewear, lenses, sunglasses and contact lenses, Warby Parker sells products that are permanently needed and therefore enable scaling. The eyewear provider also benefits from unbeatable prices in times of recession and can fully exploit the strengths of a multi-­ channel system. Nike Stores as “Label-Driven” D2C Mono-Label Stores The global market leader Nike has recently been relying less on its own stores and benefited in the Corona pandemic primarily from booming sales on the Internet (WiWo, 2020). Nevertheless, the leading international sporting goods manufacturer operates a total of around 1100 stores worldwide in the 2020 financial year (Nike, 2021). And these are always setting the tone. While adidas repeatedly lost its way with its stores and, for example, ended its previously announced Neo Store project in 2016, Nike continued to develop its stores into showcases for D2C mono-label stores. Nike kicked things off with its House of Innovation in New York (see Fig. 4.4). This was followed by variants with Nike Rise and Nike Live concepts. After the first concept store in 2018, Nike opened nine of its newest Nike Unite stores in 2020. These represent an evolution of the concept store, which is already data- and digitally-driven with a more local focus. In all of the stores, Nike is introducing innovative features and concepts. These were essentially shaped from the manufacturer’s online experiences. The stores are a testing ground for a more data-driven, local approach. Nike sees the combination of digital features with unique physical environments as the future of retail. In doing so, it blurs the line between digital and physical shopping. Everything in the store is designed to work seamlessly with the Nike Plus app on customers’ phones. The Nike concept store on Melrose Avenue in Los Angeles, named “Nike by Melrose” to reflect its location, includes 450 square feet of retail space. The storefront was designed by Los Angeles-born artist and illustrator Bijou Karman and features customers shopping and exercising. The new Nike concept is reminiscent of a pop-up store, but it will be operated on a long-term basis. The entire store design, all services as well as the assortment were designed data-based on retail analytics. This was done using

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Fig. 4.4  Nike Innovation Store New York. (Source: Heinemann, 2019)

customer data, competitor data and data on how customers in that region interact with Nike. The store is locally focused and the merchandise supply and assortment is also based on local needs. Using local sales data, Nike has created a local store that exclusively offers and showcases products for the local clientele. These are rotated in the store on a bi-­ weekly basis so that customers have a reason to keep coming back. The assortment is selected via AI that aligns with online user data, including purchasing behavior, app usage, and engagement of local Nike Plus members. Additionally, there are always other Nike products, including, for example, a selection of best-sellers from nike.com. Once Nike customers are near the store, they will receive push notifications via app with special offers. In addition, special items are reserved for customers via purchase behavior analysis, regardless of whether they have previously ordered them or not. Furthermore, the Nike concept store offers innovative services, such as a drive-in with a street counter where customers can pick up their goods purchased online. Or a returns process that is very straightforward and handled by a curb service. Using a text messaging system that allows shoppers to communicate with Nike, consumers simply send a text message to the store. And Nike Plus members can even use a membership card to redeem products or rewards at the Nike Plus ATM. Customers can scan a code with their smartphone if they like a product to request another size. Using the app, customers can also view other color options for the product and see if and how much is still available. A built-in messaging feature

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within the app also allows customers to ask questions of and communicate with sales associates. However, optional consultation appointments can also be booked through a service. The Nike Unite store represents a focused form of the concept store. The nine stores are extremely local and digitally focused. As the communal heart of smaller communities, Nike Unite aims to bring fitness-minded people in a region closer together through sport. The stores are designed to reflect the culture and spirit of the local community surrounding each store (Wolfram Nike, 2018; Nike, 2021).

4.1.4 Online Retailer Stores: The Example of Amazon and JD.com The reinvention of the brick-and-mortar store is obviously taking place from an online retail lens and is being driven by the leading online retailers, most notably Amazon and JD.com. At the highest level of sophistication, it’s all about dovetailing brick-and-mortar strengths with the digital concept in a meaningful way. Amazon made its impact in 2015 with Amazon Books in Seattle. Since then, the online giant has tried a lot of things and quickly ended experiments that didn’t work. From each stationary test, the giant has learned and developed completely new approaches. Since 2020, the experimentation phase seems to be over. Accordingly, the Amazon pop-up stores, which were already present before the first Amazon Books, have been significantly reduced. Amazon now has enough of its own store concepts for its hardware that obviously work. As with its online business, Amazon now has complete control of the entire customer experience in its brick-and-­ mortar stores, from the moment they enter to the moment they leave. Consistently, Amazon has also created a separate division called Amazon Physical Stores for its brick-and-mortar operations. This unit opens and manages the individual stores of Amazon formats such as the Amazon Pop-up, Amazon Books, Amazon 4 Star, Amazon Go, Amazon Go Grocery, and most recently Amazon Fresh (T3n APS, 2019). Amazon Pop-Up Stores Until 2019, Amazon operated small pop-up stores in shopping malls or department stores on a large scale. These exclusively presented Amazon devices and services. From 2016 onwards, they were purposefully expanded to almost 90 stores to date. Amazon also had its own pop-up stores at Whole Foods. There, employees demonstrated how the retailer’s devices and offerings worked. The mini-exhibit areas were more of an additional way to give customers an idea of Amazon’s diverse hardware and service offerings. However, the isolated pop-up stores became useless over time. Since 2019, Amazon prefers to showcase its own devices in its own and real stores (T3n APS, 2019). Currently, seven Amazon pop­up stores are still operating (Amazon Stores, 2021). Amazon Books Amazon Books is a bookstore from which other retailers can certainly learn what the stationary bookstore of the future could look like. On the one hand, the store offers the classic

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assortment of a bookstore: books for different age groups, books sorted by genre, specialist and non-fiction books as well as magazines. On the other hand, all Amazon gadgets are not only in the assortment, but actively integrated into the sales floor and the presentation. In doing so, Amazon brings together classic, analogue books and digital services in its bookstore and demonstrates how the digital and analogue worlds can work hand in hand. The first Amazon Bookstore is located in University Village, an “upscale shopping mall” adjacent to Seattle’s university campus. The shopping center, which is partially accessible by car, comprises around 120 shops on a total of 97,000 square meters. The Bookstore is in a prominent location and, at about 500 square feet, is the first store in the driveway (uvillage 2021). The store has the character of a library with many shelves and hardly any tables. In addition to books, the assortment includes Amazon’s complete range of electronic devices (Kindle, accessories, etc.) and around 5000 book titles (Bass, 2016). These have been pre-selected according to innovative principles whereby a third are derived from books with at least 4-star ratings. Another third is compiled on the basis of “Amazon Book Club” customer opinions and the third part is based on a pre-selection made by five curators. The “living assortment” forms the basis for comprehensive digitization on the one hand and an excellent service concept on the other: an “app-based digitization” by every trick in the book. In the middle of the store – similar to an Apple Store – the electronic devices are presented on tables, next to which a competent Amazon consultant is always available, even when the store is relatively full. Prices are not visible, but there are signs with codes in front of each of the books, which are presented completely frontally. When scanned, the smartphone then displays the prices and provides additional product information. At the same time, Amazon enables precise tracking that can be used for book recommendations. At the entrance, the customer is pointed to the Amazon app, which he can also use for payment in the store. This currently (still) requires registration with an employee, but this will be eliminated in the future. Every Amazon customer can activate his Amazon account when buying in the Bookstore, no matter which country he comes from. The test purchase worked perfectly. The spotless “Amazon toilet” alone, separated into men’s and women’s and with a changing station, would be worth writing its own publication about “basic needs-oriented customer orientation”. After all, the lack of basic needs orientation in German city centers and stationary specialty stores has been a taboo subject of discussion for years. In addition, Amazon’s bookstore has extensive seating facilities where customers can and are allowed to read for hours on end. What makes the Bookstore special, however, are the employees, who are extremely customer-focused. (The Retailer, 2016). Amazon employees actively approach customers in the Bookstore and focus 100% on store visitors. There are no fixed info terminals, but the store staff has mobile devices. If the customer wants to order something, it is done immediately, similar to the Apple Store. The Amazon Bookstore basically embodies “smart retail” and is reinventing brick-and-­ mortar retail in the process. It is likely to be the benchmark for brick-and-mortar retail of the future, particularly in the dovetailing of staff and technology and in the level of service, including “digital-based service”. There are currently 24 Amazon Bookstores in operation (Amazon Stores, 2021), including two in New York. Figure 4.5 shows the newest Amazon Books from New York, which the author inspected in 2019.

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Fig. 4.5  Amazon Books in New York. (Source: Heinemann, 2019)

Amazon Go and Amazon Go Grocery Amazon Go is an American supermarket concept from Amazon that works without cash registers. After selecting the goods, customers leave the store without a checkout process. Instead, the purchased items are recorded by sensors and cameras and automatically billed via the Amazon account after leaving the store. There are around 1000 different products on offer in the Amazon Go, which is focused on providing breakfast, lunch and snacks to customers in central urban business districts. Customers who want to shop at Amazon Go stores can only do so by having a profile with Amazon and the Amazon Go app. After downloading the app, customers must identify themselves at the entrance with a QR code generated by the Amazon Go app on their smartphone. After that, all purchases are automatically recorded. The purchase amount is settled via the customers’ Amazon accounts when they leave the store. In 2014, Amazon filed a corresponding patent with the US Patent and Trademark Office under the title “Transitioning Items from a Materials Handling Facility”. Accordingly, it involves “computer fusion, deep learning algorithms, and sensor fusion”. Amazon refers to the system as “just walk out” technology. The combination of multiple sensors being used apparently works in a similar way to self-driving cars. Here, cameras and a combination of different sensors feed a learning algorithm that recognizes which products customers take off the shelf – or put back (Wikipedia Amazon Go, 2021). In 2020, Amazon added Go Grocery in Seattle, a full-blown supermarket, to its

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cashierless Go stores. Following the Go model, the store also relies on cameras and sensors to track purchases. As before, payments are made via app. With 5000 products in an area of about 1000 square meters, the Go Grocery has a significantly larger assortment than the small Go stores. Among other things, fresh food, including fish and meat, freshly baked bread and local specialties are offered. Like the Go, the Go Grocery does not have a cash register. Payment is made via an Amazon app after checking out. In addition, the store also houses a variety of employees who, for example, restock the shelves or advise customers (Heise AGG, 2020). In total, four Amazon Go and one Grocery are operated in Seattle (Amazon Stores, 2021). Amazon 4 Star The Amazon 4 Star is an innovative general store that was first opened by Amazon in New York in 2018. Only products that have received at least four stars in customer reviews are sold there. The store offers customers new or trendy products in addition to those with an average rating of 4.4 stars. Items that have been frequently purchased in New York City in particular can also be found in the assortment, such as “Most Frequently on Wish List” or even “Trending Around NYC”. For the (regional) assortment design, Amazon uses the data of its online shop. In addition, the assortment composition is also done via “Customers also bought” and the “Amazon Exclusives”. In this respect, Amazon shows how curated offers can be made to customers and how regional assortments can be compiled. Products marked with electronic price tags (ESLs) feature selected buyer reviews from the online store. The prices show both the list price and the “prime price” for Amazon Prime customers. On the one hand, this ensures the loyal existing customers the price advantage, on the other hand, it shows the not-yet-Prime customers what Prime would offer them. For customer acquisition, Amazon uses its data-based knowledge. With customer reviews and bestseller lists, Amazon creates an additional playground where they experiment with linking online and offline (Scholz AFS, 2018). As of early 2021, there were 31 Amazon 4 Star operating in the US (Amazon Stores, 2021). Figure 4.6 shows the first Amazon 4 Star in New York, which the author visited there in 2019. Amazon Fresh Probably motivated by Alibaba, Amazon is now also taking off with supermarkets of a new generation. About three years after the purchase of Whole Foods, Amazon will open the first “Amazon Fresh Supermarket” on 35,000 square meters in Woodland Hills in September 2020. To do so, the retail giant has also further developed its cashier-less Amazon Go technology and expanded its delivery and pickup services. The internet giant is focusing on millennials and Generation Z, who are now also becoming parents and adjusting their grocery buying habits to accommodate the growing sizes of families. This generation is considered extremely smartphone-savvy. At the same time, Amazon has greatly expanded its delivery and pickup service, and in the U.S., it has lowered the monthly Amazon Fresh membership fee from US$14.99 for Prime service members, which costs US$119 annually, to zero. This allows Amazon Prime customers in 2000

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Fig. 4.6  Amazon 4 Star in New York. (Source: Heinemann, 2019)

cities and towns in the US to order groceries for free through Whole Foods or Amazon Fresh. The groceries will be delivered within two hours or can be picked up. Amazon isn’t just focusing on online grocery, however, as the majority of customers still like to shop in-store. The new Amazon Fresh stores have ample space for order storage and pickup counters for online commerce, which were not included in the designs of most U.S. supermarkets until a few years ago. Although Amazon Go technology won’t be used in Amazon’s own first supermarket, it could be incorporated at future locations. The concept of so-­ called “mixed format shopping” is new. This allows customers to order non-perishable household items through an app, while purchasing perishable groceries directly from the supermarket (BI Peterson, 2019; Amazon Fresh Dash, 2021). With Amazon Fresh, customers can choose to check out traditionally at a checkout with a regular shopping cart, or they can check out with a new Amazon Dash cart. With this smart cart, customers will only need to check in via QR on their Amazon app before shopping, so items placed in the Dash cart will be automatically accounted for. The cart uses a combination of algorithm and sensor to identify the items. In addition, however, customers can also use Alexa to prepare for in-store purchases, whether with an availability check, navigation assistance or a digital shopping list (Ibid.). As of the beginning of 2021, five Amazon Fresh stores are already in operation (Amazon Stores, 2021).

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If the question arises as to why Amazon is so successful online, then it is surely because Amazon has managed to “make it easy” under the heading of customer centricity and to position the concept of usability – that is, fast and convenient shopping. And it is precisely this usability that Amazon is now applying to the in-store space (Heinemann, 2017). The “ultimate usability in the store” did not exist like this in stationary retail until now. This means that the customer, even when standing in the middle of the store, no longer even has the feeling of being in a salesroom. The channel becomes irrelevant. Basically, with the Bookstore, customers now have the previously missing building block at Amazon to their customer journey, namely the “touch and feel”. The JD Experience Shop also shows how online experience can be implemented in stationary stores based on data. JD Experience-Shops-2020 JD.com, China’s largest retailer, which is hardly known in this country, is now expanding offline in China with its “JD Retail Experience Shops”. There, customers can purchase electronic products and household appliances, books, baby and pregnancy products, and selected items that are also available at JD.com, among other things. The selection is focused on those assortments that customers would like to try before they buy. To do this, JD.com uses both customer data and artificial intelligence. In a franchise model that is centrally monitored, the most modern and AI-based retail technology is applied to the stores – for example, for sales forecasts, merchandise management, targeting, and so on. Especially in merchandise management, JD.com is considered a leader. By its own account, the Chinese retail giant is the only company that delivers 92% of all orders no later than the next day. This competitive advantage is now to be used for stationary trade as well. Thus, the number of Experience Stores has been expanded to around 300 stores by the end of 2020, more than tripling. The stores, whose assortment includes around 15,000 SKUs, are managed by JD’s intelligent supply chain management system. This system will also be offered to other retailers as a “retail-as-a-service” (JD Corporate Blog, 2020).

4.1.5 Efficient Transparent Stores: The Example of Everlane and Glossier Without a doubt, fashion represents a special challenge for the stationary retail of the future. It will not only be about the digital aspects of a connected store, but also about sustainability, traceability and transparency of production. In addition, in the post-Corona era, shopping efficiency will be a major issue, as many customers will remain contact-­ traumatized and will no longer indulge in hours of unobjectionable shopping. Due to online fashion winners, brick-and-mortar fashion retailers will have to focus on smaller spaces and more focused assortments. Accordingly, efficient shopping is becoming increasingly important, according to a survey by Accenture (2020). Among these, the most popular omni-channel offerings that customers want to continue using when shopping are in-app shopping (51%), home delivery (45%), curbside pickup (42%), and social media

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shopping (41%). The future fashion store should meet these customer needs, as well as the desire for transparency and sustainability (Vogue, 2020). This will require breaking away from seasonal cycles and pre-ordering, as well as sourcing in the Far East. However, with “on-demand” production close to the EU, production costs will also explode. Everlane  The US start-up label Everlane shows a way and thus an unusual type of intelligent retailing for solving the seemingly unsolvable tasks in the fashion industry. Mind you, regardless of the product challenges, Everlane already meets all the basic requirements of a Connected Store. The brand was founded in 2011 by Michael Preysman as a D2C omni-channel retailer and came in at over $50 million in sales in 2019. In addition to the online store, the self-produced products are sold through seven company-owned stores in New York, Boston, Brooklyn, Austin, San Francisco, Palo Alto as well as Los Angeles. The founder could not explain why most designer T-shirts are sold for up to eight times the production costs. From this he developed the idea of producing a top quality t-shirt, but at a much lower retail price. The most important thing was to radically disclose the production costs under the motto of ultimate transparency. Accordingly, Everlane charges two to three times the production price for its T-shirts, but also documents this via infographics on the website or in the online shop. In a “radical transparency” not only the “true costs” of each product are disclosed, but also the longevity and timelessness of the products are placed in the center of the brand philosophy. This also goes hand in hand with a detachment from seasonal cycles and an anti-seasonal approach. Each product is produced individually and does not follow a specific rhythm. Therefore, they are no longer seasonal goods, but products that are sometimes meant to be worn for decades (JNC, 2020). Everlane’s best sellers include the ‘Cheeky Straight Jeans’ in the women’s range, which is made from premium Japanese denim, which is also used to make the ‘Slim Fit Jeans’ in the menswear range. All products are produced with sustainable materials. In addition, all fabric resources used are recycled from polyester, to cotton and cashmere, to down. In addition, the brand has the Bluesign sustainability certificate, which monitors in detail all the steps of the manufacturing chain. Since 2017, the denim products have been manufactured in a factory owned by Vietnamese producer Saitex, which is LEED certified. In the process, 98% of the water used is recycled. In addition, the plant’s carbon dioxide emissions have been reduced by around 80%. On the assortment side, the sustainability claim is also expressed, among other things, by the ‘ReNew’ collection, whose basic material consists of plastic bottles (Ibid.). In the stores, customers are given the opportunity to find out all product information for each product, including material, production as well as costing. Figure  4.7 shows the Everlane store on Prince Street in New  York, which the author had the opportunity to inspect there in 2019. The stores are exemplary in terms of omni-channel linking and in-store digitization. During the Corona crisis, Everlane once again showed what creativity means in retail. Everlane was one of the first retailers to offer curbside pickup at three of its U.S. locations and will continue to do so after the store opens due to positive feedback. In the windows, the brand will display in-demand basics like T-shirts and tops to drive in-store sales in addition to curbside pickup. Service staff can then pick up different colors and sizes instore for customers waiting outside. This service is offered for collections of about ten to

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Fig. 4.7  Everlane Store on Prince Street in New York. (Source: Heinemann, 2019)

fifteen items. Customers can also purchase items at Everlane without ordering them in advance, but can also use the curbside service for returns and exchanges (Vogue, 2020). Glossier  Founded in 2014 by Emily Weiss, Glossier offers just 72 products. The beauty brand’s assortment is in the mid-price range and is affordable for young target groups. according to its own statements, Glossier sold one product every 32 s in 2019. In 2019, the company came to an estimated enterprise value of US$ 1.2 billion. The concept for success is based on three pillars, namely transparency, the provision of information and personal recommendation. In addition, the focused assortment allows for efficient purchasing (Sodano FAZ, 2020). The start-up Glossier provides full behind-the-scenes insights and talks bluntly about ingredients and their effects. Fans and employees are also directly involved. The online shop is up to date, but comes across as almost a bit text-heavy. The selected images put the products in the foreground. The design makes a tidy impression. This continues seamlessly in the store, even if the ambience is clearly more opulent. The stores, however, are exclusively pop-up stores, located close to online customers, allowing them to showroom efficiently as well. When Glossier opened its new pop-up shop in London in 2019, the crowds were huge. The hype around Glossier is obviously huge. The store is a cross between a living room and a showroom. Different rooms, separated by colour, visually blend together with a coordinated pattern of wallpaper and rugs. Despite the crowd of people, the atmosphere is unusually calm. At the same time, the rather mini-

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malist product selection is effectively displayed. Female employees in pink boiler suits and tablets in their hands quickly appear and offer their help. They also accompany the ordering process, which is different at Glossier than at many traditional stores. Customers who want to buy something don’t just go to the cash register. Instead, the service employees use the tablets to place the desired products in a virtual shopping cart. Customers pay by card or smartphone. After the checkout process, customers are allowed to wait in the back with other customers until their own name is called. After that, a beautiful, handlabeled (gift) bag is handed over the counter. In this respect, the company is also concerned with hospitality rather than just traditional sales. Experience is written in capital letters (Ibid.)

4.2 Machine Learning in Stationary Retail: Project Example ON4OFF The joint project ON4OFF, which started in January 2019, aims to develop concepts and applications of artificial intelligence and machine learning for stationary retail. The aim is to improve the dialogue with stationary customers in order to be able to act at eye level with the platforms. Not only since the beginning of the Corona crisis have small and medium-sized retail stores in particular had to struggle with declining customer numbers and stagnating sales in times of booming online shopping. Since the Corona crisis, the development has not only been threatening for traditional retail businesses, it has also had a direct impact on the quality of life in city centres. In order to strengthen the retail trade in competition with Amazon, Zalando and Co. and to maintain the attractiveness and diversity of the inner cities, the ON4OFF project was launched by renowned partners from business and science. This project focuses on the intelligent interlinking of offline and online retail through the targeted use of AI methods and applications. In this way, local retail is to be strengthened again and the idea of modern “smart cities” is to be implemented in North Rhine-Westphalia as an example. The following remarks are largely based on the unpublished project application for the IKT.NRW lead market competition, which the author played a key role in preparing as head of the eWeb Research Center at Niederrhein University of Applied Sciences and as a consortium partner of the ON4OFF project covering the retail sector (ON4OFF project application, 2019; ON4OFF, 2021).

4.2.1 ON4OFF Initial Situation, AI Problem and Project Consortium In addition to IN-telegence GmbH (consortium leader), the project partners of the ON4OFF project include the companies adesso SE (technology partner) and Parfümerie Pieper (application partner) as well as the research institutions Jülich Supercomputing Centre, paluno – the Ruhr institute for software technology at the University of Duisburg-Essen and the eWeb Research Center at the Niederrhein University of Applied Sciences. The

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company proXperts is responsible for public relations and transfer and networking activities. The joint project ON4OFF is funded by the Ministry of Economics of North Rhine-­ Westphalia and the European Regional Development Fund of the EU (ERDF) for a period of three years (ON4OFF, 2021). One of the decisive factors for the project was that small and medium-sized enterprises (SMEs) form an essential pillar of the economy in NRW. As a locally rooted form of business, the retail trade in particular is increasingly competing with international corporations in a globalized, networked world. A number of retailers now have online presences, often webshops, which complement the traditional shop. As a rule, however, this supplement is not fully integrated into a “customer journey” or into a purchasing process, but is often regarded more as a detached, separate branch of business. End customers leave fingerprints on the web, but these usually no longer play a role in the store. This situation leads to time loss for the end customer. He searches in the store until he finds a salesperson to whom he then has to describe his situation. This sometimes leads to multiple explanations until the store visitor finds the right salesperson, and to frustration if the salesperson is less knowledgeable in the desired specialist area than the consumer who has been pre-informed by the Internet. All this means that the desire to buy is slowed down at important interfaces in the so-called “customer journey” and, if necessary, shifted to the competition. Conversely, customers expect direct online support in the store even without a prior online context, e.g. when scanning goods or similar using an app to display further information, discount promotions or similar products. There is a lack of smart transitions that synchronize know-how and contexts between online and offline events. Figure 4.8 shows the current situation of separate online and offline worlds. The ON4OFF project bridges the two disjoint worlds and makes the entire online context relevant to the store visit. The context can be used to significantly enhance the store experience of the end customer. For example, an AI-controlled guided tour of the store via an app that accompanies the visit is conceivable. Or an event planned by a suitable

?

Communication from everywhere.

High level of consulting competence

Personal Call Individual Address

Simple search

Clear Shopping carts

Delivery

Offline World

Online World

Fig. 4.8 The retail challenge for ON4OFF. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

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Online world

Offline world

Digital context

Digital twin Fig. 4.9  ON4OFF idea of the digital twin. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

specialist salesperson, which is used for detailed viewing, inspection and trying out of all goods and combinations of goods pre-qualified on the web. Conversely, a context-free visit to a store should also offer all the possibilities of online communication. Examples are the scanning of goods with the possibility of additional information, communication on different channels up to the retrieval of a suitable salesperson based on skills. In the background, a constantly learning AI accompanies the visit (online and offline), generates a “visit space” of related and suitable objects and, over time, a kind of “digital twin” replica of the real end customer. The end customer and his “digital twin” are illustrated in Fig.  4.9. The two merge into a single entity through the new communication methods, which can also be highly personalized and personally served directly in the store. The frustrating store visit with missing goods, an insufficiently informed salesperson or long explanation times with repetitions could become a thing of the past thanks to AI. Also, a status level (e.g. like Lufthansa Senator) that comes with additional incentives when visiting the store can retain customers in the long run. The store staff knows the customers, can serve them faster and better, and thus create incentive points even for previously anonymous visitors. This also creates new types of customer loyalty concepts for stationary retail (ON4OFF project application, 2019; ON4OFF, 2021). The subordinate ON4OFF system offers possibilities to create employees with skills that can be integrated into the sales process according to ability and readiness, depending on the communication needs. In a GUI (graphical user interface), for example, the employee receives his context for the corresponding end customer displayed on a tablet. End customers have the option of visiting the store either anonymously or identifiably if they wish (Ibid.).

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Chat

Seller

Customer

Shop App

Video

Automation

user app

Voice

Fig. 4.10  Interaction of end customers and salespersons in the store through technical means of communication and automation. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

The information provided to the employee about the end customer’s options makes a variety of communication situations possible in context (see Fig. 4.10). In order to be able to cope with the flood of information, not only a data-processing AI with a large number of models is available in the background, but also a so-called “Adaptive Case Management (ACM)”. On the basis of an evaluation of the previously recognized history, this can decide whether a salesperson should contact the customer immediately upon visiting the store or whether it is better to first inform the end customer with moderate information via the user app (e.g. “beeper app”). Via a customer loyalty card (e.g. Beautycard at Pieper), it is possible to fully identify the entire purchase history online and offline. Also, an anonymous web session can be identified by a QR code when scanned during a store visit. But even purely anonymous visits can produce benefits in customer communication through the infrastructure implemented by ON4OFF (Ibid.).

4.2.2 ON4OFF Project Content, AI Applications and AI Innovations For the ON4OFF project, work packages were developed that enable a practical evaluation. For this purpose, various metrics are available that provide for a success control of the identified use cases. Stay times, activity profiles, investigations of the assortment and last but not least the sales offer many parameters that allow a sufficient amount of metrics. Several branches of Stadtparfümerie Pieper, which is also a consortium partner, are available for the demonstration phase. These include branches in Centro Oberhausen, Essen-­ Rüttenscheid, Düsseldorf Königsallee, Dortmund Innenstadt, Bocholt as well as in Cologne. These shops have different conditions (e.g. more frequented, higher-quality assortment or more technology-savvy staff, etc.). These make the possible demonstration

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phases additionally interesting under such aspects, on the one hand for the consortium partner Pieper, and on the other hand for the AI models and their statements. In order to communicate online and in real time with end customers, SMEs today mostly use unstructured communication channels, such as e-mail, chat or social media, among others. CRM systems, which are also used at Pieper, can contain a large amount of relevant data, but also require considerable maintenance. They also offer only rudimentary support for the real-time processing of customer dialogues. Some manufacturers, such as Sabio, therefore offer knowledge management systems that can be connected to e-mail management systems, e.g. from ITyX and Sematell. Beyond pure information retrieval, however, such systems do not offer deeper analysis or continuous process support. Even among dedicated case management products, only a few offer decision-making capabilities – such as Pega 7 and IBM Case Manager, which is based on Watson technology. However, for SMEs, these solutions are usually too expensive and oversized (ON4OFF project proposal, 2019; ON4OFF, 2021). In the course of the project, the relevant data protection topics were also addressed. This means that the structure can be made platform-compatible at the end of the project period, as well as being used more widely in cloud solutions. ON4OFF tries to keep the effort for real-time assistance affordable for SMEs, both online and in-store. In this regard, a “bottom-up” approach was sought, which allowed Pieper to be involved in the project without losing sight of generalization. All previously known approaches to reinventing stationary retail are individual approaches or home-grown solutions, which, however, do not provide for the possibility of using adapted AI methods in the background, such as with IBM (Watson). These are also often too expensive. General approaches, such as those found in the communication suites of Genesys or also Microsoft, do not meet the AI needs corresponding to the above situations. In addition, specific situations and thus use cases have to be taken into account when dealing with customers in advice-intensive retail (Ibid.). Description Use Case “End Customer Enters the Store” There can be two different contexts when visiting a store: On the one hand, it is conceivable that the end customer assembles certain goods in the web shop beforehand (situation 1). He then uses the communication functions of the online store (e.g. mail, chat or Click2Call). A purchase decision is not made because the goods in the shopping cart or the possible alternatives are either too expensive or require additional information. Also, products requiring intensive consultation, such as fragrances and cosmetics, usually present haptic, visual and olfactory challenges that cannot be met online. At Stadtparfümerie Pieper, the shopping cart might present a sophisticated cosmetic combination or leave unanswered the question of the effect of certain perfumes on one’s own skin. At the end of the web session, the customer therefore specifies a desired date for the offline store and receives a QR code on his smartphone. He then identifies himself when entering the store by scanning the QR code as he wishes. Meanwhile, in the background, the store’s AI and logistics have ensured that the goods needed and those suggested by the AI are in stock and ready for demonstration. A trained employee approaches the customer directly and can carry out a make-up process on the spot, for example.

