E-commerce Trends and Impact on Retail Sales in the U.S., Lecture notes of Business

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How To Build a 21st Century Brand 2019-2020 the IAB direct brands report Direct Brand Initiative Strategic Partners: Indirect brand economy, 1879 - 2010 retailer publisher advertising agencybrand consumer finance sourcing manufacturing logistics distribution integration 2 The IAB direct brands report 01.The Disrupted Consumer Economy, 2018-2019 2018 was peak retail apocalypse… • More than 12,000 stores were projected to close in 2018 — up from roughly 9,000 in 2017, and the largest number of closures in U.S. history, according to Cushman & Wakefield • 2017 retail closures were ~4x 2016 closures • By 2022, analysts estimate that 1 out of every 4 malls in the U.S. could be out of business Source: Cushman & Wakefield Research and Moody’s Analytics https://sourcingjournal.com/topics/business-news/retail-apocalypse-2018-cushman-wakefield-prediction-76866/ https://money.cnn.com/2017/12/26/news/companies/retail-toughest-year-store-closings/index.html http://time.com/4865957/death-and-life-shopping-mall/ 6 ...while growth in digital channels accelerated Table 1. Estimated Quarterly U.S. Retail Sales: Total E-commerce1 (Estimates are based on data from the Monthly Retail Trade Survey and administrative records. Unless otherwise specified, all estimates are revised based on the 2016 Annual Retail Trade Survey.) 7 1 E-commerce sales are sales of goods and services where the buyer places in order, or the price and terms of the sale are negotiated over an Internet, mobile device (M-commerce), extranet, Electronic Data Interchange (EDI) network, electronic mail, or other comparable online system. Payment may or may not be made online. 2 Estimates are adjusted for seasonal variation, but not for price changes. Total sales estimates are also adjusted for trading-day differences and moving holidays. Note: Table 2 provides estimated measures of sampling variability. For information on confidentiality protection, sampling error, nonsampling error, simple design, and definitions see http://www.census.gov/retail/mrts/how_surveys_are_collected.html. 3rd quarter e-tail sales= $131B or 9.8% total sales Across categories, digital retail $ growth vastly exceeds brick-and-mortar Source: Nielsen, 2017. https://www.nielsen.com/us/en/insights/reports/2017/total-consumer-report.html10 Absolute Dollar Growth FMCG categories are seizing outsized growth from e-commerce … and “e” helps emerging brands take share from incumbents 11 Source: Circle Up. https://medium.com/@ryancaldbeck/the-product-launch-fallacy-of-big-cpgs-434dbd9ed9e4; 1. 2. Euromonitor International (Sept 2014); 3 QSR Magazine, Wells Fargo Securities; 4 2013 Yogurt Market via Statistic Yogurt Dossier; 5 Specialty Coffee Association of America (Dec 2014); 6Fortune Magazine (May 2015) $18 billion $4 billion 90% Seismic Shift in Market Share Growing market shift to emerging brands Slow adaptation to disruption is taking down incumbents SNES LUMI NESTLE HAS BEEN LATE TO PARTICIPATE IN KEY TRENDS DRIVING GROWTH IN THE FOOD AND BEVERAGE INDUSTRY * Missed large trends that drove growth across food & beverage, e.g. natural pet food, organic baby foad, flavored sparkling water, etc. + Slow to renovate legacy brands with more Ella's Leleess, modern attributes + Failed to leverage enormous R&D budget with successful innovation at scale @ & Not enough acquisitions of fast-moving smaller brands to better participate in growth NEWER BRANDS TOOK SHARE, WHILE NESTLE HAS FALLEN BEHIND In most categories, direct brands are stealing share from incumbents… 15 • U.S. personal care and beauty product sales grew 4.5% in 2018. Online personal care and beauty sales grew 24%. Direct brand SiO Beauty tripled sales in 2018. Kylie Cosmetics generated $420M in revenue in its first 18 months. https://beautyandmoneysummit.com/events/beauty-and-money-ny-2018 https://www.forbes.com/sites/richardkestenbaum/2018/09/09/beauty-industry-biggest-trends-skin-care-loreal-shiseido-lauder/#53e58d846982 https://www.digitalcommerce360.com/article/beauty-ecommerce-sales/ https://globenewswire.com/news-release/2018/06/22/1528369/0/en/Global-Cosmetic-Products-Market-Will-Reach-USD-863-Billion-by-2024-Zion-Market-Research.html In most categories, direct brands are stealing share from incumbents… • In a U.S. beer market that declined 1% by volume in 2017, craft brewer sales grew 5% by volume, and now account for more than 23% of the $111.4 billion U.S. beer market. The 50 fastest growing craft brewers had median growth of 216%. 