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However, it is also conceivable that a customer enters the store without using the Internet and thus without an online history (situation 2). In this case, a visit session is created in the store using the customer’s smartphone the first time an item is scanned. In the process, ON4OFF provides information from an AI-based knowledge database of the store about the item (e.g., colors and/or sizes). These can include recommendations of similar products through recommender models or hints on where to find the products in the store. Here, a smartphone app offers the possibility to communicate immediately – e.g. via chat or conversation with a salesperson trained on the product, who could also be in another store. Similarly, the customer can also use a smartphone to directly contact a salesperson in the store. Based on the data collected during the visit session, the ACM, which works in the background, decides when the shop needs to take action on its own so that the potential customer does not get lost. To do this, it can send proactive follow-up emails or even offer a conversation. The ACM also helps determine which AI models to choose next for the customer (ON4OFF project proposal, 2019; ON4OFF, 2021). Innovation Potential of ON4OFF In addition to the economic benefits for smaller retailers, ON4OFF sets itself apart from the state of the art with two core innovations, one being a common digital twin and the other being holistic (ON4OFF project proposal, 2019; ON4OFF, 2021): Digital Twin: The ACM and ML methods are technically combined in a common Digital Twin context, thus enabling the automatic as well as dynamic selection of suitable ML algorithms. In this way, context-sensitive selected methods can be applied to selected data in each dialog step in order to arrive at more relevant recommendations in a more efficient manner. Holistics: An innovative holistic view of the online and offline world as well as a seamless interplay of ACM and ML processes is aimed for in order to be able to conduct an efficient and also effective customer dialog  – regardless of whether digital or analog. Transitions between different forms of dialogue are to be designed intelligently. Decisions about action or reaction during dialog can also be made smartly. For this personalized and innovative form of consulting, retailers need a customer dialog system that can “think for itself” and provide case-specific support. However, the benefits of such a system can only materialize if local retailers open up more to the newer ICTs and, above all, do not see the online world separately from the offline world. So far, retailers are still skeptical in this regard, pointing to the high investments involved in digitization. However, all experiences in this regard show that the uncertainty of companies regarding the cost/benefit aspects is unfounded. On the contrary, it is confirmed that digitization processes in the ICT environment lead to positive effects in terms of customer satisfaction, sales, costs and time (Ibid.). Thus, the ON4OFF project contributes significantly to supporting regional retail. It helps retailers to play to their acknowledged strengths

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Communication layer

Adaptive case management

KI Modul

Business Logic

CRM, ERP, Helpdesk systems

Fig. 4.11  Core elements of the innovative ON4OFF components in a layered representation from “backend” to end customer contact. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

online, namely personal customer contact and the creation of a positive customer experience. Above all, the integration of analogue human communication opens up the possibility of so-called “graceful degradation” in the case of too low confidence in such solutions delivered by the flanged AI systems. This is also in the interest of the end customers, who can thus use the convenience of digital commerce without having to forego the accustomed quality of care of the regional and stationary retail trade. In ongoing operation, core elements will run via a layer-based approach, as shown in Fig. 4.11. Customers communicate with merchants and their account managers via the communication interfaces provided by ON4OFF. In the prototype, a chat and voice, a video or, if still possible, a collaboration interface is implemented as an example. Other interfaces, such as email and social media, will be added in the exploitation phase. The communication between the customer and the customer service representative, as well as the steps taken by these two actors, are analyzed by the ACM and ML modules and evaluated for the custom-built Digital Twin. The Digital Twin and the ACM dialogue control function as the system’s memory and guide for each customer: Based on the dialog progress tracked by ACM, several ML modules suitable for the current analysis goal are activated in parallel on appropriate computing infrastructures (e.g., by open source tools such as TensorFlow, Keras, or Torch for Deep Learning). As a result, the ML modules provide recommendations or background information based on the case data available in the Digital Twin that are relevant in the current dialogue step (e.g. to decide between repair or replacement of a complained product or whether a conversation is offered remotely or direct contact with the salesperson is desired). Depending on the customer dialog type, the recommendations

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are displayed to the customer service representative or communicated to the customer. At startup, only historical data and what is learned from it can be accessed. During operation, ON4OFF prompts customer service representatives for explicit labeling of transaction steps and customer responses, which serves as quality assurance. Only when sufficient data is available does the system itself begin to make recommendations and continue to learn from the responses to them. Specifically, the ON4OFF project will deliver the following innovations (Ibid.): • • • • • • • • • •

Application of various recent algorithms to shopping cart analysis, Application of various recent algorithms to purchase history, Analysis of web sessions for future buying behavior, Analysis of visit sessions for future buying behavior, Use of “Adaptive Case Management” to increase effectiveness and efficiency in the use of algorithms and decision making, Integration of smartphones and tablets and the associated communication channels into offline communication, new blending between analogue and digital processes for the business employee, the special smart and intelligent interaction between automated online activities and human interaction, innovative, event-like shop experience, personalized discount promotions based on concrete identification in a store and its merchandise situation.

4.2.3 Technical AI Concept and ON4OFF Reference Model At the University of Duisburg-Essen, Agenda-Driven Case Management, a variant of ACM, has already been designed as an automation approach that uses data mining methods to discover recurring patterns in case histories. In ON4OFF, ACM unfolds its benefits in optimizing a customer dialogue as a whole by providing recommendations on flow alternatives. Machine Learning (ML) algorithms, on the other hand, are used to draw insights into concrete issues from patterns in large, structured and unstructured databases – i.e. in ON4OFF, to make recommendations on individual sales steps (e.g. suggesting products that customers with similar requirement profiles have opted for; etc.). The Jülich Supercomputing Centre (JSC) has been implementing and testing open source algorithms for this purpose for several years, which are to be transferred to ON4OFF. In addition, the JSC is a founding member of the industry-driven Smart Data Innovation Lab (SDIL), which provides a suitable computing infrastructure and tools to ensure data security (e.g. anonymisation) for prototyping machine learning applications on an industrial scale. This is also used in the project context to evaluate individual algorithms. On the industrial side, previous approaches for better customer dialog support primarily consist of the connection of additional communication channels (e.g., SMS, e-mail, chat, Click2Call, etc.). In addition, there is a project-oriented cooperation with customers of IN-telegence, where AI is

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used at various points. This is done in the construction of adaptive call guides, which are based on evaluations of call qualifications, but also in the construction of automated voice dialogue guidance. Corresponding preliminary work has already been incorporated, for example, in the IN-acd speech dialog system from IN-telegence GmbH. This showed that a broader spectrum of data for optimizing customer dialog is available in principle than is currently being used. The analysis of data for answering customer queries has so far required a prohibitively high technical effort, especially when the scope of purely communication-­oriented metadata is exceeded. At the same time, IN-telegence’s dialog system features role- and skill-dependent interfaces that can be used to control and enrich the dialog. In the context outlined above, this can serve as a basis for the required development. As one of the largest IT service providers in Germany, adesso AG has excellent expertise in the areas of data warehousing, platform construction and data analytics. Adesso has been able to prove this in various customer projects and can thus contribute correspondingly well-founded knowledge to the project (ON4OFF project application, 2019; ON4OFF, 2021). Objective and Technical Task The goal of the project ON4OFF is to bring the parts of the product and sales presentation in retail that have been scattered online and offline and predominantly unorganized into a coherent “digital twin” context that seamlessly connects both worlds. Online presentations, which have failed to achieve conversions due to a lack of haptic experiences, should be enhanced by the smart transition to the store as a pre-qualifier. The store itself offers a new shopping experience through the online supported communication channels. Contact with the salesperson/agent occurs exactly when and exactly how the customer envisions it. Thus, customers expect from stationary retail not only a shopping experience, but above all excellent and individual advice. The solution developed by the ON4OFF consortium supports these goals by making the necessary “routing logic” for communication between consumer and provider technically available via WebRTC solutions. This also enables the exchange of data (text, photo, video) in real time between the parties. In the background, the business logic to be developed will enable ACM by accessing data interpreted by AI. The consortium partner Pieper, representing the retail sector, is willing to try out the solution step by step in at least one store, thus providing important milestones for the agile management of the project. Figure 4.12 illustrates the technical structure and function of the ON4OFF platform as well as the way in which communication between retailers and their customers is embedded in the overall architecture. On the one hand, the storage of all business and customer data in systems independent of ON4OFF allows merchants to integrate existing data sets and, on the other hand, guarantees them that customer data obtained in customer dialogues is not proprietarily locked into the platform but can also be processed with external tools if required (e.g. for targeted advertising campaigns). The ON4OFF application itself only stores data that is required for its algorithms to function, such as labeling data for evaluating and optimizing recommendations (see below). Critical to the success of the approach will be the metrics to be defined, which will contribute to

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Shop at on4off

Online

Customer idenficaon

Kl supported dialogue

Webshop Customer loyalty card

Seller

End customer

shop-lokel check in

Digital twin

Tablet GUI

Localizaon and rangs

Download discount promoon

Product suggesons

back-end architecture

Adapve-casemanagementmodels e.g. arficial intelligence models

pieper webshop pieper CRM system

machine learning data miing algorithms

beeper cash register system

on4Off soƒware

Fig. 4.12  Key points scenario “End customer enters store” and conducts AI-supported dialogue with salesperson. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

validation in WP7 and thus also to agile development control. The goal of ON4OFF will be developed based on the concrete case of Stadtparfümerie Pieper GmbH, without losing foresight of other industries in the retail sector. However, just as important as developing the business application is looking at the data the system needs to make helpful recommendations. This includes, for example, customerspecific data (transaction history, individual preferences) and company-specific data (inventory, customer group preferences, business goals). A retailer usually does not have this data (at least not in an easily usable form) nor the necessary infrastructure to process it. Therefore, solutions for the initial build-up of the database of new merchants and the “training” of the recommendation system will be developed within the project. This of course takes into account all important data protection criteria (ON4OFF project application, 2019; ON4OFF, 2021). To date, at least two thirds of local retailers still operate without electronic inventory management systems (ibi, 2020). They are therefore not even able to indicate the availability of their products. In this respect, a particular focus of the project must be to provide these retailers with both recommendations and assistance for the implementation of system solutions that are compatible with SMEs. Reference should be made to similar problems from the project “MG.Retail 2020”, which the Niederrhein University of Applied Sciences worked on together with the Mönchengladbach Economic Development Corporation (WFMG) for the NRW Ministry of Economics until mid-2015 (MG. Retail2020, 2015; Heinemann, 2017) (cf. Sect. 4.3). Direct ON4OFF project objectives are:

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• • • •

Establishment of a dialogue system with the management of the various sales channels, Capture the format and the data itself from the existing CRM and ERP systems, Development of the business logic with the associated mobile clients, Commoditization of complex data analysis procedures with a view to later platform application, • Establish a milestone concept that allows agile responses at almost any point in the field trial. Accordingly, an application that is manageable for SMEs and has a high chance of success is to be made available by the end of the project. In this specific case, Stadt-Parfümerie Pieper GmbH contributes industry know-how and data. The experience of the eWeb Research Center is a core element in creating an application that has a broad impact and can thus be transferred to other industries in NRW (ON4OFF project application, 2019; ON4OFF, 2021).

4.2.4 ON4OFF Work Packages and Project Phases The work in the ON4OFF project is divided into three phases, each of which is interlinked with a feedback loop, namely conception, implementation and testing, including the demonstration phase in the branches. This is supplemented by project management and organizational activities. Throughout the course of the project, the focus is always on subsequent commercial exploitation (see Fig. 4.13) (ON4OFF project proposal, 2019; ON4OFF, 2021). The conception phase concerns the design for seamless online-offline shopping, the resulting communication links and their control through AI and ACM integration (WP1). It is also about the realization of a solid back-end architecture (and its IT-technical implementation). This integrates existing databases from the CRM system, web shop and POS system with the ON4OFF software (WP2) (Ibid.). In the implementation phase, the developed concepts and architectures will be merged on the one hand into an application and communication package in the shopping store (WP3), which contains clients for salespersons and end customers, and on the other hand, the fusion from the existing ACM system with a wide variety of AI models into a new type of ON4OFF software will be realized (WP4). In the trial phase, the focus will be on personalized data analysis of end customers (using Pieper as an example), their evaluation, and the optimization of predictive AI models (WP5). The working group on data protection will also be involved to ensure that all legal requirements are met. To enable efficient interaction between all components of the system, the integration of all ON4OFF components (WP6) including testing with “test end customers” will be carried out before the system is available to real end customers in the

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Concept WP1: Concept development for a KL controlled, ACM structured and seamless online/offline purchasing system

WP2: Back-end architecture development for integration of databases and ON4OFF software

AP4: Creation of the ON4OFF software by means of Kl-controlled ACM process models and a user app

AP3: Development and construction of a multi-channel communication module

Testing WP5: Personalized data analysis and optimization of predictive KL models in the ON4OFF software

AP6: Integration and testing of all ON4OFF components

AP8:Projektmanagement und Organisation

Implementation

Demonstration phase WP7: Validation through demonstrators in the shop and ON4OFF transfer to other industries

Fig. 4.13  ON4OFF structure and work packages. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

store for field testing. This allows the identification of early error detections and avoids negative effects on the market for the project partner Pieper. Finally, the demonstration phase starts with demonstrators in practice. A successful demonstration will support the later exploitation by the participating companies and the associated partners in the best possible way. The work is to be given a strong practical orientation through the verification and validation of the concepts by means of demonstrators in a controlled environment (using the example of the “Pieper flagship store”). An analysis should also ensure the transferability to other industries (WP7). The individual work packages are as follows (Ibid.): WP1  – Work package 1: Concept development for an AI-driven, ACM-structured and seamless online/offline shopping: In this work package, a global concept for seamless online/offline shopping scenarios will be developed, which can be extended by artificial intelligence models and ACM business processes. In this context, different shopping concepts are analyzed and further developed, taking into account current IT and communication technologies and the framework conditions in store locations. The result is a concept plan and an ON4OFF system design, which cover planned online/ offline shopping scenarios. In addition, requirements documents and process diagrams

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are available, which serve as a basis for implementation. Furthermore, a specification of the data protection requirements is planned (Ibid.). WP2  – Work package 2: Backend architecture development for the integration of databases and ON4OFF software: This work package focuses on the development of suitable backend architecture through server concepts and interfaces for the integration of various databases (e.g. CRM system, web shop, POS system). It is especially important to find real-time capable and already standardized solutions, so that a fast implementation is possible. Test concepts for securing data, hardware and software functionality must be developed. The result is an ON4OFF back-end architecture with functional server systems for hosting the ON4OFF software, which include interfaces to existing data sources and to the communication module (Ibid.). WP3 – Work package 3: Development and construction of a multi-channel communication module: This work package focuses on the communication between the customer and the knowledgeable employee. The customer should be enabled to contact a free salesperson/agent (regardless of location) from both the web shop and the mobile app. Communication can take place through multiple channels (chat, voice, etc.). For this purpose, a user interface is developed that can be integrated into websites or apps. The appropriate salesperson is selected on the basis of their skills, their willingness and on the basis of the data learned by AI, and is supported in the communication by the recommendations of the AI. In addition, the salesperson has access to all available customer information, including their activity history. The result is a system component that enables intelligent communication between the salesperson and the customer (Ibid.). WP 4 – Work package 4: Creation of the ON4OFF software through AI-driven ACM process models and a user app: The various retail data must not only be collected centrally, but also structured and evaluated in a purchasing scenario-specific manner. This work package is about creating the ON4OFF software. This represents an efficient connection of all delivered retail data and the ACM process models. It provides for the integration of AI models (from WP5), which in turn form the basis for decision-making and dialogue guidance on the tablet for the sales staff. The result is a prototypical end customer app as well as the creation of the ON4OFF software with ACM, AI functionality and app connection. WP5 – Work package 5: Personalized data analysis and optimization of predictive AI models into the ON4OFF software: This work package provides for the development of machine learning models by analyzing real end customers. Of particular importance here is obtaining the consent of end customers, which is already covered in the application process for the Customer Loyalty Card. The analysis of possible AI models and algorithms (customer classes, recommender systems, etc.), but also their reasonable integration into ACM process models (WP4), must be considered. In addition, the establishment of a legal working group is planned, since a diffuse and partly unstructured amount of data is to be assumed. The result will be analyses of end customer data for the creation of personalized digital twin models by machine learning algorithms.

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WP6  – Work package 6: Integration and testing of all ON4OFF components: Coordinating the components developed by heterogeneous and different parties is one of the most sensitive tasks in a collaborative project. This involves an effort that should not be underestimated and requires, among other things, bilateral meetings to achieve consistency of all processes, the data to be exchanged and the security aspects (Ibid.). The result is a smooth interaction between all components that have been coordinated and thoroughly tested. WP7  – Work package 7: Validation through demonstrators in the store and ON4OFF transfer to other industries: In this work package, all developed concepts and prototypes are brought together and validated using various methods. This is done using the example of Pieper with the involvement of end customers in a real or realistic “flagship store” environment. The demonstrators provide important information on optimizations that are still necessary and enable the identification and evaluation of successful concepts that can be transferred to other industries. The results are the construction and equipment of the “Pieper flagship store”, analyses of the performance of the developed ON4OFF software in the overall system with end customers, and the transfer evaluation to other industries. WP8  – Work package 8: Project management and organisation: In addition to the overarching tasks of technical project management and the overarching function of controlling the entire IT development process, this work package also includes the broad-based communication of project activities and results (workshops, working groups, publications, trade fairs/conferences, transfer of results). The result is the adherence to the project goals as well as the time schedule (Ibid.). During the demonstrations, it is planned to implement the ON4OFF software design for various defined shopping scenarios in a “Pieper flagship store” and then evaluate them for transferability to other industries. This makes it possible to selectively emphasize or selectively omit aspects in order to enable a more objective validation of the ON4OFF software. This is necessary against the background of the specific end customer analysis, the interaction of trained sales staff and tablet GUI as well as the measures for assisted and partially automated dialogue guidance in the store (Ibid.). Following the research project, the ON4OFF application is to be brought onto a platform by an operating company, further developed to product maturity and distributed on the market. With the shareholders adesso and IN-telegence already in place, they will be able to optimally combine the IT and customer dialog expertise of both companies, place the employee and administrative resources on a solid foundation, and leverage the broad market and customer presence already in place. With the introduction and implementation of new products and services, both companies have already proven that they are campaign capable and able to conquer markets with new offers (Ibid.). In the medium term, the project partners involved are also counting on the fact that further development of the ML modules will open up access to other industries that have a similar need for support in dialogue processes – e.g. in the area of customer support and in consulting-intensive service industries. For the academic partners, scientific exploitation potentials arise from the application of the ACM and AI methods to

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a new application domain and from gaining insights into the synergies from the combination of the two research areas, which can serve as a starting point for a series of further publications and research work (Ibid.).

4.2.5 ON4OFF Milestone Planning and Overall Objective Since the realization of the described ON4OFF work packages requires extensive R&D work as well as applications in stationary retail, the project was designed to run for three years. A shorter time frame would not provide sufficient opportunity to adequately address the conceptual challenges in detail and to build the ON4OFF application prototype for a meaningful practical evaluation in stationary retail. The specified timeframe takes into account that new ground is being broken, particularly in the use of machine learning in stationary retail and in the structured linking with adaptive case management. The sequence of work packages including milestone planning is described in the diagram in Fig. 4.14. The project fulfills the following overarching goals:

1. year

Work packages with short description

1 2

3 4

5

6

7

2. year

3. year

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

1 Concept development 2

Back-end architecture Multi-channel

3 communication ON4OFF Software &

4 ACM

Personalized Kl

5 Models 6 Integration & Test Validation &

7 Demonstrators 8 Project Management

Milestone

Month Description

M1

6

M2

12

Detailed ON4OFF system architecture, KL model selection and interfaces to defined data sources

M3

18

First version Kl and ACM modules implemented for integration with ON4OFF software system

M4

24

Integration of all modules and components in ON4OFF software completed and tested with test customers

M5

30

function of initial application trap demonstrated on ON4OFF prototype in store & feedback started

M6

36

Evaluation of successful application trap and ON4OFF software deployment for other industries completed

Data sources from application partner pieper examined and concrete end customer application case defined

Fig. 4.14  ON4OFF milestones. (Source: ON4OFF project proposal, 2019; ON4OFF, 2021)

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Promoting Technological, Economic and Social Innovation ON4OFF offers the opportunity to make innovative AI approaches for the retail industry tangible and understandable and thus also cushion the “fear of the unpredictable”. Through various use cases, which are tested in particular in WP 7 in different stores of the application partner (Pieper), other retailers can test these scenarios live and capture customer reactions. The benefits resulting from these new approaches can thus be better estimated by companies. This is all the more important because innovations in this field have a holistic effect and can encompass technical (innovative technology such as machine learning, new IT solutions), economic (expanded and possibly even new business models) and social aspects (new service and communication concepts) and thus influence the entire current business model (ON4OFF project application, 2019; ON4OFF, 2021). Improving the Innovative Capacity of Companies In the ON4OFF project, various retail data is collected centrally and evaluated by means of the integration of AI models (machine learning). The evaluation is carried out on the basis of anonymized data, because the aim here is to recognize correlations and patterns related to the entire customer group and not to identify sales patterns of individual persons. The data thus provides real-time information that can be used not only by the sales consultant in the store for targeted recommendations, if the customer so desires. Rather, continuous real-time analysis also makes it possible to identify buying patterns that were previously inaccessible to individual companies. Companies can thus react much more quickly and agilely to changes in customer behavior, arrange their merchandise in new ways, develop personalized services, and much more. If, in addition, the ON4OFF approach is not considered in isolation for each retail company alone, but is applied to larger units such as shopping centers with different stores as well as entire cities, then completely new insights and patterns emerge that can have a positive effect on the innovative ability of larger units. This concerns, for example, the interaction of retailers in inner-­ city areas (Ibid.). Networking of Partners Within Value Chains The networking of the partners within the value chain ranges from the creation of individual components to the integration of these components into an overall system (back-­ end system, demonstrator for validation) to the testing of defined scenarios in designated stores of the application partner: First, all partners develop a detailed vision of the intended ON4OFF overall system and formulate the application scenarios/use cases to be realized in detail. On the level of individual components, ON4OFF addresses in particular communication components of the multi-channel communication of the company IN-telegence, of ACM process models of the University of Duisburg-Essen (paluno) and of machine learning models contributed by the Research Center Jülich. The individual components will be combined into a complete system (demonstrator) by the back-end system developed by adesso AG.  Pieper will test the developed ON4OFF platform for validation in selected store locations and do the necessary work to connect the systems to its own

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infrastructure. The associated project partners Dustmann, Zurbrüggen as well as Thalia will ensure the transfer to other areas of the retail trade through their consulting activities. The cooperation partners IHK zu Dortmund and Allianz Smart City Dortmund ensure the broad transfer of the project results. And finally, the eWeb Research Center of the Niederrhein University of Applied Sciences accompanies the entire project with scientific expertise in the field of eCommerce and retail (Ibid.). Opening Up New Markets and Raising the Profile of NRW as a Business Location With annual sales of around EUR 16 billion and over one million employees, the retail sector in NRW is one of the largest industries in North Rhine-Westphalia. It contributes around 12% to the gross value added of NRW, according to the NRW Ministry of Economic Affairs, Innovation, Digitalisation and Energy (Wirtschaft NRW, 2021). The digital transformation of retail is seen as a key growth driver for this sector in NRW. The ON4OFF project contributes to this in a special way. It goes beyond the discussion of multi- and omni-channel communication and incorporates innovative technologies and concepts such as AI and machine learning approaches. This is intended to intelligently link the online and offline shopping worlds and create added value, especially for offline shopping. The knowledge built up, the implementation scenarios developed and the use cases will subsequently be applied by the consortium in both customer projects and research projects and demonstrated at scientific conferences and practice-oriented trade fairs. The cooperative collaboration in the consortium with key scientific partners and relevant retail stakeholders will also strengthen the competitiveness of the retail sector in NRW (leverage effect). The publication and dissemination of the results and findings will directly benefit NRW as a business location because, on the one hand, further scientific work will be initiated and, on the other hand, the results will be directly available to all economic players. Due to the locations of the project partners in NRW (main locations Dortmund, Essen, Cologne, Aachen, Mönchengladbach), there are short distances and local proximity to interested market participants (ON4OFF project application, 2019; ON4OFF, 2021). Securing and Expanding Living Wage Employment The ON4OFF project addresses a highly innovative topic that combines the digital transformation of retail with topics such as artificial intelligence, machine learning and adaptive case management and integrates them into the customer dialogue. Currently, the retail industry is at the beginning of this development. The project will set the course for whether this industry in NRW, with over one million employees, can continue to be the growth driver of the NRW economy. The employment structure in the retail sector – especially in offline shops – is predominantly female. The ON4OFF project can therefore make a special contribution to ensuring that these female employees will continue to have a job in the future, because the bleeding of inner cities through the closure of offline stores can be counteracted. Furthermore, these employees will be qualified for the new digital challenges, which will even significantly strengthen their employability in the digital age. ON4OFF also offers these employees new opportunities to communicate with their customers, who can redefine their role there (Ibid.).

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4.3 Retail Digitization Projects: Lessons Learned Even before the Corona crisis, rising online retail sales made it difficult for bricks-and-­ mortar retailers to maintain their downtown stores. Many consumers prefer online retailing due to factors such as convenience, independence from store opening hours and the diverse range of products available. Accordingly, various digitization projects of the retail sector had the goal of developing inner-city measures to minimize the migration of consumers to online retail. A research project funded by the state of North Rhine-Westphalia and carried out by the WFMG and the eWeb Research Center of the Niederrhein University of Applied Sciences was intended to explore precisely this problem. The overarching goal of this project, “MG.Retail2020”, was to identify the effects of online retail on cities and communities in North Rhine-Westphalia as well as perspectives for action for inner-city stationary retail. The aim was also to develop concepts and strategic recommendations for stationary retail that would help it to cope with the irreversible development of the digitalisation of retail. The project led to the follow-up project “Mönchengladbach at eBay”, which was carried out by the WFMG under the scientific supervision of the author. The success of this pilot project prompted eBay, together with the HDE, to award another city for the same connection to eBay. This gave rise to the “Digital City Centre” initiative, which was linked to a competition won by the city of Diepholz. The result was “Diepholz on eBay”, which was the prelude to further eBay initiatives. Without a doubt, however, Online City Wuppertal is considered the pioneer of all digitalization projects for local commerce.

4.3.1 Project MG.Retail2020 to Strengthen Stationary Retail Trade The cooperation project “Impact of online retail on cities and municipalities in NRW and prospects for action for inner-city stationary retail”, which was launched in 2014, aimed to develop sustainable measures for inner-city retail in NRW. On the one hand, these should underline the entry of online retail into stationary stores, on the other hand, they should promote purely stationary offers or the expansion of inner-city logistics concepts. In principle, the measures should be applicable to German inner cities. The cooperation partners WFMG Wirtschaftsförderung Mönchengladbach and eWeb Research Center of the Niederrhein University of Applied Sciences also pursued as goals the preservation and creation of jobs in stationary retail, the safeguarding of the competitiveness of stationary retail in the municipalities, and the sustainable development of inner cities (WFMG, 2015; Heinemann, 2017). Using the example of the pilot city of Mönchengladbach, recommendations for action were derived and a guideline was developed, which also includes substantiated results from a consumer and retailer survey. Over a period of 18  months, workshops were held for local retailers in cooperation with the Mönchengladbach and Rheydt city managements and the participating project partners. The recommendations

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developed from this included, for example, special service and event offers in a combination form of online and offline retailing. In this respect, the focus was on multi-channel considerations, online options for stationary retailers and possible digital services. In this respect, the different conditions of stationary trade, such as owner-operated shops versus chain stores, forms of operation as well as shopping centers were to be taken into account. The aim was to develop feasible concepts for how city centers can adapt to the changed conditions in the retail and service sectors. The pilot municipality was to be the city of Mönchengladbach with its approximately 270,000 inhabitants, which was created in 1975 from the independent cities of Mönchengladbach and Rheydt and the municipality of Wickrath. This history explains the existence of two inner city areas, of which Mönchengladbach-Zentrum is the larger and Rheydt the smaller. In the analysis and survey, a distinction was always made between these two micro-locations. The recommendations for action or inner city guidelines were to be developed within the development project for the entire pilot city of Mönchengladbach and subsequently be transferable to other regions in NRW. The results of the project are actionable recommendations for the city, the state, associations and stationary retailers. They enable a sustainable development of the inner cities against the migration of consumers and are specifically designed to ensure the survival of stationary trade as well as to be able to react sensibly to the increasing threat of online trade. The project kick-off took place in January 2014. After consensus, a project name and logo “MG.Retail2020” were chosen. “MG” is an abbreviation for Mönchengladbach, the dot symbolizes an affinity with the Internet, and the year “2020” characterizes the point in time up to which the contents of the guideline should be applied. The project organisation consisted of a steering committee, which included the project managers, the management of the Mönchengladbach Economic Development Corporation and the management of the eWeb Research Center of the Niederrhein University of Applied Sciences, as well as an advisory board. The latter consisted of the steering committee as well as representatives of the Mönchengladbach retail trade, the Rheydt City Management, the City Management Mönchengladbach as well as chain stores (Engbers), e-commerce experts (Shopmacher) and shopping center operators (mfi). The public kick-off and official start of the project was on 20 February 2014, when the joint meeting with the advisory board and subsequent press conference took place on the premises of WFMG. Project partners and participants were introduced. The project and time planning provided for four phases. In these phases, inner city guidelines with concrete recommendations for action were developed systematically and with the involvement of all affected and relevant stakeholders, such as representatives of the retail trade, the municipalities and the property owners. The special feature in this development project was the linking of scientifically sound, theory-based data collection on the one hand with immediately implementable operational measures on the other (MG.Retail2020, 2015; Heinemann, 2017). Phase 1: Conception of the Research Design and First Expert Interviews  In this first project phase, the research design was conceived and first expert interviews were

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conducted. The planned duration for this was two months. In the process, initial retailer interviews were also conducted in which the reactions of retailers to the perceived threat posed by online retailing were determined. The most common reaction patterns identified were: • Giving up/doing nothing: Competing with online retail is seen as pointless and unfeasible. Ignorance or abandonment are the most common conclusions from this assumption. • Saving costs: In order to be able to keep up with the price pressure from the Internet, costs are to be saved in personnel and store design. • Going online: Drive customers from the internet to the store through an online presence (website, online store, social media activity, etc.) or even open up new sales channels via the internet. • Multi-channel elements: Several sales channels should be used and combined to offer the customer the most pleasant shopping experience possible. • Strengthen stationary advantages: The weaknesses of online retail are the starting point here. They need to be addressed in order to use them more intensively for highlighting the advantages of stationary retail. Serious examples of these strengths include friendly and competent specialist advice, haptic feedback and the stationary shopping experience. Phase 2: Qualitative Survey  The second phase of the project, which had a planned duration of five months, was concerned with conducting the qualitative part of the survey. The main content was a focus group survey with retailers and customers from Mönchengladbach. To this end, four groups of customers were initially put together, two of whom came from Mönchengladbach and two from Rheydt according to a predefined quota system. This took into account age differences, online and offline purchase shares, inner city knowledge, occupations according to part-time or full-time as well as pupil, student and pensioner shares. Three trader groups were then formed, each represented by six to eight people. For the qualitative survey with the traders, three focus groups were formed, one each with solitary traders from Mönchengladbach, one with solitary traders from Rheydt and one with chain stores. The recruitment of the traders was supported by WFMG. The organisation, conception, implementation and evaluation of the focus groups was carried out by the eWeb Research Center. Particularly informative was the customer perspective gained in the process, which is shown in Fig. 4.15 (Ibid.). Phase 3: Quantitative Survey with Parallel Measures in Retail as a Practical Test  With a duration of eight months, the third project phase formed the core of the project. The aim was to conduct a quantitative main study based on the results from the first two phases. The collection of quantitative data took place in the period from 27 January to 21 February 2015 and was carried out via a hybrid survey of participants. This involved combining an online survey with a traditional telephone interview. The purpose of this combination was to reach individuals not included in the online panel in order to meet quota requirements. In order to achieve a representative composition of the sample, quotas

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4  Examples for the Stationary Retail Trade of the Future Visits to the city centre between meeting needs and leisure activities

Meeting demand

“I want something see”

Free time

“The city shall dress up, so that I could visits”

Fast shopping

Shopping as a leisure activity and as a social Interaction and component of being human “I buy, therefore I am.”

Short distances, clever Traffic routing

Attractive branch mix, no vacancies/ Low-cost supplier

Cheap/free Parking

Very high relevance of the quality of stay (Gastro, flowers, water, seating and resting facilities)

Low relevance of Quality of stay

Additional experience (regular events, Events)

Competence beats Kindness

Personal, friendly advice in barrier-free Shops (attractive shop window, seating, children’s play area, toilets etc.)

High competition from online Trade

Competition with other recreational activities, less on online trading

Fig. 4.15  Customer perspective of a visit to the city centre between meeting needs and leisure activities. (Source: MG.Retail2020, 2015; Heinemann, 2017)

were set for the characteristics gender, age, household income as well as place of residence. Half of the participants came from Mönchengladbach, the remaining participants from the surrounding area. In addition, the persons surveyed were supposed to know each of the surveyed districts of Mönchengladbach and Rheydt. A further requirement was that the participants had previously made at least one purchase online. A total of 1002 people took part in the survey. In order to enable an accurate interpretation of the results, the participants were divided into groups according to their shopping frequency. This resulted in a division of inner city users (Mönchengladbach) as well as Internet users into frequent users, regular users and infrequent users. The largest group of inner city users is made up of light users with a share of 46.1%. Downtown infrequent users are characterized by being predominantly from the surrounding area and living in a one- to two-person household. They shopped in Mönchengladbach city centre once every two to three months or rarely in the last twelve months. The second largest group of city centre users are regular users (41.5%) who shop in the city centre once to several times a month. They are predominantly male and live in Mönchengladbach. ­Frequent users are the smallest user group with 12.4%, who shop in the city centre at least once a week or even daily. Viel users are predominantly male and live in Mönchengladbach. This user group has the largest proportion of pensioners. The largest group of Internet shoppers are regular users, with a share of 52.5%. These users made six to thirty purchases on the Internet in the last twelve months. Regular users of internet shopping are mostly from the surrounding areas. Additionally, it is the Internet user group that has the highest percentage of 18–29 year olds. The majority of regular and frequent users of Internet shopping have a college degree. Another commonality between the two user groups is the relatively high proportion of smartphone owners (over 70%). Frequent Internet users shop online 31 to more than 50 times a year.

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In addition, frequent users live predominantly in the surrounding area and, with the highest proportion of 30–39 year olds, are somewhat older than regular users. The group of infrequent Internet users is the second largest with a share of 31%. Those in the group made between one and five purchases on the Internet. This group has the highest proportion of 40–69  year olds and predominantly lives in a one to two person household in Mönchengladbach. This group is also characterised by the lowest number of high school graduates (Ibid.). When assessing the attractiveness of the city centre for shopping, the results for Mönchengladbach and Rheydt were similar. In response to the question “How attractive do you find the city centre for shopping?” the participants could choose between 5 for “very attractive” and 1 for “very unattractive” on a scale of 5 to 1. The average rating for Mönchengladbach is 3.03 and for Rheydt 2.97. The ratings for the practicality and recommendation of the city centre for shopping are also close to 3. Furthermore, no significant differences in attractiveness ratings could be found between demand and leisure shoppers of the city centre and the internet (Ibid.). The participants were able to rate the importance of city centre attributes for a typical shopping trip on a scale of 5 for “very important” to 1 for “not at all important”. In this respect, Fig. 4.16 shows a comparison of the ratings of importance for the participants from Mönchengladbach and the surrounding area. It is striking that attributes such as opening hours, article selection, brand selection, accessibility of the city centre and a

Importances according to MG & surrounding area 1 Cleanliness*** 1

2.5

3

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2 Opening hours2

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Surroundings

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5 Shop window figure. 5 6 Gastronomy

Conclusion Cleanliness

3.74

Article selection Brand selection

3.23 3.29

7 Available. Parking spaces*** 7

3.2

8 Accessibility public 8 transport ÖPNV 9 Advice in the shop 9

Available parking spaces

3.59

Pleasant atmosphere

3.84 3.95 3.44 3.49

10 Domicile City10

is the respondents living in the MG area significantly more important

3.12 3.25

11 Public toilets11

13 Ang. Atmosphere***

3.96

3.32 3.4

6

12 Game corners 12

4.5

than the Persons interviewed

2.7 2.83

reside in MG 2.34

2.41 3.42

3.65

*** Significant differences in importance according to place of residence MG and surrounding area, significance level 0.000

(Differences between variables are said to be highly significant (***) if the probability that they are would occur by chance in this way, does not exceed a threshold of 0.1%)

Fig. 4.16  Importance of downtown attributes. (Source: MG.Retail2020, 2015; Heinemann, 2017)

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pleasant atmosphere in the city centre are most important to the participants. Play corners and public toilets, on the other hand, were rated as less important. Highly significant differences between the respondents living in Mönchengladbach and those from the surrounding area were found for the attributes cleanliness, product selection, brand selection, available parking spaces and pleasant atmosphere. If customers are to be attracted from the surrounding area, particular attention should be paid to these attributes, which can be influenced in part by retailers, but also in part by local authorities (Ibid.). Parallel to the quantitative evaluations, moderated workshops on various topics were held with both retailers and consumers. These enabled the development of experimental measures with a high innovative claim and regionally independent implementable statement. Phase 4: Development of Guidelines for the City Centre  In the fourth project phase, for which three months were planned, the focus was on the development of the city centre guidelines. However, the evaluation of the analyses with traders and customers showed that traders did not show the same degree of willingness to face the issue of change in retailing due to the influence of e-commerce. It is true that some retailers are already active on the Internet in various forms. However, other retailers exhibited attitudes towards their business that were clearly not conducive to stationary success. For example, opinions were expressed which, in a kind of self-realisation, put the retailer himself at the centre of the action, but not the customer. Still other retailers point to successful displacement mechanisms, whereby the reason for the migration of customers to online retailing is placed in a completely different place  – such as politics or city administration. Consequently, this resulted in an attitude in which retailers do not see themselves as being forced to take action, but also see this responsibility rather with the city or politics. Accordingly, measures did not affect all traders equally. However, meaningful, supportive measures can only be derived for retailers who are also fundamentally healthy in the stationary business and have a perspective for their retailer existence. For this reason, the retailers were divided into four groups based on their digital transformation capability, regardless of their type and size of business, which correspond exactly to the groups described in Sect. 3.1. The guidelines address the different concerns and requirements of the groups in a differentiated manner. They give concrete recommendations for all project participants against consumer migration and contain concrete measures with practical solutions for the retail trade in Mönchengladbach. At the same time, the recommendations for action are structured in such a way that they can be transferred to other municipalities (Ibid.). Analysis Results and Guidelines from mg.retail2020 The central result of the survey was that consumers do not differentiate between experience or necessity shopping when it comes to assessing online retail and city centre shopping. However, shopping online was perceived as more attractive than shopping in the city centre of Mönchengladbach by all groups. This refuted the central initial thesis derived from the qualitative study, according to which the threat potential of online retailing for the city centre is to be differentiated according to experience and need orientation. With regard to the attributes of a city centre, it was obviously a matter of seemingly banal things

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that nevertheless reflect basic needs. Thus, seating facilities, inexpensive eating facilities as well as toilets also played a role in the assessment of city centres. Furthermore, there are significant differences between the respondents from Mönchengladbach and the surrounding area in their assessment of the importance of cleanliness, article selection, brand selection, available parking spaces and a pleasant atmosphere in the city centre. The listed attributes of a city centre were more important to the respondents from the surrounding area than to the respondents from Mönchengladbach. This was understandable, as they invested more time in the journey and therefore expected more. In addition, people from the surrounding area rated the number of open Sundays and the opening hours in Mönchengladbach worse than people living in Mönchengladbach. The majority of intensive online shoppers came from the surrounding area. They rated the selection of brands, the range of products, the opening hours, the short-term parking situation and the accessibility by bus and train in Mönchengladbach worse than other groups. This then also explained the preferred purchase on the Internet. City centre shoppers from Mönchengladbach rated the accessibility by bus and train worse than the intensive users of the city centre. The latter, however, considered the atmosphere of the city centre in Mönchengladbach to be significantly worse than the city centre muffleurs. In general, there was a desire for more digital communication. The intensive users of the Internet mainly informed themselves about products online and wanted more digital communication from the shops in the city centre. In addition, the inner city shoppers in Mönchengladbach also expressed the desire for more online information about offers from the shops in the inner city. They also wished for more online shops from the stationary city centre retailers. The results of the empirical study gave the important indication that ordering online is clearly more attractive for all customers than shopping in the city centre. Even those who still shopped in town centres wanted more digital communication from the town and information about retailers available online. It followed that a retailer’s offer structure that is exclusively analogue and stationary will no longer be competitive in the future. In addition, all retailers can also exploit their stationary advantages if they use the possibilities of the Internet for acquiring new customers, customer care and ultimately also the conclusion of a purchase. First, however, a distinction had to be made as to which retailers would benefit from further promotion (Ibid.). No Further Action for Traders Without a Perspective  Traders without a perspective are characterised by the fact that they exclusively blame the development of online trade for their difficulties without taking a good look at themselves. However, a closer look reveals that the problems often already lie in the elementary business understanding of these retailers. They have no understanding of the customer, cannot offer a personal atmosphere and also do not know exactly why customers actually come to them. These “entrepreneurs” are more or less “resistant to advice” and cannot be reached by measures either, as they lack the will to change. They are actually even aware that their difficulties are not solely due to online retailing, but do not want to admit this. Basically, these retailers are advised to remain exclusively stationary or analogue and to shrink the store in a healthy way. In doing so, cost reduction through renegotiation with the landlord is also advised (Ibid.).

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Identify Merchants with a Clear Value Proposition for the Customer  Priority should be given to identifying and addressing merchants who have a clear idea of why customers come to them and what benefits they offer. These merchants have usually already dealt with the online issue. They often know their customers personally and understand how to nurture those bonds as well. These types of dealers are the focus of the dealer-oriented measures. To this end, a plan of action has been developed comprising seven stages. These correspond exactly to the stages 1–7 described in Sect. 3.1 without stage 8. Without a local connection, the advantages that a retailer can play out online are small and differentiation via price is then obvious. Local marketplaces could combine the strengths of online retailing with the strengths of bricks-and-mortar retailing and enhance it with added value from the customer and retailer perspective  – this is the thesis. For this reason, various local marketplaces were analysed as part of the recommendations for action in order to find an acceptable solution for stationary retailers that would enable them to be found locally on the Internet on a larger scale. The marketplaces were compared with each other both from the customer’s and the retailer’s point of view. The focus of this investigation was on awareness, usability, added value and trustworthiness of the respective platform. The selected marketplaces had to be transaction-based, have a local reference and present a suitable suitability and relevance (Ibid.). Marketplace Connectivity for Local Merchants  As part of mg.retail2020, a selection and evaluation of relevant online marketplaces was carried out in order to identify a suitable partner for the stationary retail trade and to be able to give a concrete recommendation for action to retailers in Mönchengladbach. Based on numerous researches and on the criteria of media presence, market relevance as well as search volume and trends, a longlist of more than 100 marketplaces was first created. After pure city portals and platforms without a transaction orientation were sorted out, a shortlist of seven online marketplaces emerged. Simply Local and Locafox had the special feature that the retailers participating there require their own online sales channel (as of April 2015; Ibid.): eBay  eBay clearly played to its strengths in terms of awareness and reach, but it was also able to convince with high ratings in the other categories. Only in terms of multi-channel services and the presentation quality of the respective merchant did eBay score below average. eBay’s greatest strength was also one of its greatest problems, because although its high profile meant that there were more customers, it also meant that there were more local retailers, which in turn could lead to an intensified price war. eBay Local  eBay local was an eBay pilot project that had already been tested in Brooklyn before the project. Essentially, eBay local addressed eBay’s weaknesses and attempted to create a stronger local connection by means of expanded multi-channel services and improved merchant presentation. This alleviated the major competitive and pricing pressures. In this way, local products could be compared preferentially. Atalanda  Atalanda was a local marketplace platform that was already used in Wuppertal. The strengths of this platform lay in the comprehensive presentation of the retailers and the numerous multi-channel services. The weaknesses were the product range coverage, the reach and the channel affinity of the customer base.

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Sugartrends  Sugartrends also focused on merchants and therefore also had an extensive merchant presentation. Special emphasis was placed on unusual retailers and products, which is why a contemporary design and a high channel affinity of the customer base were of great importance. At the same time, however, a low product range coverage was accepted, which led to a relatively low reach. Multi-channel services were also below average. Here-bei-dir  Here-bei-dir (HBD) pursued a similar approach to Sugartrends and therefore scored largely similarly. Only in the connection to the existing shop and the type of contact to the merchant did HBD show greater weaknesses than Sugartrends and therefore fell in the rating. Unitcity  Unitcity started with a pilot project in Herzogenaurach and had an extensive repertoire of multi-channel services. All of the additional content offered focused on local relevance and the associated benefits. In addition to the extensive presentation of the city and the respective businesses, services in the direction of e-­government were to be offered. Reach, awareness and stability, however, spoke against Unitcity, because it was not yet known whether all the advertised features could be fulfilled. The presentation and inflexible formatting were also negative factors in the evaluation.  An expert panel with representatives from business and research under the leadership of the eWeb Research Center evaluated the seven online marketplaces that were ultimately relevant on the basis of a catalogue of criteria, whereby ten criteria each were taken into account equally from the retailer’s and the customer’s point of view. The individual evaluations were incorporated into a final ranking using a scoring model and ­ultimately led to a final recommendation for action. eBay and eBay local were the clear winners, as can be seen in Fig. 4.17 (Ibid.). 100 90 80 70

75

73 62

64

60

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40

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40

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28 20

10 0

eBay

eBay local simply local

locafox

Customer view

Atalanda / Sugartrends Here-You-Go Initcity OCW Dealer view

Fig. 4.17  Scoring model, overall summary of total score divided into dealer and customer view. (Source: MG.Retail2020, 2015; Heinemann, 2017)

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4  Examples for the Stationary Retail Trade of the Future

4.3.2 Mönchengladbach on eBay The idea of cooperating with local retailers in Mönchengladbach also quickly generated a positive response at eBay. It was a good fit with the company’s strategy on the retailer side. Small and medium-sized retailers were and are the main drivers of the unique breadth and depth of the product range. They are responsible for a large part of eBay’s sales. The fact that many stakeholders in the region actively participated in the cooperation under the common umbrella of MG.Retail2020 was also a particular plus point from eBay’s point of view. In particular, the Mönchengladbach Economic Development Corporation (WFMG) also had the necessary resources to jointly manage a regional project. In addition, WFMG had direct contacts to Mönchengladbach retailers and sufficient know-how. The potential cooperation partners also agreed on the project’s goals right from the start: The planned cooperation between eBay, Wirtschaftsförderung Mönchengladbach GmbH (WFMG) and the eWeb Research Center of the Niederrhein University of Applied Sciences was intended to support local retailers in making their product range available online as well. Other project partners included the HDE, the IHK, the Mönchengladbacher City Management e. V., the Rheydter City-Management Interessengemeinschaft e. V. and the Marketing Gesellschaft Mönchengladbach mbH.  In October 2015, the pilot project started just in time for the Christmas season with more than 50 retailers and five chain stores as well as over 200,000 products. Under the title “Mönchengladbach on eBay”, the local retailers were given the unique opportunity not only to profit strongly from the booming online trade, but also to offer their customers real added value over the long term compared to other market participants. The cooperation was designed from the outset as a pilot project with a limited term of ten months. Between October 2015 and July 2016, findings were to be collected on customer and retailer benefits. Whether and in what form the marketplace should subsequently be continued or expanded to other cities was deliberately left open at the start of the project. At the same time, the project participants ensured that certain core responsibilities were anchored locally for the sake of sustainability and with a view to a possible continuation. These included, in particular, dealer acquisition, the organisation of exchanges with participating dealers and local consumer marketing. In addition, eBay provided the technical component of the online marketplace, assumed the costs for a twelve-month basic shop subscription and created its own entry page with a local visual reference under the URL www.mg-­bei-­ebay.de (cf. Fig.  4.18). To make it easier to get started, the merchants participating in the pilot project received a start-up package. This consisted of eBay start-up advice and, if required, tool support from Inventorum, which offered an iPad checkout system with eBay integration. Starting in the fall of 2015, consumers could access listings from Mönchengladbach merchants via an entry page for “Mönchengladbach on eBay.” Items could since be ordered online and picked up at the local retailer. However, customers also had the option of having a large proportion of the goods conveniently delivered to their homes. Interested retailers from Mönchengladbach were to be presented on the platform and market their offers on “Mönchengladbach at eBay” specifically to consumers in Mönchengladbach. This gave stationary retailers

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Fig. 4.18  The entry page of “Mönchengladbach bei eBay” and landing page with dealer shops. (Source: Zoll & Marks, 2016; Heinemann, 2017)

access to an online and mobile sales channel. In addition to consumers in Mönchengladbach, they thus potentially reached all active eBay customers in Germany and the world (MG. Retail2020, 2015; Heinemann, 2017). Result and Success Factors of “MG at eBay” The majority of the participating merchants on the online marketplace were involved in e-commerce for the first time. However, many of them were able to record significant increases in sales after only a short time. In the first three months after the project launch, 70 participating retailers sold 32,000 items and turned over more than EUR 1.1 million on eBay. By mid-2016, nine months after the project’s launch, sales had already reached EUR 3.2  million, generated by 87,000 items from 79 participating retailers. The merchants delivered their items not only to Germany, but to 84 different countries, including Sweden, Italy, France and Austria. But even far-flung markets such as Guadeloupe or New Zealand were served. Including seasonal effects, the total turnover for the first year after the start of the project was five million euros. On average, the active traders had around 450 items on offer and thus achieved an average turnover of around € 90,000 p.a. on “MG on eBay”. For the top 3 newcomers, annual sales in the clear six-figure range could even be calculated. But the experience of the participants was also positive: “We were able to generate more traffic and sold many more items overall than without the platform. Some of them even as far as Sweden,” said one retailer (Zoll & Marks, 2016; Heinemann, 2017). By the end of 2016, the 79 retailers had sold a total of more than 160,000 items with a total value

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of more than EUR 6.7 million since the project started in October 2015. The majority of the participating marketplace partners initially stayed on after the pilot phase. However, half of the marketplace partners dropped out again after the end of the starter support, which they would bitterly regret at the latest during the first shutdown in 2020. Based on the pilot phase, central factors of the project “MG bei eBay” could be derived in the following, which were decisive for the success of “Mönchengladbach bei eBay” so far (Ibid.). Accepting Change  The key to successful participation in “Mönchengladbach bei eBay” was the realisation on the part of retailers that “online” is an irreversible trend. This meant that there was also a willingness to show a presence on all channels. According to participating retailers, the market and consumer behaviour are changing, so that you either join in or go under (Zoll & Marks, 2016). Profiting from Agility  Small retailers were faster and more flexible than large chain stores. Many of the smaller retailers were able to make a large part of their assortment available on eBay within a few days or weeks after the decision was made, which usually takes chain stores much longer because of all the process changes. “With this project, the Mönchengladbach traders now have the chance to be at the forefront of a trend that is unstoppable,” says Andree Haack, Managing Director of IHK Mittlerer Niederrhein Existenzgründung und Unternehmensförderung (Ibid.). Using the Reach of Online Marketplaces  As soon as a trader had placed his online offer on “Mönchengladbach on eBay”, he also reached users in Berlin, London or New York. Only the packaging and shipping of the items means additional expense, but the additional sales potential is significant. Of the participating dealers, quite a few have sales to over 80 ­countries, including Guadeloupe and New Zealand. Building on Established Partners  The effort that merchants had to make by digitizing their offer should also be compensated as quickly as possible through sales. These could be generated more quickly in the short term on an established online marketplace with low barriers to entry. “By being present on eBay, we were able to tap into a larger customer base. Of course, we also benefit from the ‘eBay’ name and the reach that online presence gives us. It has given us a shop window that we did not have beforehand” (Zoll & Marks, 2016; Heinemann, 2017). Gaining Efficiency Advantages with an Inventory Management System  Local retailers in Mönchengladbach showed a certain backlog demand for merchandise management systems that record online and offline assortments in an integrated manner. Most of the participating retailers worked exclusively with the eBay seller tools. Therefore, there was no automated synchronization with the store inventories. From the point of view of the project partners, the introduction of an inventory management system should therefore be the next step for the pilot retailers in order to avoid duplicate sales and gain efficiency advantages. Creating Low Entry Thresholds  “Low entry thresholds make it easy for online laypeople to get involved in ‘Mönchengladbach on eBay’,” says Peter Achten, General Manager of Handelsverband Nordrhein-Westfalen e. V. (Zoll & Marks, 2016; Heinemann, 2017). That is why the costs for the eBay presence were also waived for the first year and

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the retailers’ photos in their retail stores were financed for the presentation on the online marketplace. Dealers also received free eBay start-up advice in the form of live webinars. “eBay’s support has made it very easy for us to list items. This again increased the desire to try online selling,” says a participating trader (Ibid.). Trusting Local Contacts  The existing trust of the dealers in the local project partners was critical to success. This was the only way to win over 50 dealers for the start of the project in a short time. The personal dialogue was particularly effective with the newcomers. A participating dealer said: “We have been involved in the pilot project since it started and did not have an online shop before. ‘Mönchengladbach on eBay’ is therefore the first step into the online world for us” (Ibid.).  Establish a “caretaker on site”  WFMG provided resources for “Mönchengladbach on eBay” from the very beginning. A dedicated employee was able to work full time on the project, who was also responsible, for example, for dealer acquisition and dialogue, planning top local offers and coordinating local PR and marketing activities. Other WFMG colleagues were brought in to assist as needed. “We are delighted that Mönchengladbach is the first place with which eBay is launching a local cooperation project of this kind in Germany,” said Dr. Ulrich Schückhaus, Managing Director of WFMG (Ibid.).  Going Online with a Full Range of Products  A mere presence on “Mönchengladbach bei eBay” was not yet a sales generator that went beyond the so-called “ROPO effect” (“research online, purchase offline”). The approach of initially listing only a few items and then gradually increasing the number of items was not successful. As a rule, sales success only set in with a minimum number of articles of 50–100. The goal should therefore be to offer the full range of products online.  Maintaining a Close Exchange with Retailers  The direct and institutionalised communication channels between merchants, WFMG and eBay were described as fruitful by all participants. Via regular roundtables, e-mail newsletters or personal contact, retailers and the project partners were in constant exchange. The successful cooperation is also reflected in the many press reports in which participating retailers had their say. One dealer stated: “So far, we are very satisfied with the way things have gone. This is also due to eBay’s support, especially at the start of the pilot project. We can expressly praise eBay and the Mönchengladbach business development agency for this” (Ibid.).  Using Local Marketing Channels  To ensure that “Mönchengladbach on eBay” also became known on the customer side and generated demand, all relevant local marketing channels were used from the start of the project. MGMG was also heavily involved in the project. Posters and stickers, which were made available to the dealers, attracted public attention. Basically, marketing measures are necessary in any case to sustainably establish a new shopping alternative.  Due to the positive experience, it was decided in mid-2016 to continue the project. Not all features were taken over, for example not the offer of the week. But the basic core remained the same. Since then, new retailers have also come on board, such as the furniture retailer Schaffrath in July 2016. In addition, “MG on eBay” served as an impetus for the “Digital City Centre” competition. As of 2021, there are still 26 retailers participating in “MG on eBay” (eBay City-­Mönchengladbach, 2021).