16 Source: https://www.brewersassociation.org/statistics/national-beer-sales-production-data/ In most categories, direct brands are stealing share from incumbents… 17 • The total U.S. furniture market was flat from 2017 to 2018, and expected to grow annually by only 0.7% through 2023. Digital sales accounted for a quarter of all dollars spent on home goods & furniture in 2018, and are projected to account for 38% of sales in 2022. “Fast furniture” startup Burrow has been growing 20% per month Sources: https://www.statista.com/outlook/17000000/109/furniture/united-states#market-onlineRevenueShare https://www.architecturaldigest.com/story/fast-furniture-business-interior-define-burrow-floyd-the-inside-maiden Play 2: Direct Brands are acquiring individual consumers… 20 “CAC is the new rent.” Daniel Gulati,Comcast Ventures Sources: https://www.inc.com/magazine/201805/tom-foster/direct-consumer-brands-middleman-warby-parker.html ... and consumers are consuming the world on mobile devices 21 Sources: Nielsen Total Audience Reports Average Time Spent Per Adult 18+ Per Day Exhibit 1 – Based on the Total U.S. Population Daily Time Spent with Live TV decreased by ~14% in 3 years while mobile device time- spent was +133% Mobile: +133% in 3 yearsTV: -14% in 3 yrs 40% of all e-commerce currently is m-commerce 22 Sources: *eMarketer **Forrester, Mobile Commerce Forecast : Mobile 39.6% Mobile commerce = $208.1B “shoppable social” is on path to generate $165 billion in sales by 2021 25 Source: Business Wire; ADI Retail Industry Report, n= 50 billion site visits, 2017 Growth In Share Of Retail Site Visits By marketing channel Play 5: For disruptors, branding must perform – and vice versa 26 Sources: Businessinsider.com, 11/14/18 Digiday.com, 6/22/18; Digiday.com, 10/31/18. “We don’t think that something like ‘impressions’ means anything. Since these brands are selling direct-to- consumer, we’re able to understand how certain stories work, and how placement and communications work, and then replicate the things that work. I don’t think that transparency has existed in our industry.” –Jesse Derris, founder, Derris “Traditional agency-brand relationships were a function of relationship building and pricing efficiency. That’s still important but for the DTC brands, it’s much more quantifiable. So we need to be prepared to be held accountable for those types of goals. There’s no fancy PowerPoint presentation or New York City dinner that explains away us not driving the business outcome that they want us to.” –Sam Appelbaum, GM, Performance Marketing, Yellowhammer Amid an eroding unbundled agency model ... 27 Sources: AdAge.com State of the Agency Report, 4/30/18, TheEconomist.com, 3/28/18 Top 5 Agency Holding Co’s Stock Prices: Last 3 Years to Dec. ‘18 U.S. agency revenue grew 1.8% in 2017, slowest growth since the ad market emerged from recession in 2010. Interpublic, Omnicom and Publicis have also notably registered anemic growth. WPP had worst year since the financial crisis, declining revenues from like-for-like operations and a slightly reduced profit margin. This year company projects organic growth will be flat. Disruptor brands are now colonizing main media 30 Source: VAB analysis of Nielsen ad Intel data, calendar year 2015 - 2017. TV spend includes national cable TV, broadcast TV, Spanish language cable TV, Spanish-language broadcast TV, spot TV, syndication TV. Reflects the cume TV spend of the 50 direct brands identified in this report. All 50 companies existed since 2015, except for Hubble, which was founded in 2016. 50 Direct-Disruptor Brands Collectively Spent Over $1.3 Billion on TV in 2017, A 98% Increase YOY “Direct-Disruptor” brands has accelerated spending recently in this very competitive environment, having invested over $MM more in TV of the last year Streaming consumers are disruptor-brand buyers 31 Source: IAB 2018; Ad Receptivity and the Ad-Supported OTT Video Viewer. Q27b. [Subscription Purchases (Pet food, Contact Lenses, Meal Kits, etc.)] How much would you estimate that your household spends on the following per month? Base: Total n=1223, ASV OTT Viewer n=589, SVOD Viewer n=332, TV Only Viewer n=302 Mean Spend on Subscription Purchases (e.g., Pet food, Contact Lenses, Meal Kits, etc.) Total ASV OTT Viewer SVOD Viewer TV Only Viewer Addressable TV will probably remain the favored disruptor buy • ThirdLove started investing in TV in 2017 with a budget of $286,000 for the first month. Within 3 months, they had spent $3 million. ThirdLove’s monthly TV budget has more than quadrupled since then. It has aired three separate ad campaigns and spent over $13.2 million on TV in 2018, per Nielsen. • ThirdLove buys a mix of traditional TV and addressable TV ads, and measures traditional TV ads and addressable TV spots with website visits, conversions and cost-per-actions using third-party TV analytics software. The company says TV could comprise 20% of its marketing spend by the end of 2019. Source: Digiday.com, 1/22/19 “As advertising