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4.3.3 Digital City Centre as an Initiative of HDE and eBay The pilot project “Mönchengladbach on eBay” was the model for the “Digital City Centre” campaign, in which a successor or better a sister was sought for Mönchengladbach. For this reason, the HDE (German Retail Association) and eBay agreed to launch a corresponding competition throughout Germany in April 2016. As the top organization of the German retail industry with around 100,000 member companies (out of 300,000) in the retail sector and three million employees, the HDE has been increasingly interested in the digitization of retail for around ten years. In its position paper on e-commerce, for example, the HDE explicitly referred to the topic of digitisation in connection with the inner city problem (HDE Digitalisierung, 2015; HDE and eBay PM II, 2016). In doing so, he expressed the opinion that cities must consistently focus their planning on city centres in the face of diminishing municipal budgets. In order to establish a balance with sectors that do not have an affinity with city centres, cities should draw up retail plans in cooperation with local trade associations, adopt them and update them on an ongoing basis. In the HDE’s opinion, stationary retail should also be supported by the city in its e-commerce activities, for example with regard to free WLAN. The HDE’s stated aim is to increase the digital presence of bricks-and-mortar retail and to promote particularly forward-looking concepts (Ibid.). For this reason, the HDE also followed the “MG bei eBay” project very closely from the very beginning, with NRW’s CEO Peter Achten also sitting on the advisory board. This led to the idea of launching the joint competition “The digital city centre” together with eBay (cf. Fig. 4.19). Every city could apply. A jury of experts reviewed the applications and was to select the winner. The eBay press release of 20 April 2016 stated: “Since autumn 2015, shop owners in Mönchengladbach have also been offering their product range on eBay in addition to the previous sales channels. The balance after five months is very positive: Sales from the first quarter have already doubled to more than two million euros. Buyers from more than 70 countries were counted. And in the meantime, 74 local retailers are already participating in the project, having sold 53,000 items” (HDE and eBay PM I, 2016; eBay DH, 2017). Tender and Requirements The competition “The digital city centre” started on 20 April 2016 and was clearly aimed at inner-city specialist retailers. Participation was open not only to cities, but also to city districts, city centres and shopping streets. The prerequisite for participation was that the administration and retail sector were able to demonstrate a joint digitization strategy for their location and bring local retailers to the start. This meant that a valid application was only possible with the close cooperation of all participants: local retailers including support from retail associations, chambers of commerce or city marketing associations as well as the city representatives had to submit their digital documents to the HDE together. Stationary retailers, local trade associations and the public sector were able to apply together until 17 June 2016 to win an attractive package for the comprehensive digital promotion of trade in their city. The winner was offered their own presence on the global

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Digital city centre

Fig. 4.19  The Digital City Centre competition and members of the jury. (Source: HDE, 2016; eBay DH, 2017; Heinemann, 2017)

online marketplace eBay. In particular, local traders in the potential winning city were to be given an easy as well as wide-reaching entry into online retailing. “Every trader must at least be findable on the Internet. A good possibility for many companies can be the presence at online marketplaces. For brick-and-mortar retail, it is important to consistently exploit the opportunities of digitalisation,” says Stephan Tromp, Deputy Managing Director of HDE (HDE and eBay PM I, 2016). In addition to the local online marketplace, the prize in the form of a digital support programme from HDE and eBay also included free WLAN access for visitors to shops in the winning city. In addition, participating retailers were to receive a free eBay basic shop as well as support in getting started in e-commerce in the form of webinars and telephone advice on optimising the shop and the range of items on offer. The prospect was held out of being able to find the article pages of the retailers via a central landing page of the city, to which they would be directed as part of the marketing activities surrounding the project “The Digital City Centre”. A recognized jury of digital commerce experts, which included the author, was to decide on the winner of the competition. The selection criteria included the number of participating retailers, the interaction between retail and administration, and of course the digital strategy. “The following applies to all applications: the more creative the better!”, said Stephan Tromp, Deputy Chief Executive Officer HDE (HDE and eBay PM II, 2016). The start of the implementation of the promotional measures was planned for autumn

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2016 – as soon as the retailers of the winning city had been trained and the necessary websites had been set up. The jury meeting took place on 24 June 2016 at the HDE premises in Berlin and evaluated the applications received on the basis of a scoring model. Each member of the jury was able to grade the applicants according to school marks, whereby specific criteria were defined for this in advance. In addition to the number of participating retailers, these included the interaction between retail and administration as well as the commitment and the resources provided by the city, the underlying marketing concept as well as the realism and the defined goals for the outlined ideas. In total, there were 13 applications from six federal states  – most of them from Bavaria and North Rhine-Westphalia. The city of Diepholz was chosen by the jury as the clear winner by a wide margin. The next-placed cities after Diepholz, Bingen and Oberhausen, received access to free eBay basic shops for twelve months as an “extra prize” for their local merchants, as well as a starter package with eBay shipping materials. Diepholz as Winner The small town of Diepholz in Lower Saxony was able to present the most convincing digital concept in the city competition. A “letter of intent” submitted with the application impressively confirmed that the town of Diepholz and its retailers were fully willing to support the “Diepholz on eBay” project in every respect. The Chamber of Industry and Commerce had also given a positive commitment to the competition “The Digital Inner City” and accompanied the project constructively. Already in the application phase, Diepholz was able to attract 30 retailers who committed themselves to possible participation. “Trade is growing online, but online trade on its own is complex. That’s why many small retailers shy away from trying to achieve that all-important growth online. Diepholz has recognized this and has engaged local merchants on the topic of online. An important foundation for success,” said Stefan Wenzel, jury member and Germany head of eBay (HDE and eBay PM II, 2016). As the winner, Diepholz was able to win a comprehensive package for the digital promotion of retail, including the connection of retailers and their product ranges on eBay, support from the online marketplace for the start of e-commerce, a separate presence for the winning city on eBay and free WLAN on site in the participating shops. A special feature of the city centre was the owner-managed specialist retail trade, especially as hardly any chain stores were represented due to the size of the city. The retail offer ranged from clothing and shoes to accessories, cosmetics and sporting goods, decorative items and books to household appliances (Diepholz, 2016). Another distinctive feature could be seen as “local vertical suppliers” producing their own products. For example, Diepholz is home to what is probably the only green tea mill in Europe. Here, the owner-managed company “Shimodozono International GmbH” produces and sells Japanese green tea with the brand name KEIKO.  In addition to green tea varieties, tea sweets and accessories are also sold. Some of the products manufactured are even exported back to Japan. “It is precisely this individuality and product diversity that we would like to strengthen and ensure through a digitalisation strategy. And why shouldn’t other countries

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also benefit from our products and good service?”, says the application letter from Diepholz (Diepholz, 2016; Heinemann, 2017).

4.3.4 Diepholz on eBay With a population of around 16,600, Diepholz is one of the small towns in Lower Saxony. The town has a relatively small pedestrian zone, but nevertheless a relatively wide range of offers and services (Diepholz, 2016; Heinemann, 2017). Diepholz was convinced of the pilot project “MG at eBay” from the very beginning and also described itself as an actually “digital-friendly city”. Unfortunately, however, smaller shops have often lacked the necessary resources to be able to get involved in online retailing. That’s why an internship position was created back in February 2016 to provide digital support to local retailers, develop retail concepts and offer local retailers a permanent contact person. Regardless of the competition, after a very successful start-up phase and positive feedback, this position was to be converted into a permanent job at the Economic Development Agency on 1 July 2016 (Diepholz, 2016). In the next few years, the post holder was to focus on city marketing and take over the project management for “Diepholz on eBay”. She should also be available at all times during the course of the project for any questions and possible interface problems, thus ensuring optimal communication between the retailers and eBay. The commitment to the project “Diepholz on eBay” was very high on the retailer side from the very beginning. A letter in the run-up to the competition was able to provide the retailers with initial information and serve as a “wake-up call” for interest. The first enquiries were received after just a few hours. The quick response showed that the interest in the digitisation of the city centre was not only on the part of the city, but that the competition and the associated opportunities also met with great interest among the retailers in Diepholz (Ibid.). In addition, each shop was personally visited and informed about the competition on site. Because of this, 30 retail businesses were already recruited as potential participants when the application was received, but this did not exhaust the potential. For the penetration of the new platform it was planned to organise regular information days and to be present at local events, such as the city festival, with the project “Diepholz at eBay”. This was also intended to attract citizens to the “Diepholz on eBay” marketplace as customers. In addition, questions from other interested parties could be answered. Already participating businesses were also given the opportunity to inform themselves or address problems at any time (Diepholz, 2016; Heinemann, 2017). Furthermore, it was intended to design advertising material such as banners, flyers and billboards and to set them up in the city area. Each retail store that participated in “Diepholz bei eBay” was marked with a specially designed sticker and thus also made recognizable to customers. On the administrative side, it was ensured that the necessary permits could be obtained quickly, since the business development and the Stadtmarketing Diepholz mbH (WiSta) as well as the city administration were located in the same building and were already working closely together. Other departments of the city administration were also available for support,

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such as a modern and expert IT department and the city’s own building permit authority. Diepholz saw the project and the city’s previous digitization as a perfect fit and had already been focusing on digitization and a “paperless” administration for years, whether in the form of apps, iBeacons, LipDub videos, image films, digital invoice receipts, online archiving or expansion of the fast Internet. In addition, the city of Diepholz worked together with its business development and promotion association on a new online presence, from which it was also to be forwarded to the online marketplace eBay by means of an “icon link”. Diepholz Track Record on eBay The HDE and eBay drew a positive interim balance five months after the start of the project “Die Digitale Innenstadt” in Diepholz. During this period, 30 retailers from the city took advantage of the opportunity to offer their products on eBay’s marketplace via their own presence and the central entry page www.dh-­bei-­ebay.de. The Diepholz retailers sold a total of €175,000 in goods. In the process, the Diepholz retailers sold items with a total GMV of €175,000 and delivered to 16 different countries, including China and the USA. A key success factor here turned out to be, in particular, an extensive online range – as was also the case previously in Mönchengladbach. Dealers with more than 100 items offered on eBay were able to achieve an additional GMV of € 30,000 on average. The success of the project in Diepholz prompted eBay to expand its city initiative and put it on a broader footing. To this end, eBay launched a digital City Hub with the aim of giving more cities the opportunity to give their merchants a presence on eBay and thus generate additional sales with simple means. The range of products offered by the participating shops in Diepholz was diverse. Schuh Seegers, a shoe shop in Diepholz’s pedestrian zone, offered the largest online assortment with over 2000 products. The model train dealer Modellbahn Dümmersee sold a very special model train decoder to the USA. Perhaps the most creative products were offered by Individual Piggy Banks with individually designed and personalized piggy banks. And the Bethel Foundation in the North also sold goods made and sold by people with disabilities. The project “Digital City Centre Diepholz” motivated eBay to expand its city programme and support many more retailers in their first steps towards digitalisation. Digital City Hubs were used, for example, which made it easy for retailers in stationary trade to participate in online trade. Important experience for eBay was that stationary trade in small towns differs massively from that in large cities. In small towns and communities, for example, it is mainly micro-entrepreneurs with limited resources who have predominantly not yet dealt with digitalisation at all. They needed more guidance and support accordingly. However, if this is ensured, SME companies in particular have the opportunity to increase their reach via digital marketplaces and to tap into new customer groups for themselves. To do this, it is first important to be found and noticed by potential customers in the first place (Digital-Magazin, 2017).

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4.3.5 OCW/Online City Wuppertal and Atalanda Online City Wuppertal (OCW) is a publicly funded project to link local retail with online retail. The project started in 2014 with the goal of making stationary inner-city retail more sustainable in the age of digitalization. Basically, OCW is considered a pioneer for a regional online marketplace where urban retailers and service providers jointly market their goods and services. This should give traders the opportunity to offer their products online rather than just in-store. Furthermore, a joint internet presence as well as cooperative advertising campaigns and joint events such as festivals and regulars’ tables are also carried out (Wuppertal.de OCW, 2021). The development work and start-up phase were supported by the research programme “ExWoSt” (Experimental Housing and Urban Development) of the Federal Ministry of the Interior, for Construction and Home Affairs (BMI). In order to create display areas for cooperating online retailers and as a pick-up station for goods ordered online, a stationary shop was also opened in Wuppertal’s Rathaus-Galerie in September 2015. Germany’s first drive-in counter at a shopping center was built for this “talKONTOR”. In addition, the store, which was designated as a “Retail Lab”, was also used as an “experimental laboratory” to try out digital technologies such as beacons or iPad checkout systems for OCW.retailers (Ibid.). As of 2017, Online City Wuppertal was continued under the name F.O.R.U.M. (Promotion of Organisational Structures for the Revitalisation of Urban Living Spaces through Multi-Channel Retailing) with the involvement of the Economic Development Agency. For this purpose, the project received a second grant, which flowed within the framework of the project call “Thinking digital and stationary retail together” of the state of NRW. The project funds were used, among other things, for marketing measures to increase awareness of OCW and invested in digital training measures for retailers and service providers. In mid-2019, the project was handed over to the association talMARKT – Online City Wuppertal e. V., The talMARKT consists of retailers, restaurateurs and service providers who have been running the OCW since then and represent the interests of the Online City participants in the long term. On the marketplace, local traders present themselves, their shop and their goods. The offer includes books, fashion, jewellery, gift articles, pet supplies and food. In addition, service providers also offer their services, for example in the area of car sharing or key services. More than one million products are now offered on the online platform. The basic fee for dealers is 50 € per month. If only the dealer profile or the service offer is shown, the fee is €25 per month (Wikipedia OCW, 2021). For this, the OCW includes as services a 24/7 shopping with phone, fax, mail and webshop as an ordering option. If customers order by 4:30 p.m., they receive either same-day delivery or Click & Collect at the talKontor with a drive-in counter, which is open until 10 p.m.. There is also a Check & Reserve at the Retail Lab’s pop-up store in the Rathausgalerie, as well as online consultations via phone, chat, video chat or Skype. A new feature is the online city voucher, which can be redeemed at all 30 participating marketplace partners in Wuppertal (Wuppertal.de OCW, 2021). City vouchers can be purchased directly online on the marketplace and sent to the recipient by email with a personal message. Optionally, the voucher can also be

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purchased in the local store and can be topped up with a value of up to €200. It can be redeemed stationary or via the digital marketplace of the Online City Wuppertal including partial redemptions and reloads (Wikipedia OCW, 2021; Wuppertal.de OCW, 2021). There are regular promotion days on the OCW marketplace, on which more theme-­ specific products are offered or discount codes and online vouchers are provided. For the online marketing of the OCW, it is advantageous that the retailers and service providers do not present themselves individually on the Internet, but are represented with a joint presence. Through targeted search engine optimisation (SEO), individual traders are thus also found more quickly in Internet searches, as they are thus higher up in the hit list. The same applies to the social media channels Facebook and Instagram as well as the video platform YouTube (Ibid.). However, joint events of the Online City members also take place offline, such as city festivals or joint training courses on online retailing and digitalisation. There is also a monthly traders’ table where the marketplace partners can exchange ideas. OCW Track Record With regard to the track record, no further information has been provided so far apart from the number of participating marketplace partners, the articles posted on the platform and the public funding. When asked, reference is always made to the alleged ROPO effect. Customers in Wuppertal allegedly find out about the product and availability online in advance and then go to the store to buy on the spot. Some retailers report an increase in footfall in the store. According to its owner Markus Kuhnke, the Naschkatzenparadies in Wuppertal even achieved a 20% increase in sales in the first Christmas trading period, but this may well be due to its media presence as an OCW opinion leader in the period under consideration, as it was noticeable that this also held first place by page views in the first six months. According to OCW managers, the number of purchases made online remained manageable (Stores-Shops.de, 2015). Corona and OCW In order to also support local retailers in the Corona crisis, Online City Wuppertal offers a voucher system for quick assistance (cf. Fig. 4.20). Already during the first lockdown over Easter 2020, the project had expanded its offer to support local retailers without their own online channels. This offer also applied in the new lockdown. For three months, affected retailers could join OCW for free to generate sales despite store closures. The voucher scheme also continued to run, with vouchers for a specific store being available for contactless purchase via the platform. Even when stores reopened, the vouchers could be redeemed on site as usual (Wuppertaler Rundschau OCW, 2020). Atalanda and OCW The online marketplace is managed by the external service provider Atalanda GmbH, which provides the technical infrastructure. talMARKT also cooperates with Atalanda in

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Fig. 4.20  Shopping voucher OCW. (Source: Wuppertal.de OCW, 2021)

the marketing of OCW. Atalanda is a German service company that offers platforms for regional online marketplaces and is active in several cities in Germany as well as in Switzerland. In addition to Wuppertal, several other cities such as Alfeld, Attendorn, Bedburg, Bitterfeld-­Wolfen, Bochum, Braunau-­Simbach, Eisleben, Ettlingen, Freilassing, Göppingen, Günzburg, Hamburg, Heilbronn, Homburg, Monheim am Rhein, Pfaffenhofen an der Ilm, Wolfenbüttel, Wuppertal as well as in Bern and Zurich now work with Atalanda on their online marketplaces. Atalanda GmbH was founded in 2012 by Roman Heimbold and was initially crowdfunded. In March 2017, it was reported that ANWR Group had joined Atalanda as a strategic investor, among others. The alignment between Atalanda and its digital subsidiary ANWR Media is reportedly working well. In the cumulation of all the cities, Atalanda now represents more of a national online marketplace and less of a regional platform. Local customers can buy products from regional stores through the platform. Depending on the city and the characteristics of the local online marketplace, they can order products and pick them up themselves, or have them delivered locally or possibly nationally. Atalanda advertises that for local orders placed by late afternoon, same-day delivery can be made. Returns can be sent back or brought back to the store. Atalanda sees itself as a complement to Amazon or eBay. It is said to be particularly suitable for ROPO customers who first research on the Internet where they can get which products locally, and then prefer to buy them in stationary retail stores. Deliveries are made either by couriers, who are arranged via the logistics platform atalogics, or by DHL.  Participating retailers can optionally choose between a company profile without online sales, additional online sales and also a shipping option. In return, a monthly fee

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and a commission of 8% of the net value of the goods must be paid to the operator. The marketplace partners are allowed to charge the customers delivery costs up to a limited fixed amount (CIMA, 2021; Wikipedia Atalanda, 2021).

4.4 Digital Retail Initiatives and Promotion There are now countless digital retail initiatives. Besides local online marketplaces, they deal with all topics that digitalization has to offer. Independently of the Corona pandemic, the eBay City Initiative was already launched after the Diepholz-bei-eBay project. Almost at the same time, the state funding “Mittelstand Digital” also started, which resulted in the “Mittelstand 4.0 – Competence Centre for Trade” and finally promoted digital coaches in NRW.  All other digital initiatives were only launched with the first shutdown, such as Amazon KMU-Impact and Google’s Initiative Zukunft. In addition, there are currently around 400 digital retail initiatives, not infrequently backed by retail companies.

4.4.1 eBay City Initiative and eBay Your City The projects in Mönchengladbach and Diepholz, which also attracted international attention, gave rise to the Germany-wide eBay City Initiative called lokal & digital in 2017. The goal was to provide greater support to urban retailers in their digitalization efforts. The basis of the City Initiative was the eBay City platform, which cities of all sizes could use to secure their individual local presence on eBay, following the example of the pilot projects in Mönchengladbach and Diepholz. eBay supported the participants with a comprehensive service package and the know-how of respected industry experts. The aim was to provide retailers with an easier entry into e-commerce (WFMG JA, 2015; eBay CI, 2017). From an “Atlas of Untapped Opportunities” prepared especially for the initiative, the degree of digitalisation of local retail in Germany was analysed. This highlighted the great potential that the internet still holds for stationary retail. By closely linking offline and online channels, for example, a retailer can ensure that customers receive optimal support during the purchasing process. The local & digital initiative should provide support in seizing this opportunity. According to this, there was still a considerable need to catch up online. That’s why eBay wanted to help make more local retailers fit for the expectations of today’s customers. According to the atlas (eBay CI, 2017), this would also secure their future viability and that of the city centres as busy shopping areas. Indeed, it is not only since the Corona crisis that a structural change has been taking place in German retail as a result of digitalisation, which is also permanently changing the city centres. Once bustling centres are in danger of becoming deserted due to increasing vacancies. The change in customer buying behaviour is therefore making online retailing indispensable. By participating in the City Initiative, each city receives its own presence under the URL www. eBay-­city.de/STADTNAME for a fee. In this way, it secures a digital business card for

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local traders and an individual online presence on eBay. The regional dealers can register free of charge and expand their reach accordingly. Local customers will find the variety of dealers and the range of products of the respective city bundled there. Apart from the digital presence, the cities can also award 30 free eBay basic shops for local eBay new traders. In addition, they will receive exclusive start-up advice from eBay and have access to a network of experts. The legal protection of the marketplace activities is ensured by the cooperation with Trusted Shops. After Mönchengladbach and Diepholz, Velbert in North Rhine-Westphalia went online on eBay in mid-2018 (see Fig. 4.21). At the start, 18 retailers were participating, currently there are still 16 (eBay Velbert, 2018; eBay City Velbert, 2021). The participating retailers cover a wide range of products and come from the sectors of decoration, fashion, gift articles as well as musical instruments and care needs. Customers in Velbert thus have the opportunity to order goods from their favorite local retailers from home and pick them up in the store regardless of delivery times. To support this, eBay had not only been involved in setting up the City platform, but had also prepared retailers for the launch of the site with webinars and workshops. However, with an expanded initiative in 2019, eBay failed to get more cities on board (eBay Velbert, 2018; Cutes, 2019). eBay Aid Package #TogetherStronger for the Corona Crisis Immediately after the start of the first lockdown in 2020, eBay launched a relief project to support online retailers for an initial period of three months. This package of measures was

Shops endtdecken in Velbert Online search local find, support Velbert

All products

Fig. 4.21  eBay City Velbert. (Source: eBay City Velbert, 2021)

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extended for SME retailers until 31 December 2020 and thus for half a year. According to eBay, around 5000 businesses took advantage of the individual measures to absorb some of their lost sales. In the process, marketplace partners had their sales fees waived. The package of measures also included a free premium shop on ebay.co.uk and free eBay Concierge premium customer service for six months. Service status protection was also extended, protecting merchants from a possible downgrade due to fallout from the Corona crisis. Nevertheless, eBay Germany did not benefit from the Corona crisis to the extent that other marketplaces did. Instead of the marketplace’s usual growth of more than 20% in 2020, eBay Germany only achieved a 5% increase (eBay Corona, 2020; bevh figures 2021; eBay AR, 2021). eBay Your City As a further development of the eBay City Initiative, eBay Germany launched the project “eBay Deine Stadt” (eBay Your City) together with ten German cities in April 2021 to strengthen stationary retail (eBay City Velbert, 2021). The aim of the initiative is to support the marketplace partners already active on eBay with an additional local presence. In addition, more retailers are to be recruited for the initiative. All retailers new to eBay through the initiative will have their entry into online retailing made easier through the “eBay Durchstarter” program. Under this program, newcomers do not have to pay any sales commission for three months. At the same time, they benefit from a six-month intensive phase with free eBay premium customer service, premium shop and individual advice. The initiative is designed to enable cities and municipalities to set up online marketplaces with a local focus. There, customers can find offers that are only available in the city. The local products will not only be available on the local platform, but also on the national eBay marketplace (www.ebay.de). This allows retailers to market their product ranges via eBay to customers throughout Germany and even in other countries. At the same time, local retailers are supported online if buyers are unable or unwilling to shop in the respective retail store themselves. At the start, the cities of Nuremberg, Lübeck, Chemnitz, Potsdam, Mönchengladbach, Moers, Gummersbach, Diepholz, Bad Kreuznach and the Ortenau region are participating. By the end of 2021, eBay and the HDE (German Retail Association), which is supporting the initiative, would like to win over more cities and municipalities for the project. These can use eBay Your Town as a “plug & play” by eBay providing them with the locally oriented e-marketplace. All existing eBay partners are automatically part of the new marketplace site. Thus, already at the start, a total of over 5000 merchants with a range of over 2.5 million goods from the first ten cities are included.

4.4.2 HDE-Google-Initiative Future Trade In the wake of the Corona crisis, the HDE and Google introduced a digital program for the installation of online shops as well as online activities with the joint initiative “Zukunft Handel”, which was aimed at SME retailers. The aim of the initiative was to strengthen

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stationary business with the help of online tools and make it fit for the future so that local retailers could also benefit from the ongoing online boom. The target group of the initiative were and are deliberately small trading companies and stationary traders. They often lack the time and know-how to create their own website or e-commerce offer. According to estimates by the HDE, every second retailer in Germany does not yet have its own website. In this respect, there is indeed a great need to catch up in terms of digital visibility. This is precisely where “Zukunft Handel” comes in with a low-threshold offer. The retailers concerned are to be put in a position to at least be present online without major financial outlay. In doing so, a cooperation with lonos and Jimdo should enable the retailers to launch a website or even a simple online shop in a “low-­ budget approach”. In addition, it is planned that Google will introduce interested retail businesses to My Business listings. Free data and diagnostic tools will be offered for this purpose. This will allow local merchants who already have a website to evaluate their metrics and optimize results, as well as improve their web presence. Beginners receive an advertising budget of €120. In addition, numerous virtual courses are offered. Together with the HDE, 27 courses were developed, some of them specifically for SMEs. In addition, there were another 70 supporting training offers, e.g. on IT security or financial planning, which are offered anyway as part of the Future Workshop (cf. Fig.  4.22). In this respect, Google’s Future Commerce initiative builds on the work of its Future Workshop, with which the Internet giant had previously introduced a programme to promote SMEs and retail companies in Europe. In addition, specific changes were made to Google Search and Google Maps, enabling, for example, online booking of appointments for offline services or delivery services. In an initial phase, around 250,000 retail businesses were informed by post about the initiative and opportunities to participate. In addition, the initiative was advertised on TV, YouTube and via networks. This was followed in a second phase by dedicated training sessions for interested retailers. The following elements, among others, are part of the ZukunftHandel initiative (Google t3n, 2020; HDE Google, 2020): • a professional company website and/or an online shop in cooperation with IONOS 1&1 and JIMDO, • 1 × 1 Starter Pack from Google with step-by-step instructions on how to build and grow your online business, • suitable online training courses on topics such as online security (with TÜV SÜD), certification courses on online marketing (Google Zukunftswerkstatt) and introductory courses on the topic of “artificial intelligence”, • simplified functions for SME retailers in Google Search and Google Maps; additional innovations such as communication of delivery services or new products with direct online booking of offline services, • free advertising and increased references to shopping opportunities “nearby”, • Free data and diagnostic tools for SMB retailers to optimize existing websites,

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4  Examples for the Stationary Retail Trade of the Future

Wissen erweitern: Die Google Zukunftswerkstatt Nehmen Sie im Rahmen der Initiative ZukunftHandel von HDE und Google an kostenlosen Trainings der Google Zukunftswerkstatt teil Digital opportunities for all

Use your digital Opportunities

Learn how websites Function

Develop an effective Online strategy

Get started now

Get started now

Get started now

Become more productive

Work out a Social Media Plan

Learn your business market internationally

Get started now

Get started now

Get started now

Fig. 4.22  Example of training offered in Google’s Future Workshop. (Source: Google, 2021)

• Courses (27) with a focus on retail, including seven specifically for SMEs; more than 70 existing courses on digital in-company training (with partners such as HDE, TÜV SÜD, NEW WORK SE, among others), • telephone advice and support via a dedicated Zukunft Handel hotline, • Finally, a new Future Commerce Award was announced, which was to reward and highlight positive examples in the six categories of founder spirit, networker, environmental saviour, online prowess, marketplace maker as well as through-starter. A special prize “Covid-19” was awarded to retail companies that had found courageous and/or unusual solutions in the online context during the Corona crisis (Ibid.).