on Facebook and other digital channels becomes more and more expensive, offline strategy, especially TV, is more and more important.” Heidi Zak, co-founder & CEO, ThirdLove 32 Pop-up stores are today’s “creative revolution” Sources: RISNews.com, 11/28/18 and 11/12/18; CNTraveler.com, 7/27/18; Forbes, 7/12/18 , US.FashionNetwork.com, 3/15/18; TeenVogue.com, 3//14/18; BusinessInsider.com, 8/23/18; Brand Sites. • Glossier • Launched a pop-up in San Francisco’s Rhea’s Café, which served its signature dishes while also merchandising the space to whimsically show off Glossier products amidst flowers and restaurant props. • Snowe • Pop-up in NYC is part of a shoppable loft, event space, and registry designed to inspire home transformations; “hybrid approach” of creating a physical location that can “inspire”— and make people shop. • Away • “Terminal A” pop-up in SoHo is a chic airport design with a TSA-style checkpoint, luggage scanners, a NYC-themed souvenir area, and the company’s luggage line. • The “Uniform Shop” area lets customers mix and match luggage color combinations, add limited-edition stickers to their own luggage, or purchase luggage with hand-painted monogramming, pins, and embroidery. 35 Digital retail enabler Shopify is assisting 150 disruptors to open locations Source: Shopify.com, customers; Pop-ups; Menagerie; LocalBranchCom • GymShark apparel used Shopify to quickly set up pop-up shops in various markets using iPads and credit card readers. The POS app syncs inventory and sales on the go. Having an in-person presence helped to create excitement about the brand while also garnering important information from customers about what they like and what they would like to see in the future. • Kylie Cosmetics is currently using Shopify to run a pop-up shop at Westfield Topanga outside Los Angeles. The shop features a glamourous replication of Kylie Jenner’s own bedroom as well as a Christmas tree with Kylie Cosmetics for ornaments. The shop sells her full selection of cosmetics, gift sets, and lip kits. • Casey Shagena of Menagerie, which used Shopify for a temporary pop-up shop, says, “Shopify has helped me grow my business with easy-to-use POS features.” • Mackenzie & Blaine Vossler of TheLocalBranch.com, which used Shopify to open a retail shop, say, “Using Shopify POS makes running our store on the road simple.” 36 Stores are for experiencing as much as for selling 37 Source: RISNews.com, 11/28/18 and 11/12/18; CNTraveler.com, 7/27/18; Forbes, 7/12/18 , US.FashionNetwork.com, 3/15/18; TeenVogue.com, 3//14/18; BusinessInsider.com, 8/23/18; Brand Sites. • Casper’s “Dreamery” locations where fans of the brand can schedule a nap on one of Casper’s cutting-edge mattresses; experience includes a sleep mask, robe, earplugs, makeup wipes, as well as a cup of coffee afterward.. Omnichannel buying + delivery drove 3PL CAGRs from -5.4% to +5.8% from 2014-2022 40 Source: Technavio, Global Third-party Logistics Market 2018-2022 Report, May ’18; Hanhaa.com/third-party-logistics, 7/17/18 • IDC Manufacturing Insights predicts by the end of 2020 that 50% of all manufacturing supply chains will have the capability to enable Direct Brand consumption shipments and home delivery. • The Global 3PL Market is expected to grow at a CAGR of 5.8% between 2018-2022. Play 9: 2-day delivery is a cost-of-entry standard for brands 41 Source: Monarch website, Monarch newsroom article on ToyHouse LLC and DIFF; LogisticsBrief.com, 11/19/18; MMH.com, 9/4/18; DCVelocity.com, 6/28/18. Key benefits: • 2-day shipping is available to 92% of the U.S. • No pricing on website; “cost-effective, high service level fulfillment solutions.” • Best-in-class providers in an alliance of design/implementation, fulfillment center, technology, automation, and delivery companies. • Business model based on those of “the best e-commerce and O2O businesses,” including distributed logistics, automated, multi-client, flexible, scalable, and focusing on inventory flow not storage. • Compelling value proposition including no upfront capital, low operating costs, increased revenue due to faster delivery, affordable same-day, next-day, and two-day delivery, streamlined return processing. • Industries served include new forays into toys, healthcare, and food/beverage. Amazon is pressing toward a 2-hour delivery standard Source:CBI, 3/28/1842 The trend: Wave of disruptor acquisitions sweeping across FMCG, home, beverages 45 Source: CBI, https://www.cbinsights.com/reports/CB-Insights_Disrupting-CPG-Briefing.pdf The trend: Startup incubators & accelerators are most popular incumbent investments 46 L’Oreal has made 3 key plays in innovation hubs 47 50 The trend: Aggressively building digital relationships • Nike Announced in ‘15 that It Plans to hit $50b in Sales by ’20 with Direct and Digital