4.4.3 Amazon SME Impact Amazon also spoke up in the middle of the Corona crisis and staged itself in mid-­November 2020 with the report “SME Impact Report” as a friend of small and medium-sized businesses (Amazon KMU impact, 2020). The paper is supposed to show how effectively

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Amazon with its marketplace helps especially SMEs to shape their online business. With the report, Amazon virtually praises itself as its own digital initiative for the beleaguered stationary retail trade. In this regard, it did not spare impressive figures from the reporting period June 2019 – May 2020. In these twelve months, the German sales partners generated more than €120,000 in sales on average, which corresponds to an increase of about €30,000 compared to the previous year’s sales. The German sales partners alone sold more than 550 million products on Amazon, i.e. 100 million more than in the previous year. In the process, more than 3300 German SMEs achieved sales of more than US$ one million each, which together corresponds to around US$ 3.3 billion or about €2.7 billion. (Lommer, 2020). Amazon defines SMEs as companies that employ less than 250 people and do not exceed US$50 million in sales or US$43 million in total assets. Of these, there are around 40,000 in Germany as Amazon marketplace partners with combined “Amazon SME marketplace” sales of around EUR 4.8 billion, distributed relatively evenly across the federal states according to population proportion (cf. Fig. 4.23)…. The other 92% or 36,700 SMEs share about EUR 2.1 billion, which is close to an average marketplace turnover of less than €57,000. According to shop providers, this does not necessarily sound like the “friend of the SME message that Amazon actually wanted to convey with the report (Shopanbieter AKMU, 2020; Lommer, 2020)”. But after all, 80% of German SMEs selling on Amazon export their goods to international markets. They thus achieved export sales of EUR

The 10 federal states with the most digital entrepreneurs and companies in 2019

10

SMEs that sell through Amazon are located in all 16 federal states, and in 12 of them there are more than 1000 sales partners. These are the 10 Federal states with the most SMEs 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

North Rhine-Westphalia, around 10,000 Bavaria, > 7,000 Baden-Wuerttemberg, > 5,000 Lower Saxony, > 3,500 Hesse, > 3,000 Berlin, > 2,500 saxony, > 2,000 Rhineland-Palatinate, > 1,500 Hamburg, > 1,500 Schleswig-Holstein, > 1,500

9 4

6

1 7

5 8

3

2

Fig. 4.23  Federal states with the most SMEs selling via Amazon. (Source: Lommer, 2020; shop provider AKMU, 2020; based on Amazon KMU impact, 2020)

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4  Examples for the Stationary Retail Trade of the Future

2.75 billion, 250 million more than in the previous year. However, if these export sales are included in the calculated EUR 4.8 billion in total SME sales, the SMEs generate just one-­ third of their sales in Germany. This would again drastically reduce the annual turnover of companies that do not export abroad (Lommer, 2020). However, strengthening small and medium-sized enterprises is at the core of all Amazon activities – according to the “Amazon SME impact” report 2020. It will continue to invest in logistics, tools and personnel to support small and medium-sized enterprises. This, it says, will enable it to create the best shopping experience for customers and, in turn, success for SMEs. In Europe, Amazon works with more than 900,000 independent partners. These are not only sales partners, but also developers, creative professionals, authors as well as delivery partners (Amazon KMU impact, 2020). In doing so, Amazon supports them to market services online, to run delivery and logistics companies, to use the Amazon Cloud to launch and scale businesses, to develop Alexa Skills or to publish their own books. Amazon Web Services (AWS), in particular, would help mid-market startups. With the launch of the AWS Activate Credits program, the internet company had also lent hundreds of millions of euros in AWS credits to help founders and SMEs build and run their businesses in Europe. In 2019 alone, more EUR2.2 billion was invested in Europe to help SMEs succeed. The cooperation of SMEs with Amazon is very promising and allows them to build a second foothold with it, he said. At the same time, customers would benefit from a greater variety of assortments (Blog Amazon, 2020).

4.4.4 State Support for SME Digital and Digital Coaches The state also now provides comprehensive support for SMEs in the area of digitalisation. With the overarching initiative “Mittelstand-Digital”, all key industries including trade are now being promoted. In particular, SMEs are offered free and competent digital assistance. Since 2015, the BMWi has established a total of 26 Mittelstand 4.0 competence centres for this purpose, including the Competence Centre for Trade (Mittelstand-Digital, 2019). This serves as a Germany-wide contact point for small and medium-sized enterprises in wholesale and retail and provides practical support for digitalisation. In doing so, the latest trends are presented in workshops, events, information brochures and podcasts. If a retailer needs concrete support, they can book an entrepreneur consultation hour with an expert and engage in direct exchange there. A digital mobile (DiMo) is permanently on tour in Germany and brings technical solutions for digitalization to the regions. The main topics of the competence center are diverse and deal with topics such as the relationship with the customer, the management of the supply chain, the merchandise management system, payment processing and digital customer loyalty. The focus is also on new business models and sales markets as well as digital opportunities for small businesses (KZH fact sheet, 2019). The “Retail Competence Center” offers its services at four locations: Berlin, Cologne, Langenfeld and Regensburg. Project partners of the project, which is funded until the end of 2022, are the German Retail Association HDE, which is also the

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consortium leader, as well as the EHI Retail Institute GmbH, ibi research at the University of Regensburg GmbH and IFH Köln GmbH.  The Mittelstand 4.0 Competence Center Retail is part of the funding initiative “Mittelstand 4.0  – Digital Production and Work Processes”. This is funded by the Federal Ministry for Economic Affairs and Energy (BMWi) as part of the funding priority “Mittelstand-Digital  – Strategien zur digitalen Transformation der Unternehmensprozesse”. After the official kick-off event on 22 October 2019 in Berlin, the Competence Center presented itself to interested retailers and multipliers from the industry at its other locations. It became clear that the digital transformation of retail is in full swing and that shopping and paying online has long since become part of consumers’ everyday lives. But in many cases, medium-sized retailers are still struggling to cope with the increased digital challenges, including digital payment methods. For the Competence Center Retail, many questions arise, such as in which direction the small and medium-sized retailer should digitize. Or which new payment methods are available. There is also the question of what possibilities are offered thanks to the blockchain and what the introduction of a new POS system means for the retailer in concrete terms. To answer such questions, the SME trade in NRW received additional support. This is also due to the enormous trade density as well as the importance of the stationary retail trade for the state of NRW. In addition, the state is the location of many large retail centres. In this respect, the North Rhine-Westphalia Trade Association hired four so-called digital coaches, who are to support especially small and medium-sized retailers in finding their right way into the digital world. It is precisely from these retailers that many reasons are repeatedly given as to why the digital path has not yet been taken by many a retailer. Lack of money, know-how, understanding or time are the most common arguments. However, often only the first step or the concrete direction is missing – according to the NRW Trade Association (HNRW, 2019). Especially here, the digital coaches are supposed to show opportunities and concrete options. Based in Düsseldorf, Dortmund, Bielefeld and Cologne, they support retailers throughout North Rhine-Westphalia with digitalisation. This also includes orientation and practical implementation in the digital world as well as the promotion of local networking between retailers and service providers. The “Digitalcoach NRW” model project is scheduled to run for three years and has a total volume of around EUR 1.4 million, of which the state of North Rhine-Westphalia is contributing 50%. The other half is borne by the NRW Trade Association (Ibid.).

4.4.5 Digital Erfa and Self-Help Groups In the middle of the second lockdown of the Corona crisis, around 449 digital retail initiatives were counted in February 2021, 422 of them in Germany (CIMA DI, 2021). Regular “digital self-help groups” or digital erfa groups are offered on topics such as customer loyalty programs, setting up pick-up services, starting with an online shop, social media in retail, digital promotional aids, working with data, new checkout systems and everything

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4  Examples for the Stationary Retail Trade of the Future

that digital training offers have to offer (Handeln.Digital, 2021). What these initiatives aim to achieve and what they really bring is to be illustrated using the example of “Händler helfen Händlern” and Shopdaheim.de. Traders Help Traders The private initiative “Retailers Helping Retailers” started practically on the first day of the first shutdown in 2020, when most stationary non-food stores across Germany had to close their shop doors due to the Corona pandemic. That set the stage for mid-sized retailers to launch a group on LinkedIn to inform and connect affected business owners. Retailers such as Rose Bikes, BabyOne, MediaMarkt-Saturn, TomTailor and Intersport support the initiative, which exchanges information via the career platform. The group now includes around 3000 members/participants, including retailers, trade and business associations, journalists and retail experts (HHH, 2021). One of the managing directors of Rose Bikes GmbH, Marcus Diekmann, was instrumental in initiating the Pro Bono Initiative for non-digital stationary retailers, which quickly devised an immediate solution for retailers severely affected by the Corona pandemic. Using a tech platform, brick-and-­ mortar retailers can upload their store inventories. The products are delivered by taxis, delivery services, beverage suppliers and regional logistics service providers. The concept for this was developed pragmatically in cooperation between the two retailers Rose Bikes and Visunext Group and the software manufacturer Shopware. The first step was the creation of a B2B instant solution under the leadership of Shopware in cooperation with Netresearch and IT-Systems. The technical solution is to be understood as an offer of help to the trade without own economic interests of the partners. It enables retailers to set up a sales platform and open an additional sales channel within 14 days. In a second step, the expansion to a marketplace solution for cities and communities took place, where local retail businesses can synergistically join forces (Internetworld HHH, 2020). “Merchants Helping Merchants” was awarded the ECR Award 2020 “Heroes of the Hour” by GS1 and PricewaterhouseCoopers in September 2020 (HHH, 2021). Unfortunately, no robust success metrics of the initiative have been published yet. Shopdaheim Almost at the same time as the “Retailers Helping Retailers” initiative, the bookselling companies Thalia, Mayersche and Osiander launched the Shopdaheim initiative to provide rapid assistance to local retailers affected by the shutdown. In addition to providing the impetus for the initiative, the founding partners also contributed investments in marketing and infrastructure. Within a week, the platform www.shopdaheim.de or www.shopdaheim. at was set up. This is intended to make it easier for customers to access the online shop of their local retailers. From the point of view of the initiators, it was necessary to “network the online and stationary sales channels in such a way that the trade in our area, which enriches our inner cities with attractive shops, has a successful future. That’s why people should be able to reach the bookstores and shops they have enjoyed buying from online as

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well” – according to Michael Busch, CEO of Thalia and main initiator of the initiative in Buchmarkt (Buchmarkt, 2020; Börsenblatt, 2020; Buchreport, 2020). eBuch, KNV Zeitfracht, Umbreit, Libri, Morawa and buchmedia quickly joined in. The platform was deliberately kept open for retailers from all sectors as well as existing retail initiatives. It is a kind of national search engine where customers can find local retailers and their online shops. The search criteria can be town/zip code and industry. The basic stock is the book trade with several 1000 addresses. Interested dealers can register by e-mail to become part of the national network. It is true that even before the Corona pandemic there had been repeated attempts to set up online platforms for local traders, but with only moderate success. In the meantime, both the environment and the willingness of merchants had changed, so that a critical mass could be gained quickly. It is also about saving the inner-city retail trade. It is now a matter of working together to do everything possible to preserve local retail structures. As a result of the Corona pandemic, people’s shopping behaviour will continue to shift increasingly towards online, even after the crisis. It is therefore necessary to network the online and stationary sales channels in such a way that the retail trade, which enriches our city centres with attractive shops, has a successful future. That is why people should be able to reach the bookstores and shops they have enjoyed buying from online. This idea is the basis for the initiative, as ichael Busch explained in the Buchreport (Börsenblatt, 2020; Buchreport, 2020; Buchmarkt, 2020). Dealers who do not yet have a web shop can also join in via their social media channels. No fees were charged for the partner businesses during the Corona crisis in order to achieve a networking effect. It was also initially a matter of getting as many retailers as possible from different sectors and cities to join in. Among customers or users, classic media and a viral social media spread should make the platform known. The Funke Media Group, Springer and Burda have agreed to supply content production and advertising. In addition, city marketing initiatives and trade associations were to ensure the participation of retailers. Overall, the principle behind Shopdaheim envisaged or envisages the integration of as many reach partners as possible in order to achieve a maximum leverage effect (Fig. 4.24). The six-figure development costs and ongoing operations are/were borne entirely by Thalia (Shopdaheim, 2021). As of August 2020, the German Council of Shopping Places (GCSP) joined the shopdaheim shopping platform. The GCSP wants to actively support the platform with its large trade and business network, which consists of around 750 companies. These are recruited from the areas of trade and retail, development and analysis, financing, center management, architecture, retail real estate and marketing – as well as many local authorities. Just six months after Shopdaheim was founded, 17,000 retailers from 84 sectors were already connected, making shopdaheim the largest German retail platform for local retailers. Numerous retailers with only one shop, but also many large retail groups such as MediaMarkt-Saturn, Douglas, dm or Blume 2000 are present on shopdaheim. The largest group, however, are the 3200 booksellers.

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www.shopdaheim.de

Your dealer on-site search The local dealer search

3

Bookstore

1

Total Handel

2

Press

Partner -cities -Other dealers -Utilities, etc. -entrepreneur -policy

Support -initiatives -grooming

Fig. 4.24  Shopdaheim business principle. (Source: Börsenblatt, 2020)

4.5 Smart City of the Future More and more people are moving into urban areas. Already, more than 50% of the world’s people live in cities. Cities in particular play a central role in the challenges of climate change and demographic change. Not only since the Corona crisis have urban planners been facing major challenges in the wake of globalization and growing urban populations on the one hand, and increasing vacancy rates on the other. In this respect, the need for digital and networked systems for mobility, energy, environmental protection, communication, urban logistics and, above all, administration is increasing. This is where the smart city, as a city of future coexistence, is intended to provide digital-based assistance. The assumption is that intelligent infrastructures offer added value and facilitate daily life in a variety of ways. The Smart City Digital Index shows how far cities have come in this respect. This also takes into account the topic of digital administration, which, together with intelligent mobility and urban logistics, has direct relevance for “intelligent retailing”. What cities can or must do in the future is shown by the future project “Vital Inner Cities” of the IFH Cologne.

4.5 Smart City of the Future

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4.5.1 Smart City Concept The smart city describes concepts for urban spaces with which cities are to become more efficient and thus more climate-friendly and more liveable on the basis of modern technology. To achieve this, services, processes and infrastructures are needed that are digitally based. Cities must become smarter, with systems that understand in real time how billions of processes come about and can be controlled in the best possible way. In smart cities, ideally the entire urban environment is equipped with sensors that make an Internet of Things (IoT) possible. To this end, data is collected and made available in a data cloud. Smartphones can already be used today to save fuel and thus exhaust gases. This means that information-based means of transport can be combined to transport citizens faster, more environmentally friendly and more comfortably. In order for the intelligent infrastructure to be able to communicate with each other, it needs its own communication network in addition to sensors (enbw, 2021). To make the smart city more tangible, Fig. 4.25 shows a number of potential factors that can contribute to the development of a “smart” city. It also illustrates the core objectives

Smart City Livability

Efficiency of Services

City Reputation Economic Growth

Sustainability

Safety & Security

Mobility

traffic management

Intelligent Shopping

Internet of Things Public Safety Gas & Water Leak Detection

Smart Health

smart environment Education

water quality Smart Energy

Smart Builings

Air Polution

WasteManagement Smart Parking

Electromagnetic Emissions

open data

Electric Vehicle Charging Smart Street Lights

Fig. 4.25  Factors and core objectives of a smart city. (Source: Heinemann, 2019 based on Nesselrooij, 2019)

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4  Examples for the Stationary Retail Trade of the Future

pursued by smart city projects. Undoubtedly, this involves a variety of topics, such as smart parking, smart healthcare, smart agriculture, smart transportation, smart government, smart energy, etc., among others. Nevertheless, structuring is more purposeful. Accordingly, smart city initiatives pursue the following goals (Nesselrooij, 2019): Efficiency of services: This is about optimising the use of public resources and providing a high level of citizen services. Sustainability: This is to ensure the growth and development of a city while taking into account its environmental impact. Mobility: It must be made easy for people to move around a city, either on foot, by bicycle, by car or by public transport. Safety & Security: In this respect, the aim is to improve public safety in everyday life and on special occasions, as well as to prepare for emergencies and disasters in the best possible way. Economic growth: Cities should be attractive locations for businesses, investors, citizens and visitors. Image: The image and reputation of a city are also important. Quality of life: In addition to the core objectives, successful smart city projects also pursue the goal of improving the quality of life of citizens. In this respect, a smart city is something like an “Internet of Things” with intelligent services and offers. Smart cities improve the relationship between citizens, administration and business and create important conditions for the careful use of resources (Arnolds Telekom, 2021). Implementation in practice can only take place in the interaction of wireless and superfast radio networks, smart end devices and innovative applications. Great hopes in this regard lie in the 5G communication standard. Smart cities have a technological infrastructure with three building blocks: sensors, networking and data. Smart cities equip existing structures with sensors that collect information or data and transmit, store and archive it in real time. Due to the networking, the data can be retrieved and processed for required processes, e.g. for an analysis or presentation of events (Ibid.). Examples of Intelligent Projects in a Smart City With the help of a smartphone app from the local transport company, citizens or even tourists can, for example, search for the fastest route between two locations and digitally book the corresponding ticket at the same time. The use of public transport must be about saving time and contributing to environmental protection. The same applies to smart parking solutions  – or smart parking garages operated by stationary retailers, such as L+T in Osnabrück. Here, sensors in the parking spaces record the space and detect whether the space is occupied by a vehicle or free. The visitor can call up this information in real time via an app or record it via digital signposts. Without much effort, he receives the information which parking spaces are still free in the vicinity. Smart waste management in a city can function in a similar way if garbage cans and containers are equipped with sensors. These then report the filling quantity to the responsible waste disposal company. In

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addition, the routes of the vehicles can be individually adapted to the current demand. Heating or light sources in buildings can also be controlled smartly via sensors (Nesselrooij, 2019; Arnolds Telekom, 2021). Advantages of Smart Cities Smart cities represent digital solutions for the future tasks and challenges in our global society. This involves projects such as environmentally friendly mobility concepts or resource-saving energy management. Intelligent traffic systems are already being used in many cities today, which, for example, allow public transport to have the right of way at intersections by switching traffic lights to green. The installation of renewable energy sources to reduce the consumption of fossil fuels with photovoltaic systems on the roofs of buildings to supply the electricity are also parts of the smart city. Share economy models are also part of it. This not only improves people’s living environment, but also citizens’ relationships with their government. In a smart city, for example, public authorities offer numerous online services. In addition, residents participate transparently in decision-­ making processes, for example by providing information or opportunities for co-­ determination. Finally, smart city projects always have a positive effect on the image and economic growth of a city. This in turn attracts companies and residents and sustainably increases the quality of life. Cities such as Copenhagen or Vienna, for example, invested in a smart city at an early stage and are now among the metropolises with a high quality of life. German cities also have best practices for integrating IoT into everyday life, such as the municipalities of Bad Hersfeld, Monheim am Rhein or Darmstadt (Arnolds Telekom, 2021). Requirements and Best Practices An essential prerequisite for smart cities is comprehensive data collection and analysis. Smartphones, connected cars, and wearables make it possible to collect all of the citizens’ data on their behavior, preferences, and knowledge, provided they give their consent. This makes it possible not only to control the use of resources more precisely through analytics, but also to shape the framework conditions for decisions more rationally (“architecture of choice”). Of course, data protection must be guaranteed. Nor must it amount to a surveillance state. On the other hand, this approach is implemented by a democratically legitimized city administration. Therefore, the benefit of such “people-centric design thinking” is entirely in the interest of the individual. For on the basis of this, the “mass” cooperation of many individual users can solve many problems better than the “top-down” decisions of city planners. Already today, presentable successes are being achieved. The app Waze, for example, is based on user-generated data and suggests efficient transport connections through cities all over the world. Or in New York, “predictive polis” are possible in the context of monitoring apartment occupancy and drawing on the knowledge of inspectors. This increased the success rate of inspections by 70%, resulting in a massive reduction in apartment fire deaths. A completely different example is provided by Boston, where cooperation with a rating portal improved the management of hygiene inspections in

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restaurants and the hit rate increased rapidly. Accordingly, cities and institutions are increasingly making their databases publicly accessible in the sense of “open source data access”. Other examples include pothole spotting in Boston and app-controlled street lighting and parking management in Santander, Spain. In Argentina’s capital Buenos Aires, complaint management is done through social media analytics (Nesselrooij, 2019; Deloitte, 2021).

4.5.2 Digital Governance and Smart City Index The digital transformation of public administration in particular offers enormous potential for smart cities. This will relieve the burden on citizens and companies – including stationary retailers – by making administrative actions more flexible, user-friendly and transparent. The topic of e-government is currently enjoying a great deal of political attention. Especially since the beginning of the Corona pandemic, there have been a number of initiatives and modernization projects at all federal administrative levels. In addition, the Online Access Act (OZG) is to be implemented by the end of 2022. This requires efforts from the federal government, the states and the municipalities, not least because of the enormous complexity at all levels. The primary goal is to provide a user-oriented and easily accessible service for citizens and companies. However, the path to a modern, digital and sustainable state does not end with the full implementation of the OZG.  Rather, administrative processes must also be fundamentally rethought and realigned. Bad processes that are digitised remain bad processes that are then only digitised (Bitkom DV, 2021). Smart City Index The annual Smart City Index examines how far Germany’s cities have come in terms of digitalization. This index compiles a digital ranking of major German cities, whereby five topic areas with more than 11,000 data points are recorded, reviewed and qualified. The focus is on, for example, online citizen services, sharing offers for mobility, intelligent traffic lights and broadband availability. All German cities with a population of 100,000 or more are included in the study, with the index values being based on publicly accessible data sources. The cities surveyed are also given the opportunity to review and explain the information collected. Around 70% of the cities made use of this opportunity in 2020. The study is based on 38 indicators from 136 parameters per city with a total of 11,016 data points. These are standardised and are transferred to a scale of 0–100. For each indicator, an index value of 100 represents the highest value achieved by a city. If, for example, according to official registration statistics, Wolfsburg has a share of 1.5% e-vehicles in all registered vehicles, then this is the highest value among all the cities examined and thus the maximum value of 100. For each topic area, additional digital projects outside the defined indicators are also recorded, which can change another 5% of the achievable total

4.5 Smart City of the Future

303

Smart City Ranking of all German cities Overall ranking Rank

Trend

City

Index

Hamburg

79.2

Munich

74.4

Cologne

73.0

Darmstadt

71.7

Karlsruhe

70.0

Karlsruhe

69.1

Berlin

68.6

Osnabrück

66.0

Aachen

65.9

Heidelberg

65.7

Fig. 4.26  Factors and core objectives of a smart city. (Source: Heinemann, 2019 based on Nesselrooij, 2019)

score for each topic area (Ibid.). Figure 4.26 shows the top 10 cities in the smart city ranking from 2020. Example Smart City Index for Mönchengladbach In the Smart City Ranking from 2020, Mönchengladbach occupies 52nd place out of 81. This puts Mönchengladbach quite far behind in the comparison of major German cities. This is despite the fact that the city received funding of EUR 15 million for smart city projects from the Federal Ministry of the Interior in 2019. Partial areas are relatively well off, because the Vitus city can achieve top marks of 100 points at least in the areas of “Local trade and startup hubs” and “Parking”, since there is already since 2010 the possibility to pay parking fees by smartphone. When it comes to online appointments, Mönchengladbach scores 83.3, making it one of the strongest areas in the city. This relates to online appointments at the registry office, the immigration office, the citizens’ registration office, the trade licensing office and the vehicle registration office. With regard to online services, aspects such as re-registration within the city, day-care centre registrations or the application for a resident parking permit were tested. A good 79.3 points were awarded for this. This is good, because especially in the pandemic, the interest of citizens in digital access to the administration has obviously increased enormously. In October 2020, for example, around ten times more visitors used the city’s website than in the same month last year. The most popular services were those provided by the municipal library

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and in the registration office, all services relating to vehicle registration and driving licences, as well as online appointments. The latter are usually the most direct points of contact for citizens with a digital city. However, points such as city apps, smart waste, intelligent street lighting or digital scene show weaknesses. For here there was not even one point (RP Smart City, 2021; Bitkom. SC, 2021). This is also due to the fact that new backend structures are being worked on first. These structures are actually the decisive ones, because what the citizens see at the end, a linguistically and visually good platform, is actually only 10–15% of the actual structure. More important are the remaining 85–90%, which control the background processes. In the end, Mönchengladbach should offer its citizens an ergonomic, secure, fast and transparent service. But a city cannot offer everything online. For example, applying for an ID card in person is required by law. Changes in the law are necessary here, which cities cannot influence. It is also not uncommon for suitable online interfaces to be lacking. The OZG affects around 5500 individual services, which the municipalities must then also offer their citizens digitally. The central motto here is the EfA principle (“one for all principle”). In this context, work is being done nationwide on the technical implementation through “digital model regions”. According to this, the online service is developed in one city and all other municipalities can then also use it in return for a share of the costs. Accordingly, Mönchengladbach has analysed its access statistics and identified the most frequently searched terms. In the near future, it will therefore also be possible to apply online for simple information from the civil register, border crossing cards and various citizen cards (Ibid.).

4.5.3 Intelligent Mobility and Traffic Management Intelligent mobility will determine the future of our entire transport system. To achieve this, transport must be networked at all levels. Mobility as a service creates the possibility of combining individual transport systems. As a result, the customer’s desire for transportation comes to the fore and no longer the means of transportation. Efficient traffic control systems or so-called Intermodal Transport Control Systems (ITCS) connect the central computer systems of the individual means of transport (modes) for this purpose. Only the communicative exchange of data enables more efficient traffic control systems that optimize the overall traffic flow. This is achieved by means of remote-controlled traffic control and interactive traffic management, which ensures effective interlocking of the individual modes of transport and makes this new mobility attractive for passengers. Modern IT systems are the basis for this. These enable the use of artificial intelligence, big data and data mining to identify the strengths and weaknesses of the transport systems. To this end, extensive traffic data is collected, stored as Big Data and made available in special data centers. The data makes interactive traffic management possible, which coordinates the individual traffic control systems taking into account the different traffic routes and

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includes road, rail, air and ship traffic management. Using AI, this enables road users to be navigated efficiently, taking into account the current traffic situation or personal preferences. Traffic is coordinated and optimised by a central traffic control system using a computer-aided operations control system (AVLC). This is linked to other computer-aided operations control systems and is thus part of an ITCS that enables transport operators and planners to use it in completely new scenarios. For a major event, for example, live traffic data can be used to schedule special trains and buses to transport passengers. Once the train operator has shared its traffic data collection with the bus operator, the latter can coordinate its vehicles based on the train-vehicle tracking. This can minimize excessive congestion at bus stops at the station (IT-Trans.org, 2021). With modern vehicle communication systems, ITCS can also be used for remote traffic control. For example, in the event of an accident, the ITCS ensures that the timing of traffic signals (traffic lights) on the designated alternate route adjusts to the increased traffic volume. The efficient control of the traffic lights improves the flow of traffic, for example by means of a “green wave”. This type of traffic light control can also be used for motor vehicle traffic at intersections and junctions, and separately for buses and trams, bicycle traffic, pedestrian traffic and rail traffic. Traffic safety is always taken into account (Ibid.). Innovative Mobility Solutions New mobility solutions such as e-bike sharing, car sharing or e-scooters provide for travel combined from different means of transport. This is not just about fast transport, but above all about sustainability in traffic and transport. This is where the sharing economy comes in, where individuals no longer buy e-bikes or cars, but share them collectively and according to need. This reduces long idle times and the need for parking spaces. Carpooling can be done through ride-sharing apps and reduces the per capita environmental impact of road traffic. For the future, autonomously driving cars are also being considered, which can be integrated into intermodal passenger transport. The focus on sustainable transport requires new innovative mobility solutions, e.g. in addition to autonomous vehicles or sharing economy for vehicles, new providers with mobility-as-a-service. This includes carpooling systems such as ride-sharing apps, which is an example of mobility as a service. This makes use of multimodal transport, i.e. the use of several means of transport (modes). This combines local public transport, long-distance public transport, bike-­sharing services, car-sharing, loaner vehicles or car rental, and e-mobility. Passengers from rural areas are given the option of park-and-ride services so that they can switch to public transport. E-mobility, on the other hand, ensures that every citizen can participate in the intermodal concept with offers such as e-bike sharing or e-scooters. This also applies to couriers within conurbations, who use e-driven cargo bikes, for example (Ibid.). City Mobility Index City mobility in major cities worldwide was measured and compared in the “Mobility Futures” study by market researcher Kantar. The study is based on more than 20,000

306 Fig. 4.27  The City Mobility Index Top 10. (Source: Horizon Mobility, 2019)

4  Examples for the Stationary Retail Trade of the Future Ranking

City

Score

1

Berlin

90.7

2

Auckland

90.0

3

Moscow

84.1

4

Big Apple

82.9

5

Munich

79.5

6

Milan

79.0

7

Montreal

78.5

8

Warsaw

78.4

9

London

75.1

10

Paris

74.7

interviews with residents from the 31 cities studied as well as in-depth interviews with 53 mobility experts. It aimed to inform urban transport planning and development around the world. It also aims to contribute to the development of business strategies for new and existing players in the transport and mobility sector. In the survey, which took place in 2019, Berlin had the best mobility infrastructure globally out of 31 major cities worldwide. This was based on the so-called “City Mobility Index”, which was used to assess significantly on access to a wide range of public transport and ride-sharing services. The German capital achieved a score of 90.7 points, just ahead of Auckland in New Zealand with a score of 90.0, while Moscow came third with 84.1 points. With the best access to urban mobility for its citizens, Munich ranked fifth among the cities. Johannesburg, Sao Paulo and Nairobi scored the worst. These three cities ended up at the bottom of the ranking mainly due to their limited public infrastructure (Horizon Mobility, 2019) (see Fig. 4.27). The two top rankings of Berlin and Munich are somewhat marred by the fact that the two German cities have an above-average proportion of lone drivers. With 30% for Berlin and 26% for Munich, they therefore rank further down in the second part of the study, the “Green Commuters Index”, and no longer in the top 10. The “Mobility Futures” study shows that many car commuters are looking for alternative ways to get around the city. On the other hand, a large proportion of commuters still cling to their own cars, whether as a status symbol, out of convenience or due to a lack of alternatives. Also, using public transport triggers negative emotional reactions more often than using other modes of transport. Amsterdam and Copenhagen, on the other hand, are home to the world’s “super cyclists,” ranking first and second, respectively. Another finding of the study is that residents of cities in Southeast Asia are particularly likely to use a variety of travel/transportation apps to get around their city. Overall, it highlights the importance of understanding citizens’ needs and emotions associated with mobility in order to use that as a key to changing behavior.

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People are obviously more likely to use modes of transport that they enjoy. This is mainly related to lifestyle and not only to the way of getting around (Ibid.).

4.5.4 Urban Logistics of the Future The term “urban logistics” is used time and again when talking about the future of cities. The economy and population of metropolitan regions experience on a daily basis that the infrastructure has reached its limits. Air pollution, noise and traffic jams challenge politicians to take action. Driving bans and other traffic restrictions, even car-free cities, seem inevitable. The logistics industry is particularly in focus here and faces enormous challenges: High growth rates in e-commerce on the one hand and increasingly stockless and flexible retail concepts on the other are leading to more and more inner-city delivery traffic, which is perceived as a competitor for scarce traffic space by the likewise growing individual and public transport (Gerdes & Heinemann, 2019). The Urban Logistics Ecosystem Urban logistics is an ecosystem that includes not only CEP service providers but also consumers or citizens, suppliers, employees, industrial or service and retail companies as well as public administration and politics. Many stakeholders pursue their own agendas and interests, which are not always consistent and congruent. Those who want to develop comprehensive concepts for urban logistics must be aware of its complexity in order to identify conflicting goals in time and to be able to manage the resulting risks (Ibid.). Undoubtedly, the individual members of civil society are the most complex and conflicting members of the logistics ecosystem. They form the basis of the business. Without them, there would be no urbanization and no urban logistics. It is the citizens who, on the one hand, demand the services as customers and, on the other hand, ensure urban logistics as employees. In their role as transport users, they compete with urban logistics for scarce transport space. Individual traffic is the biggest contributor to inner-city air pollution and traffic chaos. Residents and voters demand protection from traffic, noise and air pollution in their neighbourhoods on the one hand. On the other hand, they insist on free movement and functioning mobility (see Sect. 4.5.3). This contradiction forms the backdrop to policy, at federal, state and local level. Local policy in particular has the thankless task of resolving all conflicts of objectives with its instruments. In view of the existing framework conditions, there are really only two options open to it: On the one hand, it can increase the efficiency of the public infrastructure and/or, on the other hand, regulate its use. Many of the instruments discussed today have a focus on prioritisation and regulation. This is illustrated by the following examples (Ibid.): • Delivery time restrictions (pedestrian zones from 10:00, night driving bans, driving bans at weekends and on public holidays),

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• Delivery restrictions (driving bans, e.g. through weight restrictions and environmental standards, one-way street routing, parking and stopping bans, road construction measures such as barriers and bollards), • Fees/City Tolls, • Licensing and certification systems. Nevertheless, there are also examples of forward-looking projects that do not merely manage shortages but aim to increase the effectiveness of the transport infrastructure and its throughput (Ibid.): • Provision of real estate and creation of parking space for urban logistics, • “Smartification” of the city, e.g. through sensor-controlled parking management, traffic light control, traffic guidance, etc., • Promote cooperation and consolidation among CEP service providers, • Use of taxes and user charges for infrastructure development, • Advance an interconnected urban and suburban transportation policy to increase inner-­ city accessibility. Business and trade are probably the decisive stakeholders for urban logistics. They define requirements for the service levels of urban logistics and decide which service provider will transport the goods to the end customer. The business customers of logistics must also contribute to organizing urban logistics as efficiently and resource-efficiently as possible, e.g. through • • • • •

Pickup and delivery of supplies to and from consolidation centers, Ready for delivery at night or in the early morning, Use of digital, mobile goods receipt systems, Use of local e-commerce platforms to provide the range of goods, Offer needs-based and differentiated delivery options.

Logistics companies are very likely to tip the scales, because a comprehensive and sustainable urban logistics strategy requires the involvement of all logistics service providers concerned. These companies should do everything they can to satisfy their customers, increase their own efficiency and minimize their emissions. In this context, there is much to suggest that overall logistics efficiency can be further increased through cooperation and the use of shared platforms. This applies in particular to the following aspects (Ibid.): • • • • •

Maximize supplier vehicle utilization while minimizing delivery miles, efficient design of the last mile in terms of environmental and delivery efficiency, Offer a CO2 -neutral supply chain, Development of innovative goods transfer systems on the last mile, Provision of additional delivery and collection points in the cities.

All tasks can only be completed across the board if the following solutions succeed:

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• use a differentiated pricing structure that also takes into account delivery location and time as well as environmental efficiency, • consolidate the various flows of goods (freight, CEP, etc.), • implement digital platforms, e.g. for smart navigation, freight and/or parcel transport and crowd transportation, and • to enable direct communication between the deliverer and the recipient. To achieve this, it is essential to ensure the successful cooperation of the various stakeholders within the ecosystem described. This concerns the optimal interaction and close coordination of the individual solutions and is a decisive factor in the success of a uniform urban logistics concept. The results and experiences of the previous cooperations and pilot projects show that there is no universal solution for all application areas. Rather, the stakeholders must jointly decide which building blocks make up the concept that is specific and best suited to the respective city (Ibid.). Cooperation in Competition (Coopetition) Basically, it is undisputed that efficient and environmentally friendly urban logistics requires the cooperation of logistics service providers. However, this is not easy, as logistics companies are in fierce competition with each other and are therefore initially reluctant to cooperate. The exchange of business and customer data required for cooperation entails strategic risks for all parties involved that must be taken into account. On the other hand, the telecom industry shows how a market can grow so strongly through close cooperation between providers that all participants benefit. The following two success stories show how cooperation can also work in urban logistics (Ibid.): • City of Gothenburg: The Swedish municipality implemented a comprehensive urban logistics concept in 2012 with the involvement of local trade associations and logistics companies (Innerstaden Göteborg, 2018). At its core is a microhub for the historic city centre, which was set up in a multi-storey car park. This initially serves as a consolidation centre for retail deliveries. Freight and CEP deliveries are made to the microhub, from which delivery is envisaged by a licensed delivery service that uses only electric vehicles and cargo bikes for this purpose. The costs of the concept are borne by retailers and advertising. Although the Microhub was initially only designed for deliveries to shops, the service is now to be expanded to include deliveries to private individuals. • Heathrow Airport Limited (HAL): HAL implemented the Heathrow Retail Consolidation Centre (HCC), which ensures the supply of the 323 retail shops and restaurants on the airport site in London. As a result, transport and inventory management processes have been optimised to such an extent that the impact of goods transport on retail and operational space has been reduced by 74%. The HCC is operated by DHL Supply Chain on behalf of HAL. The HCC is now considered a showcase and is at the heart of a comprehensive strategy for Heathrow City Logistics (International Airport Review, 2007).

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These two best practices underline the important role of the municipality when it comes to developing inner-city logistics concepts. They also demonstrate the importance of taking local requirements into account. The old city of Gothenburg is in no way comparable to the airport operations at London Heathrow (Gerdes and Heinemann, 2019). Success Factors of the Urban Logistics Concept The success factors of the urban logistics concept relate to the project organisation and project equipment, the mobility objectives, the sustainability objectives and the quality objectives. Project Organization  This already lays the foundation for success. In this regard, all relevant stakeholders of the ecosystem should be integrated in such a way that the greatest possible participation is ensured. In addition, the ability to agree and work in the project should still be given. This requires not only technical but also political skills. A holistic urban logistics concept must be feasible. It should be possible to break it down into delimited and manageable work packages, both in terms of time and content. It must be transparent which results must be achieved at which stage before the next steps can be taken. The high complexity of the topic requires a constant evaluation of the project environment in order to adapt the project to changing conditions. The flexibility required for this is also a crucial success factor (Ibid.). Mobility Objectives  The success of mobility improvement can be determined by a number of criteria, taking into account movement of people and goods. These concern, for example (Ibid.): • Public transport offer (network, stops, frequency, costs, prices), • Use of public transport (passenger numbers, capacity utilisation, passenger satisfaction), • Efficiency of public transport, • Traffic density (average speed, congestion kilometres, congestion hours), • Traffic quality (supply and utilisation of parking spaces, offences), • The relationship between the use of public transport, commercial transport and private transport, • Number of microhubs for delivery services, • Number of packing stations, • delivery kilometres driven, • traffic-related losses in commercial traffic, • First delivery rates of delivery services. Sustainability Goals  The environmental friendliness of an urban logistics concept can only be measured indirectly, as delivery traffic accounts for a small share of the total traffic volume. Nevertheless, operational statistics, traffic counts, registration figures and

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environmental measurement figures offer themselves to quantify the target area of sustainability through concrete figures (Ibid.):  • • • • •

CO2 – and fine dust measurements, delivery kilometres driven (in relation to quantity), Number of electric vehicles in logistics, public CEP contract volume tied to environmental requirements, Number of traffic areas for electrically powered delivery traffic.

Quality Objectives  Even though the subjectively perceived quality of life depends on many individual factors and is difficult to measure, the contribution of Urban Logistics to individual and general quality of life can and should be backed up by the following quantitative targets (Ibid.): • • • • • •

First delivery rates of delivery services, Number of packing stations, delivery kilometres driven (in relation to quantity), Traffic disruption and complaints about delivery traffic, Key figures from e-commerce and local commerce, Satisfaction surveys.

The success factors show that the planning, development and implementation of a comprehensive urban logistics concept is complex, but not unfeasible. Quantifying the objectives is a crucial step in implementing such a project. Only once a goal has been defined is the question of who is responsible for achieving the goal and for financing it associated. There are already numerous urban logistics initiatives in many German and European cities. Here, urban planners and logistics experts are working together to find solutions to specific requirements and problems. Even though each city needs a tailor-made urban logistics concept due to its individual characteristics, it should be obligatory to look beyond the city limits. A careful study of the model cities currently being built in the United Arab Emirates, Canada and the USA will also help. Masdar, for example, is a construction project in the United Arab Emirates for a completely new city with a population of 45,000 that is to be built east of Abu Dhabi by around 2030. Among other things, it will be completely CO2 -neutral by dispensing with cars with internal combustion engines and a closely meshed public transport network. The innovative model city will be controlled by a sensor-­ controlled network. Google and Microsoft are also planning model cities in Arizona and Toronto. Showcases there will demonstrate what is already possible in urban terms today. Topics such as smartification, innovative pipe system solutions for the transport of goods and waste, tightly meshed and integrated public transport networks as well as shared economy and CO2 neutrality will be piloted. Even if the findings of these pilot projects cannot

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be applied 1:1 to Europe’s historically grown old cities, they nevertheless provide inspiration and valuable ideas (Ibid.). Critical to success for the implementation of holistic urban logistics concepts remains the development of standardized building blocks with which initial successes can be realized quickly. If every city wants to reinvent the wheel, it will be difficult to convince supraregional or international logistics providers. For this reason, a platform is urgently needed in which best-practice solutions can be exchanged. This requires the coordination of the activities of the federal government, the federal states and municipal umbrella organisations as partners (Ibid.).

4.5.5 Future Project “Vital City Centre” The future project Vital City Centre is Germany’s largest city centre survey. Two years after the last survey in 2018, the strengths and weaknesses of locations were again analysed in 2020 and ideas for the future were derived from them. In 2018, almost 60,000 passers-by in 116 cities of various sizes were surveyed across Germany. The aim was to find out how citizens rate the city centre they visit and which points they place particular value on. The results showed that shopping is the number one motive for visiting the city centre in all age groups. In terms of overall attractiveness, German cities received an average grade of 2.6 in 2018 (IFH Köln VI, 2018) (see Fig. 4.28). Overall, it was found that the success factors of an attractive city centre are above all the “ambience/flair” and “retail offer”. On the other hand, these are also precisely the factors that can hardly be changed at the locations, or only in the long term. The “experience What grade would you give of the city centre in terms of their Give attractiveness?

Average grades 2018 EW

by size of town

over 500 thousand

2,6 Overall average over all 116 participating cities

2,3

200 thousand up to 500 2,5 thousand 100 thousand up to 200 2,6 thousand 50 thousand up to 100 thousand up to 50 thousand

2,5

2,7

Top Performer 2018 by size of town

Leipzig

Erfurt

Trier

Stralsund

Wismar

What school grade would you give this downtown area in terms of attractiveness? Mean values; Evaluation based on school grades 1 to 6, n = 59,434 in 116 city centres

Fig. 4.28  Vibrant town centres 2018 – overall attractiveness rating. (Source: IFH Köln VI, 2018)

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value” and “convenience” are also very relevant. Smaller and larger locations in particular can score here and, for example, play well on the topics of events or gastronomy and convenience factors such as opening hours or accessibility. In 2020, the overall attractiveness of German city centres was once again examined. The focus of the study was on the visitor journey. Cities that understand this precisely at their location will also find good starting points for remaining attractive. They can score points with the impulse to visit, with the information in advance, with the stay or with the offer on site. Of course, the 2020 survey will also shed light on the current Corona crisis. It examines how the shopping behaviour of passers-by is changing. The shutdowns in particular dramatically demonstrated the challenge facing cities and municipalities. It is necessary to develop solution approaches around the development and revitalization of locations. More and more customers are shopping online and are therefore visiting city centres less and less. In the study “Vitale Innenstadt 2020”, shopping behaviour in city centres was analysed and the influence of mobility, demographic change, retailer mix, quality of stay and living, the feel-good factor and customer typologies on the attractiveness of city centres was examined. To this end, around 58,000 passers-by were interviewed in 107 German city centres in autumn 2020. The main result of the survey in 2020 was that, in addition to the creation of experience spaces, the framework conditions for stationary trade must be improved above all. To this end, from the customer’s point of view, the inequality between online retail and local retail must be evened out, for example through the introduction of a product shipping tax. In addition, more options are desired in the area of store opening. This applies both to opening 24/7 and to offering additional open Sundays. From the customer’s point of view, it is also important to have an attractive mix of retail, gastronomy, cultural and leisure offerings as well as living and working. The journey into the city centre should be worthwhile and therefore become an experience! This requires, among other things, well-designed shopping streets, squares with a high quality of stay, good pathways between the retail locations, a well-developed public transport system, sufficient and affordable parking spaces, and the guarantee of safety and cleanliness. Basic needs such as seating and adequate toilets are also expected. In addition, digital offerings from brick-­ and-­mortar retailers, including on-site delivery services, should be available. However, a normal shopping trip remains the main motive for visiting city centres – especially for older people (65%) and a significant factor also for younger target groups under 25 (50%) (Ibid.) (cf. Fig. 4.29). How attractive and experience-oriented German cities are perceived by their citizens is largely determined by the stationary retail trade. Attractions as well as leisure and cultural offerings also strongly influence the experience value of a city centre. Cities and municipalities can only overcome the current challenges if help is provided quickly and unbureaucratically. A government-funded “downtown fund” could help. Improved access is also needed for key properties. In all of this, inner cities and town centres must be geared to the requirements of sustainability and climate protection. This also means less asphalt

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Shaping the future of city centres Downtown shopping is the No. 1 motive for visits across all age groups – but younger people have to

New incentives and supply structures are created Shopping/Shopping spree Gastronomy Going to the authorities, doctor, work, training Living Services (e.g. hairdresser) Recreational/Cultural/Sightseeing.

28 27 26 23 18 14 18 16 17 11 16 14 13 12 15

50 61 65

up to 25 years 26 to 50 years 51 and more

Why are you downtown today? Data in % Multiple answers possible, n = 59,434 in 116 city centres

Fig. 4.29  Vital city centres 2020 – motives for visiting city centres. (Source: IFH Koeln VI, 2020)

and concrete and more greenery and water. Microclimate and quality of life are important to citizens. For people, city centres are a factor of identification and a place of encounter (IFH Koeln VI, 2020).

4.6 Intelligent Shopping Centers of the Future There is no doubt that shopping centres seem to have better conditions than city centres with regard to stationary retail, as they are professionally managed and are not exposed to the decision-making quagmire of local politics. Nevertheless, they too are affected by the current structural changes and must reinvent themselves. Unlike cities, they only have the “shopping” option and do not have the opportunity to find new roles beyond retail. The customer demands on shopping centers partly coincide with those that consumers place on city centers. Nevertheless, there are other expectations associated with “one stop shopping” in malls in particular. A great opportunity certainly exists in the coordinated offer of comprehensive services, which city centers cannot offer in this way. Increasingly, however, services must also be thought of in terms of tenants, who up to now have tended to feel that they are being bullied and have seen increasing problems with their total costs (“total cost of ownership”). Therefore, shopping centers should take this aspect more into account in their business models and see themselves more as enablers for their tenants. In any case, an evolution of shopping centers towards service and lifestyle hubs can be observed. In addition, various revitalization strategies are being considered, which in any case must also take into account a stronger digitalization of the shopping centers. The ideal

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scenario for both shopping centres and city centres would be a fusion of the two location models, as in Bad Münstereifel (see Sect. 4.6.5).

4.6.1 Customer Journey in Shopping Centers Since the highly regarded Berger study “On the trail of the customer”, for which around 42,000 consumers in 64 shopping centres across Germany were surveyed about their shopping behaviour and almost 2000 shopping diaries were evaluated, shopping centres in the German-speaking world have hardly been empirically studied (Berger, 2013; Heinemann, 2017). While empirical studies on city centres are experiencing a veritable boom, only in 2017 was there a major study by the EHI on the topic of customer behaviour with a particular focus on the customer journey (Computerwelt CJ, 2017). The EHI asked for the current opinion of shopping center operators on the topic of customer behavior analysis. According to the survey, all surveyed shopping center operators still rely on established methods such as customer counting and customer surveys. Digital methods and new technologies, such as license plate recognition at the parking lot or WLAN tracking, are only slowly gaining ground. Although almost all shopping center operators record customer behavior in the center (75%) or at least plan to do so in the medium term (25%), only 63% of the center operators surveyed evaluate the online customer journey. The holistic collection, processing and availability of the data is still strongly neglected. It is clear that the analysis of customer behavior tends to be focused on from a stationary perspective. Thus, the main focus is on the recording of the main entrances and exits as well as the parking garages or parking spaces (63% each). This is followed by the secondary entrances and exits and the main aisles (38% each). Only half of the operators already collect data of the entire center, but on a rough recording level. More detailed information on individual themes or advertised products is apparently only relevant for 13% of shopping center operators. The knowledge about the customer therefore lies – if at all – with the retailer. It is also not known whether shopping centers collect customer data at all and use it for their marketing activities. However, this data is the basis for digital and thus efficient forms of advertising. This is likely to be one of the shopping centers’ biggest dilemmas and a major factor in determining their future. In any case, the analysis confirms that digitalization concepts are also gaining ground for shopping centers, from customer journey tracking to digital signage. In order to be able to address customers personally in the future and thus offer them an optimal shopping experience, shopping centers are increasingly relying on data provided by technologies such as network cameras. However, this customer data is anonymous and therefore unsuitable for true online marketing (Ibid.). This is a cause for concern for shopping centres in that more than 80% of consumers also use other shopping options in city centres in addition to shopping centres (Berger, 2013; Heinemann, 2017). The Berger study already clearly showed the threat potential of online shopping on the one hand, but also points to very specific opportunities. This concerns, for example, networking with the online world. As the study correctly concludes,

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the digital world must be brought into the center. Shopping centers can and must also be made attractive for online-savvy customers. From the customer’s point of view, it is a matter of making the stay in the center more pleasant and of bringing meaningful concepts from the digital world into the shopping mall. As the study rightly points out, shopping centers in particular have the best prerequisites for transferring the useful aspects of the online world into a unique offline world and continuing to inspire customers there. In addition, tenants must be supported in becoming future-proof when it comes to online shopping or multi-channeling. Tenants can also be provided with an optimal framework for their own modern presence with digital and innovative customer services. For this, however, it is important to know the exact requirements of the customers (and tenants are customers, too). At this point, we will refrain from repeating all the study results on this topic. Nevertheless, in connection with internet use and the indications already presented, five core aspects are to be presented that are increasingly emerging in the kaufDA time series analysis and are also likely to be relevant for shopping centres (kaufDA, 2018; Heinemann, 2017): Web to Center  Customers expect all information on the web (Ibid.), also about centers and their offerings. The presence of the shopping center in all relevant information channels is of outstanding importance from the customer’s point of view. This applies above all to the local search on Google, the navigation to the center and the information on the general time required as well as the parking situation in the center and, of course, for the complete offer, i.e. product-related searches and all common multi-channel standards. The extent to which tenants can be contractually obligated to do this is at least worth examining.  Web in Center  Customers expect mobile access “anytime and anywhere”. Free and good WLAN is a matter of course from the customer’s point of view. But also the navigation option in the center, the interaction option in case of queries as well as all the technologies that have already been shown in connection with digital-in-store. Customers need charging stations, terminals, devices close to products, real-time information about waiting times or special offers and, above all, service points, interactive information areas, pick-up stations, return stations, etc. (Ibid.).  Usability in Center  The customer wants ultimate usability and more freedom (Heinemann, 2017). There are great opportunities for shopping centers if, in addition to cross-channel offers, the center itself is designed with the highest possible usability for the customer, more or less as a “smart center”: The customer takes a product from the shelf of one retailer, then goes to the next shop, leaves the store and is not arrested for theft because he was able to pay for both retailers on the way by thumbprint on his smartphone. This is what the shopping center of the future could look like. Without borders, but with all the freedoms (kaufDA, 2018; Heinemann, 2017).  Time with Center  Speed is the benchmark today. Customers expect easy self-service options and time savings (Heinemann, 2017). This aspect is just being invented in the stores of online retailers for stationary trade. A central shopping center app with payment function would be ideal – perhaps combined with a virtual center customer card or a center

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c­ ustomer account. Time losses from the customer’s point of view must be avoided at all costs – even in or in front of the parking garage. Today’s touchpoint is the smartphone. It is the remote control of life. Everything has to come together there. A message on the smartphone, “Parking level A is full”, for example, would be a sensible measure. Today, no customer will forgive a loss of time (kaufDA, 2018; Heinemann, 2017; NewStore, 2021).  Center to Home  Customers expect all conceivable delivery options to their homes, i.e. also “ship from center” (kaufDA, 2018; Heinemann, 2017), preferably in bundled form or perhaps in cooperative form together with tenants. Same day delivery is increasingly replacing store visits. A special service for the customer would also be assistance with the transport of goods: if his car is already in the parking garage, why not pack his things in the trunk for him? Or store heavy bags until they go home? 

4.6.2 Revitalisation of Shopping Centres The twenty-first century is more than ever characterized by changes that affect the market in cycles of increasing speed. This relates above all to the rapidly growing number of digital options and people’s changing lifestyles. These changes also have a direct impact on shopping centers. Online retailing, for example, represents ever greater competition for stationary retailers and is leading to a decline in sales in shopping centers. For this reason, the endless development of new shopping centers is no longer expedient. This is especially true for aging center spaces and exhausted locations (Bauer & Rock, 2019). An alarm signal is that the productivity per unit area of shopping centres has fallen by 10.7% in the last 15  years. This figure is likely to double again as a result of the Corona crisis. Revitalization was already needed at nearly half of the shopping centers in 2016, and only 46 shopping centers had plans to do so in 2018. A lack of awareness, scarce funding, lack of expertise, difficult ownership and, above all, pressure on property returns are often the reasons why necessary revitalizations do not take place. The investment backlog that builds up makes the situation worse. Tenants, local retailers and investors suffer from the increasingly poor performance and initiate a typical course of illness for shopping centers. As competition grows, a center’s lack of appeal becomes a competitive disadvantage and an ever-increasing burden for tenants (Bauer & Rock, 2019; Lang, 2017) (see Fig. 4.30). Revitalization Versus Redevelopment Versus Refurbishment A survey of GCSC (German Center of Shopping Centers) member companies in 2019 found, not without reason, that over 98% felt that the revitalization of shopping centers was very relevant (84.5%) or relevant (13.8%) in the current market environment, which impressively underscores the urgency of the issue. However, the terms “revitalization”, “redevelopment”, “refurbishment” or “relaunch” are often used synonymously and misleadingly. The difference lies particularly in the degree and extent of intervention in the building fabric (Bauer & Rock, 2019). In this context, revitalization (and redevelopment) is a partial

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Fig. 4.30  Disease progression of a shopping center. (Source: Lang, 2017)

aspect of project development for existing properties. It is usually stock development or building in the stock. Redevelopment (“re-development”) is a real estate project. In this context, land or buildings that were/are already in use and no longer correspond to their intended purpose are put to a new use by means of structural measures on the existing buildings (or demolition and new construction). These are aimed at structurally redesigning the property for a new use in order to bring about an upgrading of the existing portfolio properties as well as a new economic exploitation of the property. Accordingly, redevelopment extends the economic life of the property by increasing its efficiency and thus also its useful life. In this context, revitalization should be considered separately, as shopping centers are not built for their own use or only for tenants, as is the case with other types of use, but the visitors are the decisive factor in the success of the center (Bauer & Rock, 2019). Revitalisation  Revitalisation (re-occupation) is basically a (usually relatively comprehensive) structural adaptation of already used properties to (changed) user requirements. In addition to improved (re-)usability, the diminished or lost market position is to be improved. Apart from the appearance (inside/outside), the technical, constructive, functional and/or optical measures should have a positive effect on the market position and the value of the object. The revitalisation envisages that the original use is retained. In other words, the building is given back its intended function, thereby extending or re-initiating

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the life cycle of the property. Accordingly, shopping center revitalization envisions restoring outdated, “burned”, or even “dead” shopping centers to a state of marketability and competitiveness through modernization and/or maintenance. In any case, however, revitalisation must be considered from different angles, namely from a structural-technical, financial, market-related and management-oriented perspective (Heinemann, 2017; Bauer & Rock, 2019).  Redevelopment  The main difference between revitalization and redevelopment lies in the change of use. The core of this remains unchanged in the case of revitalisation, whereas redevelopment envisages a comprehensive change of use.  Refurbishment  Refurbishment involves revitalization with a focus on structural and technical measures. The building structure of shopping centers is very complex.  Relaunch  The relaunch looks at the revitalization from a marketing perspective. Due to the very different target groups (tenants, owners, customers), the centers must be open to change.  Overall, major (structural) interventions are planned for the revitalization. These include the architecture, the design, the tenant mix, the communication in the center, the center management, the layout, the service, the cost situation and the services offered. The aim is to make the center more attractive again, which will increase the length of stay of customers and correct existing deficiencies. Ideally, the result is value retention or value enhancement. As a rule, revitalization is also associated with a repositioning of the center (Ibid.). Life Cycle Shortening of the Need for Revitalization The problem is that the cycles between revitalizations are becoming shorter and shorter. According to a 2018 study by the Gesellschaft für Markt- und Absatzforschung (GMA), the cycle between revitalizations currently averages 10.4  years. The first revitalization should take place after about nine years (9.4), the second after about eight years (8.5). In contrast, in 2006 the average value for the first revitalization of shopping centers was still 17 years, and the subsequent second was due on average nine years after the first (Bauer & Rock, 2019). There is no doubt that the need for revitalization depends on the individual property in each case. Revitalisation is actually only necessary when the shopping centre is structurally outdated. In this respect, structural wear and tear and signs of aging become visible in every center over time, even if a center is doing well. Regardless of this, the link to business management can be a stronger trigger for revitalization. Redevelopment into a Leisure Park Shopping” also always has a social function, because in the vast majority of cases people either stroll with friends or other family members (social exchange while shopping). This social aspect cannot be covered by the Internet. Although leisure activities are increasingly taking place on the Internet, they are only virtual. Shopping centers can certainly take

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advantage of this and make their branch mix more attractive by offering more leisure activities. Customers could combine a visit to the shopping center with fun, leisure activities and quality of stay. Regular events that take place in the center or even extraordinary activities or stores can contribute to this. Atmosphere is also created by continuous greenery, a diverse range of restaurants and cafés, rest areas, play and exercise areas, seating options and high-quality furniture in a center. Shopping centers can see themselves more as places of gathering, exchange and social interaction. If these “experience” factors are taken into account comprehensively, a center can also become a kind of “experience park”. In this respect, the shopping center of the future could be a “meeting point and place of social exchange”. This is also how the real estate service provider Cushman & Wakefield puts it in a study with the gloomy title “Survival of the Fittest” (Hall, 2016). Owners of around 1500 shopping centres from all over Europe have shown which strategies they want to use to make their areas more sustainable. The most important goal was to attract more customers and keep them in the center longer. This is to be done through a higher proportion of cafés, bars and restaurants (Hall, 2016; Heinemann, 2017; Lang, 2017). While shopping centres today have around 95% of their space occupied by retailers, this figure could be closer to 80% in the future. The remaining 20% of the space should be reserved for gastronomy and leisure facilities such as cinemas or fitness studios. The developer of the “Mall of Switzerland” already seems to be implementing these recommendations in an exemplary manner. Here, around 40,000 square metres are earmarked for retail, but at the same time, a leisure area of more than 10,000 square metres is to be built. This will include a huge multiplex cinema with over 2000 seats in twelve halls and a surfing facility with the first standing water wave in Switzerland. Other concepts, on the other hand, bring more cultural offerings into the shopping center, as in the “Magnete Milano” project on the former trade fair grounds in Milan (Ibid.). The plans included a music centre, exhibition spaces for digital art and innovative shop formats for electronics suppliers (Ibid.). The enrichment with more leisure atmosphere also lends itself to the fact that amusement parks are in vogue. Adventure and adventure parks, nature and animal parks, film and theme parks, brandlands (“brand worlds”), holiday parks and indoor attractions generated well over EUR 1.7 billion in revenue in 2018, with around 40 million visitors to Germany’s more than 200 theme parks (Statista Freizeit, 2019). If fitness centres and all other conceivable experience aspects were included, three billion euros in turnover with a high value-added share could quickly be added up, which in relation to the approximately six billion euros in rental income of all shopping centres in Germany (estimated) represents a good additional potential.