Businesses Being 2 Key Ways to Get There. • Fundamental to the direct strategy, per CEO Mark Parker (March of ’18), is “to be more personal at scale.” Aim is to use data to treat every one of Nike’s customers as a unique individual and get more value out of each digital customer: • Why they acquired consumer data and analytics company Zodiac—to gain insight on its customers and how they behave. • Introduced the Nike+ mobile app in ’16 designed to build a one-to- one relationship with athletes to aid the purchase apparel/shoes; included stories tailored based on inputs of interests and the ability to connect with an expert for training tips. • Focusing first on its super-fans: the Nike+ loyalty program members and app users, who on average spend nearly triple what Nike.com shoppers do. • Launched its SNKRS app in China in December ‘17, boasting that it got 2 million downloads in the first month alone, and just launched it in Japan, where it became the No. 1 free downloaded app in the iOS store. Starbucks pins growth on digital relationships with occasional customers 51 “Establishing digital relationships with many more customers represents a significant growth opportunity, as we have proven that a direct communications channel combined with personalization enhances the customer experience and drives customer engagement.” Kevin Johnson President & CEO Starbucks The trend: Programmatic in-sourcing 52 Source: https://www.iab.com/wp-content/uploads/2018/05/IAB_Programmatic-In-Housing-Whitepaper_v7a.pdf; Advertiser Perceptions Omnibus April 2018; Base: 83 U.S. brands that are involved in programmatic ad buy In-housing Spectrum Among Programmatic Buyers Completely In-house Partially In-house In-house programmatic facilitates customer relationships 55 Sources: https://www.campaignlive.com/article/in-housing-everything-need-know/1492428 “We are redesigning our digital and marketing strategies and campaigns to own a direct relationship with our guests, truly serve their global needs and provide relevant offers, by using intelligent programmatic analytics.” Remy Merckx Vice President, Digital Radisson Hotel Group The trend: IoT is a major access route to voluntary 1st party behavioral data 56 Sources: BrandChannel.com. 2/15/18; PocketLint.com, 7/26/18; Snipp.com, 6/26/17; ProfiteroResearch White Paper • Colgate E1 Smart Toothbrush • Toothbrush connects to dedicated application for iPad and iPhone to present data and brushing tips. • Provides feedback to users on their brushing techniques to help improve daily routines. • Built-in sensors take data in real time from brushing zones are sent to the app which analyses technique over time. • Diageo Connected Cocktail Maker • Testing a connected cocktail maker dubbed “Opn” in Paris and other European markets to increase its share of the at-home drinking market. • Trials featured at-home alcohol delivery in less than an hour. DMP growth and competition is accelerating 57 /https://adexchanger.com/online-advertising/oracle-dmp-still-has-strong-consideration-among-marketers-but-will-it-last/ https://go.forrester.com/blogs/16-04-13-data_management_platforms_go_mainstream/ • The $500 million US DMP market expect to grow 43% annually 2015-2021. • Forrester has identified 25 types of data used in DMPs, including social, mobile, and CRM data. • New sources of first-party data are emerging, including TVs (data sets from set-top boxes and over-the-top video), automobiles, and wearable sensors. TTD leads agency intention; Oracle remains at the top of marketer list 60 The trend: 2-day delivery prompting acquisitions & partnerships 61 Through delivery partnerships, fast food is getting faster One app accounts for 61% of online alcoholic beverage sales 62 Sources: Digitalcommerce360.com, 3/15/18; ProfiteroResearch White Paper Online Alcohol Leaders Ranked by market share of total online alcohol sales• Drizly’s revenue grew nearly twice as fast as online alcohol sales overall. • In comparison, Minibar Delivery, a direct competitor of Drizly, had revenue growth of 7% in 2017. • AB-InBev used to Drizly to showcase limited edition beers (1933 Repeal Reserve Amber Lager and George Washington Brew), competing with craft brewers • Other Drizly partners include MillerCoors, Brown Forman Agile supply chains foster mission-based marketing | THIRD POINT SNA CONSUMER PRODUCTS INDUSTRY HAS CHANGED Consumers increasingly prefer variety of Shopping habits have also evolved new product attributes * Shift ta eCommerce lowering barriers to entry and driving influx of new competition raed foal Cec % Rise of club stores and hard discounters accelerating shift to een um mnt private label products ren efi) crot Er ae craft_'’ GMO artificial rem amazon — hack the CAC 66 add some V to that LTV 67 get experienced 70 build brand newsrooms 71