4.6.3 Evolution of Shopping Centres into Service and Lifestyle Hubs The proud time of the big shopping temples is obviously over. Not only since the Corona crisis have shopping centres suffered from customer flight (FAZ No. 286, 2020). The market for shopping centres is stagnating in Europe. All experts practically agree that the

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The digital service power in the shopping center Today

Mrgen

click&collect Click&Reserve

click&get

Pay at the checkout

Self-payment stations digital e card (cash desk) Mobile payment platform

Seller

Personal intelligent advisor human or robot

Customer card

Smart customer profiling

Fig. 4.31  Digital services of tomorrow in the shopping center. (Source: Schleicher, 2017)

shopping center market has passed its zenith here. The exciting question is what shopping centers can do to avoid suffering the same fate as department stores in city centers. When it comes to strategy, digitalisation is without doubt probably the most important trend for shopping centres as well when it comes to the future. All well-known shopping center operators have experimented here in recent years to reach mobile, digital customers and invite them to stay longer. Often, however, the aspect of the basic needs of a pleasant shopping experience was left out. Customers prefer digital innovations that take place more in the background. It’s not about digital killefit and blibbling, but things like information transfer, logistics, payment or inspiration via social media, among others. Convenience through technology, in particular, is where younger shoppers, at least, have been least satisfied to date. It is now clear that the “services of tomorrow” shown in Fig. 4.31 will be the standard in shopping centres in the future. It is now a matter of optimizing and revitalizing existing centers. Only those shopping centers that use technological trends to offer the best possible customer-oriented service to visitors will continue to be popular. Against this backdrop, operators are currently focusing on three strategies that are largely based on new technologies and include a high entertainment and experience factor, a high level of customer service, and a high value on customer orientation and convenience. The experience and development of shopping centers to date shows that the entertainment and experience factor has obviously been overestimated. Customers are not primarily interested in ‘Halligalli’, but in a smooth shopping experience. In terms of customer service, consistent services are therefore important in the center. To achieve this, tenants and shopping centers must be closely interlinked. However, customer orientation also means always keeping an eye on the customer’s total cost of ownership. For consumers, this includes the cost of travel, parking fees and all other fees and costs, right through to the possibility of low-cost dining. For the tenants, the total costs result from all rental costs including ancillary costs as well as all other fees in relation to turnover as well as in benchmark to all other locations. In the end, however, service

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orientation can only be answered from the customers’ point of view, because they drive the development (brandeins, 2014; Heinemann, 2017). They use new technologies and thus always place new demands on the providers, for whom it is about a new type of customer orientation, but for a customer that did not exist in this way before. The following aspects characterize the shopping center of the future (Heinemann, 2017; Schleicher, 2017): Convenience and Time Advantages  The digitally spoiled customers expect digital time advantages. In this regard, it’s all about speed, time reliability, and situation-specific offers. Same Day Delivery (SDD) was already set as a standard last year and will continue to spread – driven primarily by the market leaders eBay and Amazon. Customers often shop brick-and-mortar to have the goods at home the same day. This is what they now get through SDD. Desired date delivery or reliable time slot deliveries for those who do not want to wait “on the off chance” at home for the products to be delivered will also be expected by customers in the future. Irrespective of this, alternative delivery locations are also important for customers. Depending on the situation, one or the other then makes sense. Added to this is the desire of customers for constantly new offers and thus increased collection frequency. New collections are appearing ever faster and these are being delivered ever faster. For the tenant mix, this means providing appropriate offers via innovative and verticalised business models. But it also means saving time when shopping through recommendations or “tailor-made” pre-selections, such as in curated shopping. This relates to situation-based offers that are made possible by localizing the customer and his specific purchasing situation and have already been successfully implemented in location-­ based service offers. VIP Services  Top service offerings are already essential for customers when visiting a shopping center. The appropriate service offer has become a main criterion, similar to the availability of products and the good accessibility of the center. A lack of service, and especially poor service, is not only perceived as negative, but is considered a killer criterion. That is why exclusive feel-good offers are becoming more and more important; every product is also available for purchase online (Schleicher, 2017).  Story Your Center  Visual storytellers create differentiation. Customers expect a clear story behind a brand and the shopping location. Emotionality is the trump card here: that’s why even the top brands use individual storytellers or influencers to achieve more emotionality and authenticity. The megatrend of sustainability fits in with this. This not only leads to environmentally friendly and resource-saving construction or maintenance, but also to events around sustainable topics. The tenant mix should share these values (Ibid.).  Reurbanisation Refined  Location is no longer everything and hyper-proximity to the new customer by no means means the location just around the corner, but the socio-­cultural embedding in the surroundings. It is no longer a question of pure centrality. However, many urban shopping centers lack the unique selling proposition. In order to underline urban affiliation, for example, shopping centers can rely on community events and offers and/or coworking spaces. Local and exclusive supper clubs (cooking clubs) are also conceivable, which attract people from the region more strongly to the shopping center. This would make the shopping center more lively and integrated. The ideal would be a mutually enriching symbiosis of retail and technology from the customer’s point of view. Proximity

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Zukunftslnstitut

Future Lifestyle Hubs Three concepts driving the evolution of shopping centers

Green building

Sustainable shops, vegans food, sustainable materials and technology, natural design, open layout, trainings

Health center

Health offers: Doctors, wellness offers, health service stations or mobile services, brands with wellness add-on package healthy food-courts, training courses and events

Educational sites

Regular events and creations, shops with services, educational service stations

Quelle:Zukunftsinstitue 2017

Fig. 4.32  Future Lifestyle Hubs. (Source: Schleicher, 2017)

to the customer is crucial here. Future shopping malls must not only fit into their surroundings architecturally, but must also interact with the local community (Ibid.).  Lifestyle Hubs  In the future, shopping centers will become lifestyle hubs, whether in the form of health centers or green buildings (see Fig. 4.32). These are precisely the places where visitors meet with friends and colleagues. They are also where people work and feel at home, and where they can visit their health advisor. It is a place to live, to eat, to shop. The latter, however, becomes a secondary matter at these lifestyle hubs, because shopping is only one option of many for visitors. Future consumers want more than shopping and are

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4  Examples for the Stationary Retail Trade of the Future

looking for meaning. Like-minded communities and interpersonal interactions are more important to them. In this regard, the three megatrends of health, education and sustainability will drive the evolution of shopping centers into lifestyle hubs. In this context, the quality of stay can be made more sustainable through the development of hybrid concepts – with a mix of retail, gastronomy, entertainment, education and health offerings (Ibid.).  The key question is: How can a shopping center use this new type of customer orientation? It has an impact on the type and composition of the product mix, the range of products, the extent of vertical providers and all digital issues from the customer’s point of view. It cannot be the case that, for the customer, the digital world of the shopping center stops at the tenant’s door. Most of the space in a shopping center is still retail space. That’s why there are only two options: with the tenants or not at all. Or maybe there are new potential tenants who are not from the retail industry (Heinemann, 2017). In any case, however, the challenges are reflected in the number of shopping centres: there will probably never again be as many centres as there are today. Obviously, the large inner-city centers of the metropolises and large cities have better chances, although they often pose a problem for the city centers. As a result, visitor frequency there is also declining. If shopping centers have this in mind and individual retailers succeed in perceiving changing customer needs and taking advantage of the opportunities offered by innovative technologies, they are likely to be quite viable for the future (ibi EKZ, 2018; Schleicher, 2017).

4.6.4 Digitisation of Shopping Centres The ibi research center at the University of Regensburg has conducted a study to investigate how German shopping centers should respond strategically to developments in the field of digitalization. The focus is on which measures and technical innovations make sense for centers and what shopping centers of the future could look like. The study shows that shopping centers are already responding to technological, customer-driven, economic and legal developments. However, many shopping centers are still in the experimental phase. Currently, innovative technologies in particular are being used to strengthen stationary sales. Free WLAN access and an online presence are considered hygiene factors. Further digital options should be used individually. Each shopping center operator must answer the question of the extent to which digital options should be used in order to implement a coherent overall digital concept in relation to its size, its location and, above all, its customer structure on a case-by-case basis. In no case it makes sense to install digital innovations just for their own sake, but always keep an eye on the actual added value (ibi EKZ, 2018). The spectrum of digital tools is wide. For example, shopping centers can score with facilitated parking, navigation in the center, digital entertainment, and especially multi-channel concepts. Central pick-up stations, which all tenants or retailers can use and where their customers can pick up their orders even after closing time, are particularly trendy. Some shopping center retailers can thus also offer their customers

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Click&Collect, provided they have online shops themselves. A cooperative, center-wide online platform for all retailers with a connected Click&Collect solution certainly appears to be an interesting option, but has not yet been successfully implemented anywhere. Learning from Online Retailers With a view to the successful online pure players, shopping centers should try to transfer proven digital customer loyalty programs from online retail to the world of shopping centers. In the future, shopping centers must want to be at least as good as online retailers. It is also important for shopping centers to see themselves as a marketplace and to map this digitally – including the possibility of transactions. Marketplaces, which now account for more than a third of total online sales, are basically nothing more than virtual shopping centers. Because online pure players are now increasingly entering this area, shopping centers should perhaps take a closer look. Because the online house Zalando, of all companies, is currently providing a sensible solution with a pilot project and a promising approach, even in the sense of saving stationary retail. The adidas store in Berlin will become part of the Zalando platform. This is a strategic partnership on the way to networked retail. From now on, customers can order goods from Zalando that are delivered by stationary retailers. Conversely, local retailers are allowed to participate in Zalando’s e-commerce. For local retailers, this means better assortments, better customer targeting and better product presentation. With the in-house app ZipCart, customers from Berlin can directly access the stock in the participating adidas store. If the customer orders by 3 p.m., the products from the store will be delivered on the same day between 7 p.m. and 9 p.m. Accordingly, David Schneider, CEO Zalando, believes that in the future partners will be able to control the technical components themselves to set their products, define prices, quantities and location on the platform. They will also be able to manage all order processing, returns and financial processes such as payments. In doing so, Zalando aims to provide customers with access to every fashion item, no matter where they are, and connect brick-and-mortar retailers with digital customers. (Techtag, 2016; Heinemann, 2017). In addition to Zalando, shopping center operators should also take a look at Farfetch. Farfetch (http://www.farfetch.com/) operates a cooperative online portal that offers various partner stores a “carefree package” with all-round service from logistics to shipping to payment. Stationary partners only have to link their homepage to the Farfetch platform. If a customer orders via Farfetch, the order is automatically sent to the partner store in question. The latter packs the goods directly from the warehouse, provides the parcel with the address label filled in by Farfetch and then waits for the delivery logistics company to collect the goods. Farfetch itself does not operate its own retail business, but earns commissions from brokered sales and services for its marketplace partners. The volume of trade (GMV) turned in the process was equivalent to around US$2.140 billion in 2019 (+52%). Commission revenue was US$701 million, and total revenue including service revenue was US$829 million (excitingcommerce Farfetch, 2020). Overall, Farfetch’s 2019 revenue was just over US$1 billion (+69%), due in part to the acquisition of Off-White and

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Stadium. Farfetch is seen as a prime example of how to develop an omni-channel offering that combines the speed, broad assortment and convenience of e-commerce with the personalized experience of a physical store. The luxury fashion platform, which launched in London in 2008, is not yet profitable but is now valued at around US$1.5 billion. Recent investor money is expected to go primarily towards further expansion of the technology platform (Textile Economy Farfetch, 2016; Heinemann, 2017; Farfetch, 2020). Asia-­ Pacific already accounts for 14% of sales, 12% of which are in China. The aim is to achieve a leading position there, for which expertise in the luxury fashion market is certainly helpful. In the meantime, around 400 luxury boutiques are already offering their ranges on international markets via farfetch.com. The renowned London fashion house Browns, which was acquired in March 2015, also acts as a test laboratory for digital concepts that combine the in-store experience with new technologies. The aim is to roll out tested innovations to other Farfetch partners. The launch of Black&White in autumn also shows how Farfetch’s strength can be used for other partners. The mono-brand platform offers ready-to-use online solutions for luxury brands. Shoe designer Manolo Blahnik was the first partner to leverage this concept, launching the first brand store managed by Farfetch. In addition, Farfetch expanded its offering to include new categories such as beauty and kidswear. Mid-2016 saw the launch of luxury sportswear boutique Bandier on Farfetch. Customers worldwide can browse Farfetch’s luxury boutiques and pay with a single bill. With ten country websites, Farfetch embodies the digital umbrella for partner stores and global brands from over 37 countries from Paris, New York and Milan to Bucharest, Kuwait and Tokyo. 32 German boutiques such as Voo Store, Apropos, Andreas Murkudis, The Corner, Bungalow, Michael Meyer, Sigrun Woehr, Hayashi, August Pfueller, Marion Heinrich and Huesken are also present on the platform, which averages ten million visits per month and an average order value of €660. José Neves, CEO and founder, is obsessed with the idea of building digital retail space for top-gen stationary retailers who don’t have the resources themselves. He believes the future of retail lies in bridging the gap between online and offline, seamlessly merging a fantastic physical experience with powerful but subtle technology. Both sides would need to coexist to reinforce each other (Textile Economy Farfetch, 2016; Heinemann, 2017).

4.6.5 Shopping Centres as City Centres: The Example of Bad Münstereifel Whereas city centres and shopping centres were previously opposed to each other, there are now signs of a marriage of convenience, namely city centres as shopping centres. It should be noted that this is not a recommendation to locate a shopping centre in the city centre, as this is now often the nail in the coffin for the city centre. Especially if the size of the new shopping center is sub-critical and the centrality of the city remains unaffected, which is already the case today with less than 30,000 square meters of retail space. The city centre as a shopping centre does not envisage the construction of a single shopping

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centre in the city and also not the rededication of disused department store properties, but rather the merging of the city centre and the shopping centre. Bad Münstereifel with the City Outlet Bad Münstereifel GmbH can be considered a showcase example of this. The Eifel town of Bad Münstereifel, with its approximately 17,000 inhabitants, was originally a typical medium-sized town that was massively affected by the structural changes. In the heyday of “health insurance and cures”, Bad Münstereifel, as a state-recognised Kneipp spa, counted around 50,000 overnight guests each year (SZ, 2014; Heinemann, 2017). Of the 13 spa houses, only three remained and of the former 19,000 inhabitants, 2000 moved away because there were not enough jobs. The result was an erosion of downtown retail and a vacancy rate of over 30% in 2008 (Ibid.). At that time, three local investors started acquiring real estate, laying the foundation for City Outlet Bad Münstereifel GmbH, which was then officially founded by the trio of investors in 2011. The founders were Dipl.-Kfm. Marc Brucherseifer, managing partner of the investment holding company Colonia Private Equity GmbH, Georg Cruse, co-managing director of Robert Ley Damen- und Herrenmoden GmbH & Co. KG, and Rainer Harzheim, managing director of GftK GmbH. The founders and managing directors are closely associated with the Robert Ley Group and have many years of experience in innovation investment and the refurbishment of historic properties. In addition, the investors’ local knowledge and local expertise supported the optimal development and implementation of City Outlet Bad Münstereifel, which has comprised nearly 40 shops along an 800 m pedestrian zone since 14 August 2014. Since then, an entire town has been marketing itself as a factory outlet centre, something that has never happened anywhere before and in this respect amounts to a pioneering act (Ibid.). The medieval romanticism is authentic in Bad Münstereifel. Between half-­ timbered houses, the collegiate church and the water mill, surrounded by a mighty city wall, the picturesque Erft ripples (cf. Fig.  4.33). The launch was obviously a success,

Fig. 4.33  City centre as shopping centre in Bad Münstereifel. (Source: Koeln.de, 2016; Heinemann, 2017; Cityoutletbadmuenstereifel, 2021; Schulz, 2021)

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because since 2016 the factory outlet centre has been attracting customers with nine additional shops of 50–150 square metres each and twelve new brands on an even larger area covering around 1000 square metres. The outlets, which now include outdoor specialist Jack Wolfskin and shoe supplier Marc Shoes, were opened in stages in the first three quarters of 2016. In addition to the new openings, the operators have also developed a new event concept in close cooperation with the city, in which the May and Oktoberfest festivals each play a major role and the local gastronomy is to be included. “We are planning – just like last year – close cooperation with the city,” Brucherseifer emphasizes (Koeln.de, 2016; Heinemann, 2017). Currently, more than 50 fashion & lifestyle brands are represented in Bad Münstereifel, which, between picturesque half-timbered houses together with many cosy cafés and restaurants, make the historic town centre a showcase for other cities. The old town is completely listed and is enclosed by a medieval city wall, which is very well preserved and makes a very picturesque impression due to the Erft passage through the middle of the town (Cityoutletbadmuenstereifel, 2021; Eifel Info, 2021).

4.7 Metropolises of the Future Urbanization is primarily driving the growth of metropolitan regions. Some metropolises are growing by up to 1,000,000 inhabitants (net) a year, such as the two Indian mega-cities of Mumbai (or Bombay) and Delhi. However, no city in the world will be able to hold a candle to the new Chinese super-metropolis “Pearl River Delta City”, an amalgamation of the closely neighbouring mega-cities Shenzhen, Guangzhou, Dongguan and Zhongshan, among others. This “Giga City” will soon cover an area of more than 10,000 km2 and is already an “open conurbation” with around 50  million people in the delta of the Pearl River in southern China. As early as 2030, there will be 27 major metropolises worldwide, each with more than 18 million inhabitants (see Fig. 4.34). It is striking that the two US metropolises New York and Los Angeles are only represented at the bottom end and no European city appears. Even the current leader, Tokyo-Yokohama (Japan), with its total of 33.8 million inhabitants in the conurbation, will soon be overtaken. The relevance of this for German cities is shown, for example, by the US sports supplier Nike, which already hardly supplies any cities in Europe with its latest products. There, Berlin already falls through the location grid as a “relatively small city”. In Shanghai alone, the US company generates around 1.5 billion in sales p.a. and therefore feels vindicated by its metropolitan strategy. This in turn will push online orders, as many interesting and desirable goods for customers will sooner or later no longer be available for purchase in brick-and-mortar stores, especially in Germany and its provinces (Metropolen der Zukunft, 2020). By 2050 there will be eight mega-metropolises with over 50  million inhabitants. Mumbai and Delhi will each even have more inhabitants than the whole of Germany has today, namely well over 80 million. The scale of global migration to the cities and metropolises must already be recognised today in the dimensions of its magnitude. This means an

4.7 Metropolises of the Future

Rang

City

329

Country

Einwohnerzahl Fläche in km² 2030

1

Pearl River Delta (China) City

2 3 4 5 6 7 8

Mumbai Delhi Lagos Jakarta Shanghai Tokyo Karachi

(India) (India) (Nigeria) (Indonesia) (China) (Japan) (Pakistan)

46.430.000

2.000 km²

46.410.000 40.000.000 38.170.000 34.800.000 34.500.000 33.000.000

3.500 km² 3.600 km² 4.000 km² 5.180 km² 5.100 km² 1.600 km²

9

Dhaka

(Bangladesh)

31.820.000

1.200 km²

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Manila Cairo Kolkata Mexico City Beijing Sao Paulo Seoul Kinshasa Lahore Bangalore Istanbul Tehran Haidarabad New York Moscow Los Angeles Chongqing Buenos Aires

(Philippines) (Egypt) (India) (Mexico) (China) (Brazil) (South Korea) (Congo) (Pakistan) (India) (Turkey) (Iran) (India) (USA) (Russia) (USA) (China) (Argentina)

31.520.000 31.420.000

3.500 km² 6.500 km²

28.000.000 26.610.000 26.560.000

1.500 km² 3.100 km² 6.500 km²

26.300.000 25.840.000 22.500.000 21.720.000 20.530.000 20.050.000 19.550.000 19.180.000 19.020.000 18.390.000 18.330.000 18.310.000 18.000.000

4.000 km² 3.500 km² 1.800 km² 1.200 km² 2.000 km² 1.700 km² 3.800 km² 2.100 km² 6.065 km² 3.000 km² 6.070 km² 2.200 km² 3.280 km²

60.000.000

10.380 km²

Fig. 4.34  Major metropolitan areas in 2030. (Source: Metropolen der Zukunft, 2020)

enormous upheaval due to global urbanization as well as the enormous population growth. This undoubtedly has many negative aspects, but also good sides. For example, there are opportunities for the development of urban culture as well as the binding of enormous numbers of people, which in a world that is becoming ever more crowded also make possible free spaces outside the metropolises in the countryside. At the same time, these giga-­ cities are attracting more and more people from all over, making them veritable urban behemoths. As before, the total world population is growing tremendously. While at the beginning of 2020 there were 7.8 billion people living on this planet, by 2025 there will probably be 8.225  billion inhabitants. This corresponds to a net annual growth rate of

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85 million. As early as 2050, there will probably be around 10.3 billion inhabitants in the world (Metropolen der Zukunft, 2020). The influx from the countryside to the city, from small towns to large cities, from the poorer regions of the world to the richer world metropolises, etc. will continue simply because of natural population growth. This migration (migratory movement) will shape the next decades. It will significantly increase economic disparities between regions. As a result, there will also be an influx into European regions, which is why it is highly unlikely that Europe will experience a decline in total population after all. On the one hand, this is good for stationary retailers, but on the other hand, it requires intercultural offers (Ibid.). Where the limit is for city sizes depends less on the “capacity” or “load limit” of a metropolis than on the residents who want (or need) to stay there. Even “urban hells” like Lagos (Nigeria) or Bombay (India) fill a large part of the inhabitants with a certain pride to live there. The same goes for the slums or the endless seas of houses in the suburbs. Tokyo/Yokohama with well over 30  million people, where the inhabitants live almost house to house, works surprisingly well. The mega-city is able to manage a traffic volume of over 12 million cars in a highly efficient traffic control system. At the same time, Tokyo/ Yokohama is one of the safest cities in the world. In this respect, a giga-city need not be at odds with a low crime rate (Ibid.). There are currently 32 metropolises worldwide with more than ten million inhabitants, including 13 “hyper-cities”, each with a population of more than 20  million. By 2025, there will be 53 megacities, 18 of which will have more than 20 million inhabitants. By 2050, population growth will largely stabilize at 105 megacities. By then, 40 metropolises will have reached or exceeded the 20 million mark, and seven of them will achieve “giga-­ city” status – i.e. have 50 million or far more inhabitants. These are also created by the merger of neighboring communities, which over time grow together to form a very large, largely self-contained settlement area. Los Angeles, for example, while representing a large, nearly enclosed built-up area of almost 6000 km2, still consists of a total of 119 self-­ governing localities, at the center of which is the actual (core) city of Los Angeles with a population of four million. Including all surrounding communities, the metropolis consists of 17.0 million people. According to a similar observation, Paris, for example, has not only 2.4 million inhabitants in the narrower sense, but including the directly adjacent suburbs, a total of 9.8 million “metropolitan inhabitants” in the Paris conurbation (Ibid.).

5

Risks for Intelligent Retail

Abstract

You can’t make an omelette without breaking eggs. The same applies to Intelligent Retail. Here too, all beginnings are difficult, but not impossible. Experience shows that it is better to start first than to bury one’s head in the sand. Many things can also only work in a trial and error process. This is pointed out above all by the reference to the myths of digitalisation, which often provide an excuse for not taking off digitally. But there are still legal risks to consider that are associated with the step into the online world.

You can’t make an omelette without breaking eggs. The same applies to Intelligent Retail. Here too, all beginnings are difficult, but not impossible. Experience shows that it is better to start first than to bury one’s head in the sand. Many things can also only work in a trial and error process. This is pointed out above all by the reference to the myths of digitalisation, which often provide an excuse for not getting off the ground digitally. But there are still legal risks to consider that are associated with the step into the online world.

5.1 Legal Risks in Distance Selling Pursuant to Section 312g (1) of the German Civil Code, a consumer has a right of withdrawal in the case of a distance contract. A distance contract in this sense is any contract in which the trader or a person acting in his name or on his behalf and the consumer use exclusively means of distance communication for the contract negotiations and the conclusion of the contract, unless the conclusion of the contract does not take place within the framework of a distribution or service system organised for distance selling (Section 312c © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 G. Heinemann, Intelligent Retail, https://doi.org/10.1007/978-3-658-38316-9_5

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(1) BGB). According to the provision of § 13 BGB, a consumer is any natural person who enters into a legal transaction for purposes which are predominantly neither commercial nor self-employed. According to § 14 BGB, an entrepreneur is a natural or legal person or a partnership with legal capacity who, when concluding a legal transaction, acts in the exercise of his commercial or independent professional activity (Heinemann OH, 2021). In order to benefit from the right of withdrawal as a consumer – or, conversely, to be exposed to the risk of withdrawal by a consumer as a trader – the contract must therefore have been concluded using “exclusively means of distance communication”. This is always the case if so-called means of distance communication are used for both the offer of the contract (§ 145 BGB) and the corresponding declaration of acceptance (§§ 146 ff. BGB). According to § 312c (2) BGB, means of distance communication are all means of communication that can be used to initiate or conclude a contract without the parties to the contract being physically present at the same time, such as letters, catalogues, telephone calls, telecopies, e-mails, messages sent via mobile phone service (SMS) as well as broadcasting and telemedia. However, messages sent via WhatsApp and other messenger services or via social networks also come into consideration, for example (Ibid.). If these regulations were applied to the letter, a distance contract would have to be assumed, for example, if the consumer present in the business premises of the trader purchases goods presented to him there on the shelf with his mobile phone in the online shop additionally operated by the business. A distance contract would also have to be assumed if, for example, a consumer has made a purchase on site in the shop and then subsequently makes further purchases of the same goods in the online shop. This could be the case, for example, with the repeated purchase of toner for a printer. However, such results neither do justice to the specific circumstances nor to the intention of the legislator (Ibid.). The German regulations on the consumer right of withdrawal are ultimately based on the so-called Distance Selling Directive (FernAbsRL) of the EU (Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts). According to No. 14 of the recitals, a right of withdrawal should exist because the consumer in distance contracts does not have the opportunity to see the product or take detailed note of the characteristics of the service before concluding the contract. In the example cases, however, the consumer is able to inspect the product or is aware of its characteristics from a previous identical purchase. A right of withdrawal would therefore have to be rejected. On the other hand, the legislator aims to protect consumers as far as possible. This in turn can only be achieved if restrictions of the right of withdrawal are handled restrictively. This would probably speak more in favour of the adoption of a right of withdrawal (Heinemann OH, 2021). As a result, it will have to be assumed that, according to the protective purpose of the statutory provisions, a distance contract cannot be assumed in cases where the consumer has informed himself about all circumstances essential for the conclusion of the contract during the initiation of the contract and the contract is concluded in direct temporal connection with this personal contact. The situation is different if the consumer has visited the shop solely for information purposes, but then receives further information on the

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conclusion and content of the contract by means of distance communication and the actual contract negotiations and the conclusion of the contract also take place solely by means of distance communication. It will also not be possible to assume a distance contract if the consumer has received the information he considers necessary on the occasion of a personal contact at an earlier, similar conclusion of the contract. Thus, in all the examples given, a conclusion of the contract should be assumed without the consumer being entitled to a right of withdrawal. However, the problem in this context is likely to be at the evidential level. The conclusion of the contract by means of distance communication should, by way of prima facie evidence, initially be to the detriment of the trader: Typically, contracts concluded by means of distance communication are distance contracts. The trader would therefore have to explain and, if necessary, prove a course of events that deviated from this typical course of events (Ibid.). Warning Letters and Legal Pitfalls No online trader is safe from warnings. That is why it makes sense to consult professional and specialised legal advice. This can be provided by the Händlerbund or Trusted Shops, for example. Everyone who puts an internet site or an online shop on the net should be aware that he can never be 100% safe from warnings. In online trade, so many little things matter that even a wrong wording in the general terms and conditions or in the data protection declaration can result in a warning. Certainly, the saying “Where there’s no plaintiff, there’s no judge!” also applies. Nevertheless, the risk of a warning letter can never be completely ruled out. There are simply too many possible points of attack for that. One thing is certain, however: without a professional partner, the online trader will make many more mistakes than he can imagine. Anyone who has ever dealt with the law in online commerce knows how complex this topic is (Ibid.). Consumer Right of Withdrawal With effect from 4 August 2011, the legislator has given the model instruction on the right of revocation or return in distance contracts the status of law. The legal changes in 2011 have led to the fact that all cancellation instructions valid until then may no longer be used. Otherwise, there is the threat of an expensive warning (Heinemann Law Firm, 2014, 2016). Only traders who use the model provided for in Annexes 1 and 2 to Article 246a § 1 (2) No. 1 and § 2 (2) No. 2 EGBGB in text form to fulfil their information obligations benefit from the so-called privileged status and the associated legal certainty. Since the model has the status of law, the courts are bound by the statutory model and can no longer classify it as anti-competitive (Anwaltskanzlei Heinemann, 2014 2016; Heinemann OH, 2021). However, traders who have already been warned in the past and have submitted a cease-­ and-­desist declaration with a penalty clause must be particularly careful. Because by changing the instruction, a violation of the cease-and-desist declaration could occur. This would then result in a contractual penalty becoming due. Affected parties should therefore consider terminating their cease-and-desist declaration with reference to the changed legal situation (Anwaltskanzlei Heinemann, 2014; Heinemann OH, 2021).

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However, the legislator did not remain inactive even after this. For example, on 1 August 2012 the “Act to amend the German Civil Code to better protect consumers from cost traps in electronic commerce and to amend the German Residential Property Act” came into force. According to this, all online orders must include a button with the inscription “order subject to payment” or a corresponding wording. The button should make it immediately and unambiguously clear to the consumer that by clicking on it he enters into payment obligations. If the button indicating the obligation to pay is missing or if it is inadmissibly labelled, no contract is concluded. The customer then does not have to pay. In addition, the customer must be informed in advance in a clear, comprehensible and prominent manner about the essential characteristics of the goods or services, their price, the delivery costs and any minimum contract period. Costs may no longer be hidden in the small print. The new protection applies to every online order of goods or services – whether by computer, smartphone or tablet (Heinemann OH, 2021). Finally, the “Law on the Implementation of the Consumer Rights Directive” came into force on Friday, 13 June 2014. This was again accompanied by a variety of changes for online retailers. One was that a 14-day right of withdrawal applies uniformly. The previously existing right of return has been abolished – revocation requires a “clear declaration” to the entrepreneur. However, unlike before, this declaration is no longer bound to the text form (e.g. letter, fax, e-mail), but can also be made by telephone. A return without comment is no longer sufficient. As of 13 June 2014 – among other things due to the new regulation on the start of the revocation period  – the revocation instruction also had to be redesigned (again). The start of the withdrawal period is now based on the order and delivery situation for the specific order. For contracts concluded after 13 June 2014, the general rule is that the consumer has to bear the costs of the return shipment in the event of revocation, provided that he was informed of this obligation prior to the conclusion of the contract. However, the costs of the return shipment must still be reimbursed. In addition, it must be taken into account that the right of withdrawal expires at the latest 12 months and 14 days after (the relevant point in time for the commencement of the right of withdrawal in each case) in accordance with § 356 para. 3 sentence 2. (Ibid.).

5.2 DSGVO: Basic Data Protection Regulation The new GDPR (General Data Protection Regulation) entered into force on 24 May 2016 and has been bindingly applicable since 25 May 2018. It is a European Union regulation aimed at ensuring the protection of personal data within the European Union on the one hand, and the free movement of data within the European Single Market on the other. The new data protection rules adopted by the EU apply directly in all EU member states, unlike Directive 95/46/EC of the European Parliament and of the Council of 27 April 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, which still had to be transposed into national law by the EU member states. The GDPR thus brings about a standardisation of the level of data protection for

5.2  DSGVO: Basic Data Protection Regulation

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the private and public sectors within the EU. Furthermore, data protection is to be enforced as a fundamental right in the EU (Wikipedia DSGVO, 2018). Accordingly, the EU Charter of Fundamental Rights from 2000 already states that every person has the right to protection of personal data concerning him or her. However, the relevant rules were outdated and not internet-related. At that time, the radical upheavals brought about by the internet giants – i.e. GAFA’s and now TAB’s – were not foreseeable. It was only in 2016 that EU states and the European Parliament agreed on the GDPR and decided that from now on every EU country must comply with it (Heinemann OH, 2021). Facebook’s recent data scandal, which according to the company affected up to 87 million users, has thus provided an argument for the new regulation itself. Facebook CEO Mark Zuckerberg announced his intention to apply the rules globally in the future, showed remorse and most recently almost became an ambassador for the EU regulation (Welt DSGVO, 2018). However, he has no choice, because the new rules also apply to companies that are located outside the EU, but offer their services within the EU.  Therefore, Facebook is of course also affected (Heinemann OH, 2021). The following should not go unmentioned with regard to the relationship of the GDPR to national statutory data protection regulations: In principle, the EU Member States are not permitted to weaken or strengthen the data protection regulated by the GDPR. However, the Regulation contains various opening clauses, which enable the EU Member States to regulate certain aspects of data protection for themselves at national level. In this context, on 30 June 2017, the German Bundestag, with the consent of the Bundesrat, adopted the Act on the Adaptation of Data Protection Law to Regulation (EU) 2016/679 and the Implementation of Directive (EU) 2016/680 (Data Protection Adaptation and Implementation Act EU  – DSAnpUG-EU). The DSAnpUG-EU was published in the Federal Law Gazette on 05.07.2017 and contains, among other things, a new version of the Federal Data Protection Act (BDSG-neu). The BDSG-neu also entered into force on 25 May 2018 and applies alongside the GDPR (Heinemann OH, 2021). Regulation of the New DSGVO Basically, the new regulation aims to regulate the processing of personal data by companies or institutions. This concerns, for example, name, address, e-mail address, ID number or IP address. The type of storage does not matter. Only in very exceptional cases may sensitive data concerning religious beliefs, health or sex life be processed. Therefore, consumers now have the right to information, whereby companies and organizations must provide them with the stored data upon request. In relation to a customer account, for example, customers will be able to find out how often they have made purchases, where and what they have bought. In addition, EU citizens are granted a “right to be forgotten”. Accordingly, data that is no longer needed for the original purpose of storage will be deleted. Furthermore, Internet users will be given more control over their personal data. Even if they switch from one provider to another, they will be able to take e-mails, photos or contacts with them in a so-called data backpack. Finally, users must be informed about data protection breaches – for example, in the event of data leaks or hacker attacks. If this

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has also created a risk for them, companies and/or organizations must also report the breaches to national authorities. In principle, only as little information as absolutely necessary may be collected, i.e. only the data that is actually needed. However, this data must be stored securely enough to prevent unauthorized access and accidental data loss. Data may also not be stored for longer than it is actually needed. Moreover, it cannot be used for any purpose that customers do not know about. Companies must therefore explain to users in an understandable and comprehensible way what they need the data for and for how long. Large companies that work a lot with personal data also need a data protection officer. In future, size will also play a role in the level of penalties, as factors such as the severity and duration of the infringement, the number of people affected and intentionality are to be taken into account. And there is more, because the EU Commission submitted further reform proposals last year. This time it is about electronic communication via WhatsApp, Facebook or Skype. In many cases, this involves the explicit consent of users for the further use of information such as content and metadata (Internetworld DSGVO, 2018; Welt DSGVO, 2018; Heinemann OH, 2021). Relevance of the New General Data Protection Regulation to General Terms and Conditions The far-reaching new regulation of data protection law by the GDPR also raises numerous questions in connection with the use of GTCs in online commerce, which must be taken into account when drafting clauses. For example, the question arises whether the declaration of consent of the consumer required under the GDPR can be effectively obtained as a component of GTC. In view of the provision in Article 7 (2) of the GDPR, this is to be affirmed in principle. However, an effective declaration of consent requires that the consent is given in an understandable and easily accessible form in clear and simple language. In addition, it is necessary that it can be clearly distinguished from the other facts that are regulated in the GTC. Thus, when drafting the GTC, even more attention than usual must be paid to unambiguous wording. In addition, the declaration of consent must be sufficiently emphasised – for example, by bold print, framing, colour highlighting and sufficient distance from the surrounding clauses (Heinemann OH, 2021). Highly problematic and as yet unresolved is the question of whether liability limitation clauses in general terms and conditions are to be considered invalid in their entirety if the liability limitation also relates to breaches of data protection law. An exclusion of liability is namely impermissible if it is also intended to apply in the event of a breach of a principal contractual obligation. If a clause can be interpreted in such a way that it should also result in an exemption from liability in the event of a breach of a main contractual obligation, this leads to the invalidity of the entire clause. In this respect, it has not been conclusively clarified whether breaches of data protection are to be regarded as breaches of main contractual obligations – supreme court decisions on this question are not yet available. However, it must be assumed in any case that data-related services are part of the main service obligation of a company that specifically deals with the collection and processing of its customers’ data. For such companies, a breach of data protection provisions will regularly also

5.3 Geoblocking Regulation

337

constitute a breach of a main contractual obligation. In contrast, for other companies, data protection may well be regarded as a secondary contractual obligation. On the other hand, in view of the particular importance that data protection has acquired in the recent past (not least due to the provisions in the GDPR), it is equally justifiable to classify compliance with data protection provisions as a main contractual obligation. In order to avoid clauses containing a limitation of liability being invalid due to the provisions on data protection as a whole, it will be advisable to explicitly exclude data protection from the limitation of liability by using suitable wording (“claims due to the violation of data protection provisions are not covered by this provision”). Alternatively, the limitation of liability in the event of a breach of data protection provisions can be regulated in a separate limitation of liability clause. This would then have the consequence that, in the event that this clause is invalid, only the limitation of liability for claims based on data protection law is invalid, while the “general limitation of liability clause” is not covered. However, the admissibility of such a “clause separation” has not yet been conclusively clarified (Ibid.).

5.3 Geoblocking Regulation The new Geoblocking Regulation has been applicable since 3 December 2018 and is binding on traders. It aims to prevent geo-blocking, which normally restricts an internet user’s access to a particular website or other content based on their location. This is usually done based on access requests from IP addresses with a specific country code. However, shipping addresses can also be restricted, foreign payment methods not accepted, or billing addresses denied abroad (Internetworld Geo, 2018; Heinemann OH, 2021). The new Geoblocking Regulation applies to customers, both in B2C and B2B, whereby companies are only protected to the extent that they purchase goods or services that are not commercially exploited. As far as online shops operate different country sites to which users from the different countries are automatically redirected, this is also prohibited – as well as an adjustment with regard to language, payment methods and delivery conditions. Two exceptions are possible (Ibid.): 1. First exception: explicit consent to forwarding: If different versions of a shop exist for different member states, a German customer who calls up a Spanish online shop, for example, may in principle only be forwarded to a German version of the shop with explicit consent. It should be possible to store a corresponding indication as a preference in the user account, but with the possibility of revocation at any time. The shop that the user originally wanted to access must also remain accessible to him. 2. Second exception: forwarding is legally necessary: If forwarding is necessary, for example to meet requirements under EU law, it remains permitted. Examples are advertising or distribution bans for certain products (for example e-cigarettes, medicines, dietary supplements, etc.) or reasons of youth protection. However, the provider must then clearly explain the reasons for a block, restriction or forwarding and display them in the language of the shop originally accessed.

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Apart from the exceptions with the new Geoblocking Regulation, all online retailers in the EU are now obliged to allow all consumers within the EU to access their online shop. This must be done regardless of the nationality of users and prohibits the differential treatment of consumers because of their nationality, place of residence or other characteristics. Customers from other EU countries should be able to shop under exactly the same conditions as local customers in Germany. Purchases may now no longer be made dependent on a specific place of residence, an original bank account or means of payment in a specific country, or a specific IP address. This primarily concerns the following aspects in addition to the forwarding ban (Neuhandeln Geo, 2018; Heinemann OH, 2021): Access to websites: Access to online shops – including shopping apps or other online user interfaces – may not be blocked on the basis of IP addresses or other parameters related to location or residence. Access from a particular country can only be denied to the extent that national law requires it (for example, prohibiting the online sale of medicines). However, an explanation must be given to the affected customer by the online merchant concerned. Filling out order forms: When providing contact information or a billing address, all address formats must always be allowed so that all customers can easily place their order. All information from all EEA states must be able to be entered in the shop forms. With regard to the delivery address, it is possible to only allow address formats from those countries that belong to the sales territory of the merchant (for example, only five-­ digit postcodes). Pricing: It is prohibited to automatically adjust conditions and prices within a single online shop based on IP address or other identifiers such as place of residence, language selection or means of payment. Acceptance of payment instruments: Merchants are prohibited from applying different payment terms based on the nationality, residence or place of establishment of the customer, the location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument within the EU. In the case of payment methods, the online merchant must ensure in this respect that it accepts them in the same way for all EEA countries. For example, for credit card payments, payments from the provider’s credit cards issued in other countries (for example, Bulgaria) or the provider’s credit cards of customers located in the countries must not be rejected (Neuhandeln Geo, 2018). However, it is still up to the merchants to decide which means of payment and which credit card provider they accept. All customers in the EU should be able to purchase goods on exactly the same terms as those available to comparable customers residing in the state in question. The Geoblocking Regulation therefore prohibits different treatment of customers with regard to access to goods or services in general terms and conditions if this is based on nationality, residence or place of establishment (Internetworld Geo, 2018). However,

5.4 Silo Controlling Instead of Network Management

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this prohibition does not mean that the trader is obliged to comply with non-contractual legal requirements of the relevant Member State for the relevant goods – for example, labelling requirements or sector-specific requirements. Different treatment is possible as long as it is applied in a non-discriminatory manner. In addition, the Geoblocking Regulation provides for the possibility of withholding the goods until the trader has received confirmation that the payment transaction has been initiated, if there are objective reasons for doing so (Art. 5(2)). Reasons can be, for example, difficulties in assessing creditworthiness. In addition, in the case of direct debit, it should be permitted to require advance payment by means of a bank transfer before the service is provided (Internetworld Geo, 2018; Heinemann OH, 2021). All EU Member States are required to adopt rules containing measures for infringements of the Geoblocking Regulation and to support their implementation. These must be effective, proportionate and dissuasive. Each EU state is to designate a competent body or bodies to ensure adequate and effective enforcement of the Regulation. Germany already provides for an amendment to the Telecommunications Act. The Federal Network Agency is responsible, whereby violations of the Geoblocking Regulation will be administrative offences, with fines of up to €300,000 (Ibid.).

5.4 Silo Controlling Instead of Network Management Many multi-channel systems have evolved over the last few years and increasingly feature virtual forms of organization made possible by Internet technology. Virtual can normally be defined as an organisation that is shared in the form of a network of independent actors in a wide variety of places around the world through a specific, defined market mechanism. Neither internal integration nor regional proximity are present, but a high degree of coordination from a so-called “network leader” as in Nike, which is normally located rather at the end of the value chain (Heinemann, 2011, 2017; Heinemann & Kollmann, 2020). In this context, virtual pipeline configurations have positioned themselves in a specific competitive niche and are preferable in the case of standard qualities and short service life, insofar as the market mechanisms are less established and operate on the basis of trust, i.e. in typical consumer goods sectors. The potential for improvement lies above all in strategic approaches that go beyond one’s own firm, i.e. so-called “inter-firm strategies” or network alliances. The implementation of such strategies ultimately aims at creating a permanent process of “shared knowledge” in a network, which entails a continuous innovation process. This in turn can ensure a sustainable competitive advantage for the entire network (Ibid.). Such a “shared knowledge” idea has also been used by successful multi-­ channel retailers. This idea is based on the realisation that in a multi-channel system, the channels must not act as separate profit centres, as this would always call individual channels into question. The idea is to view the channels as a single entity, but on the other hand

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to ensure maximum efficiency in the individual sales channels through channel-specific controlling instruments. The corresponding multi-channel architecture is critical to success in order to avoid the so-called 3E trap, i.e. unprofitable investments while simultaneously attempting to “Everything to Everyone Everywhere”. The key to prevent this lies first of all in a prudent analysis of the value-oriented channel behavior or the corresponding customer preferences on the one hand, and the existing multi-channel network and its cost effects on the other hand (McKinsey, 2000; Heinemann, 2011, 2017; Heinemann & Kollmann, 2020). However, such an approach requires in the first step a reversal of the “silo thinking” usually present in multi-channel systems towards a linked, interdependent management approach. Consequently, this means a transformation from the rather bottomup, capacity- and cost-driven controlling approaches to a customer-focused “cross-­ channel” controlling. This approach is illustrated in Fig. 5.1. The gaps or overinvestments uncovered in the process can be used to initiate migration steps toward a customer-driven, true multi-channel architecture. Experience shows that with such a network controlling approach, significant savings can be made in the entire multi-channel system. In addition, this can also lead to the closure of branches, because some of the customers, especially the “valuable” ones, tend to switch from stationary to online purchases, which can shift the profitability between the channels accordingly. Competent channel controlling keeps this in mind and prepares the resulting decisions (Ibid.).

channels*

Segments

High value A

store 20

Phone

Mail

Online

10

40

30

10

20

30 To

High value B

40

Moderate value C

70

10

10

10

Low value D

80

10

10

0

53

20

10

18

Average* From:

From

• Channel silo decision making • Bottom-up resource allocation based on channel usage and cost

To: • Customer-driven crosschannel decision making • Resource allocation based on high-value segments usage and preferences

Investment in phone/ webchannels for appropriate stages of shop/ buy process

* Channel usage map, percent

Continued investment in dominant store channel

Fig. 5.1  Manage your channel as a network. (Source: McKinsey, 2000)

5.5 Myths and Prejudices

341

5.5 Myths and Prejudices The myths against digital transformation also pose a risk. In many cases, they paralyze or prevent the necessary digital realignment and transformation. The following myths can be identified: Myth non-profit: The most common argument for not taking the step towards online is the statement: “E-commerce is not worth it!” (Heinemann, 2017). However, with overall stagnating sales and disproportionately increasing online sales in almost all industries, the alternative to digitalization is simply loss of sales or even threat to existence. Digitization is clearly driven and wanted by customers. The majority of them use desktop and mobile to prepare for a purchase (kaufDA, 2018). The prominent role of the smartphone as a feeder for the other sales channels alone already answers the question of whether online is worthwhile, especially from the point of view of marketing impact. Moreover, it is evident that online pure players such as Reuter-Badshop or Zalando & Co. are either at least as profitable as previous offline providers or – like Amazon – reinvest their high Ebitda margins to accelerate growth. Lead Channel Myth: The repeatedly invoked thesis that analog sales channels have top priority is really just following the principle of hope and cannot be proven with any study on this topic. The adherence to the “lead channel offline” (the stationary store as the most important sales channel) is completely at odds with customer expectations. Above all, mobile Internet use will completely change the retail world. And even the e-commerce growth, which is always wistfully declared to be over, is still developing at a double-digit rate (bevh, 2021). In this respect, the “lead channel myth” is obviously nothing more than an expression of a digital allergy and primarily reveals a fundamental refusal to deal with the digital transformation offensively and without taboos. Assortment myth: “The heart of retail” is still the assortment. Strangely enough, this insight is not followed in many online shops. Scalable sales can only be achieved here – as in the stationary business – with sufficiently large assortments. These should even be largest in the online shop, because more and more customers expect to find all products on the net and to be able to obtain almost any product available worldwide relatively quickly and easily. Online, at least the offer of the stationary shop must be offered. However, consumers tend to expect more here, namely that a retailer offers the maximum depth of the product range in its sector (category killer). This also applies to manufacturers: one third of German consumers have a high brand affinity. Almost half of customers usually buy or research brand products in the brand manufacturer’s online store – according to the Zukunftsinstitut (2014) and kaufDA (2018). The systems myth: Brick-and-mortar retailers must realize that it will not work without significant system investments. For example, major brand manufacturers, such as Nike, and major retailers, such as WalMart, are each spending billions to catapult their e-commerce platforms into serious Amazon competitors in a very short time, whereas

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many of Germany’s brick-and-mortar retailers are still dealing with the prerequisites of e-commerce and most retailers do not even use an electronic merchandise management system. Changing customer expectations in terms of time savings and smooth transportation also require high-tech physical logistics centers with highly optimized and automated processes. Probably with robots, such as those currently being implemented by Amazon. In order to cope with this “logistical automation”, greenfield mega-logistics centres as well as local depots in cities and/or close to customers will become necessary, which is not likely to be possible without system investments (Heinemann, 2017). Organization myth: For more than ten years now, the findings of business reengineering have been pointing out that functional organizations are rather unsuited to meet the requirements of the digital age. In functional, supply-oriented management structures, where organisational changes have to be applied for, sometimes for years, in middle management and management responsible for day-to-day business, the speed required for the digital age cannot emerge. The required “customer centricity” must permeate the company’s entire business system while providing employees with a framework for orientation. This usually goes hand in hand with wider management spans and flatter hierarchies. Customer-oriented all-round processing with a minimized number of interfaces is hardly possible in functional organizational forms (Ibid.). Myth of harmony: The fear of conflict leads to the myth that digital realignment can only be achieved in harmony. However, cooperative e-commerce business models pose a risk: If cooperative groups reach a compromise solution due to the over-involvement of member companies, it quickly becomes counterproductive. This is because the biggest risk is not the criticism of the retailers, but rather the lazy compromise that suppliers reach out of consideration for customers. But also on the employee side, threats of trade unions and works councils slow down the digital transformation. There is also a great fear of cultural change: traditional retail groups are often managed in a hierarchical and conservative manner. However, this makes it increasingly difficult for them to get hold of highly qualified graduates, whom they need above all for the digital transformation. High potentials who want to make a career in e-commerce prefer to seek their experience with online retailers such as Amazon or Zalando (Ibid.). Outsourcing myth: Especially multi-channel providers (brick-and-mortar and online) who would never outsource their brick-and-mortar business to third parties usually do so with the online channel and are then surprised that it does not work. The previously common assumption that outsourcing solutions are preferable in all cases can quickly lead to the yield trap. This is because variable compensation models do not actually allow for scaling effects. In this respect, the top priority should be flexible contract design with short-term exit options. In addition, it should be known exactly what the competition-relevant core competencies of the e-commerce activities are, without taking into account the previous core competencies in the traditional business. Meanwhile, it is undisputed that a minimum of insourcing is necessary for profitability. Above all, it is necessary to build up new digital competencies in own powerful e-commerce

5.5 Myths and Prejudices

343

organizations as quickly as possible, which professionally map all necessary functionalities and, above all, also sourcing and purchasing (Ibid.). Myth online growth: If you want to grow, you should set up an online pure play (pure internet shop). But if you want to ensure the long-term existence of your existing core business, you should retain customers and secure sales. Without a doubt, the greatest growth can be achieved with online pure plays: At Zalando, to generate further growth, hundreds of programmers sit in open-plan offices and concentrate on developing the website. Investments in such companies, as already practiced by a number of traditional companies with their own venture departments, are obvious in this respect. However, they do not solve the problem of the creeping decline in sales in the stationary sales channels. In the course of the digital transformation, traditional retail has to reinvent itself, so to speak, and bring digital knowledge in-house. In relation to the existing core business, the focus should therefore be on a different understanding of evolution, namely making something better out of something that already exists. And the better should be sustainable, which is why it is the main focus of the digital strategy and must therefore be reinvented. This aims less at growth than at stabilization and securing existence. Myth innovation: Unlike in stationary trade, online both the shop appearance and the functionalities have to be permanently updated. Nothing is worse in e-commerce than a shop presence that remains unchanged for several years and thus quickly becomes outdated. It is not uncommon for the appearance of new online shops to be reminiscent of the first generation of online retailers and thus already outdated at the time of market launch. The so-called set-up should be uncompromisingly oriented towards the latest standards. It is also a matter of taking into account the changed usage and purchasing behavior of customers: While Internet usage at home may be stagnating, the use of the mobile Internet away from home is exploding. The trend is rising sharply, as is the growing role of the mobile network for general in-store purchase preparation. In this respect, there is already a considerable need for innovative action here, despite the online presence, because very few retailers meet the “mobile only” requirement. Myth of salvation: Digitization is by no means the solution to all problems, but also creates completely new challenges. Above all, it also awakens new customer expectations. According to the latest kaufDA study (2018), this concerns the possibility of using smartphones in the store as well as the expectation of having WLAN and reception for the smartphone in the store, and the desire to be informed about delivery options and to have unsolicited information about special offers in the vicinity played on the smartphone. On the other hand, the demand for data security creates new problems. After all, quite a few Internet users still prefer to send important documents by post rather than by e-mail. Customer trust in the provider on the Internet remains an important success factor. In this respect, the customer remains important, whether offline or online. Jeff Bezos, CEO and founder of Amazon, is firmly convinced that only outstanding customer service

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and a precise understanding of customer wishes can ensure long-term success. Because customers want to compare offers from different retailers on a product, he has allowed other retailers to offer on Amazon as well, even at the risk of Amazon being undercut by other retailers. “If you don’t, the customer will,” is his motto here in keeping with customer centricity. The art of customer centricity lies in the superior individualization or personalization of the company and in the right implementation, which must be a matter for the boss. Only if top management is convinced of customer centricity will they be willing to credibly exemplify it and systematically align the company in a customer-centric way. This is the most important prerequisite for trust and success of digitalization in retail.

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