Run as fast as you can - the new Retail by Stefan Wenzel // WHU MBA guest lecture

So let's dive in. So the topic I brought with me is— I've named it Retail with AI in orange. Not that this is a keynote all about artificial intelligence, but— and despite the fact that there is hardly any day, any minute, any second on LinkedIn without someone sharing a prompt that they just discovered in ChatGPT. Besides that, it is of course a topic that will not only influence the way we do retail, but basically the entire value chains that you and we all may be looking at. But the subline is important. It's a catchphrase from the Rat Queen Theory. If you haven't heard about it, take a note and check it later. It's basically a sentence, run as fast as you can and you will stay where you are, meaning that in evolutionary biologics, uh, it's been found that, uh, the duration of your past existence says nothing about the probability of you living in the future. In other words, it doesn't help that you've been around for ages, and that's somehow a golden thread in, in, in retail and in the discussions that we have. It doesn't matter how long you've been around. Not only do you need to be really on your toes to stay where you are, well, if you want to win, you need to further accelerate. And that's kind of the theme of my presentation. Just a very brief background. So as mentioned, I'm in the industry for more than 20 years. I've joined the first e-commerce operation back in 1999. Which also means that I've had the pleasure to have now my 3rd material crisis along the way, which tells you, for those that are slightly younger, just get used to it. There's a high likelihood of this coming back at some point again, just in case we all feel exhausted already. But I've had the pleasure to work both on the retailer side, on the brand side, but also on the platform side. 3 very different business models within e-commerce. And you see some of the companies that I've been active with. 9 years abroad, twice Netherlands, 5 years UK, and of course Germany. And I've been responsible for everything from inception, €0 revenues, bring your own pencil, you know, build up your own table, up to north of €10 billion in gross merchandise volume. And I'm also relatively active in the content space. There is the leading conference for e-commerce and retail of tomorrow, which is called K5, and I'm relatively active co-hosting the conference, web formats, web television formats, podcasts. And I'm also, by now, I was, you know, allowed to practice my writing skills as well. I'm an author. from, you know, for an ongoing publication in Germany. Allow me one small piece of advertising for those that speak German from the audience. Take out your phone, do me a favor, subscribe to my very personal side hustle with my partner in crime, Robert Bodmeyer. It's a podcast called Two with a Shot. Not everything is super serious, but we do make an effort to also share insights. It's good fun. We launched it in October, and it's a pleasure to see positive feedback and growth rates as well, but unfortunately only in German. Thanks for the advertisement opportunity. So the agenda for today, I brought 4 chapters. First, let's look at a few things that you could call talk of town. And of course, there is so much stuff going on, I'm sure we'll miss a few, but at least I think, you know, we should pause on a few, you know, bigger items that you may have been reading or discussing about in your company. Chapter 2, Fundamental Change. So what's actually going on in terms of, you know, let's say groundwork? So what is the floor plan That seems to be changing for some time now. And then is there even more change coming? And yes, there is, and we should look at a few of those things. And again, it's all teasing rather than going in full depth, but it's great, I think, to have, you know, a few topics that you can carry away and then further digest afterwards and double down for those that are of interest and relevance to you. Third chapter is opportunities beyond the fear of missing out. People seem to be panicking, a lot of running around and jumping at activities. So let's pause and look at a few, from my point of view, clean-cut opportunities that I think are worth doubling down on. And then last but not least, we'll look at ownership. And I can break the news already, it's about you. about us. If we don't get, get, get going, uh, it just won't happen. So let's dive in. What's the talk of town? So of course, one talk of town, and, and you know this left, right, and center, you know, we've seen valuations basically, uh, swinging in both directions, in 2 very different directions for the last 3 years, right? So during the pandemic, you saw— and this is just an example of ExxonMobil oil— You see a development, you know, that clearly went south, and then all of a sudden— well, not all of a sudden, but then things started to change and traditional, let's say, valuations started to recover. And on the flip side, you see Zoom, the tool that we're now using, you see the opposite, you know, development. So again, some things fundamentally have changed. over the last 3 years, and it went from digital growth being of, let's say, huge relevance and being rewarded by, by the financial markets. And that, that coin kind of flipped over the last months. And that's, of course, because of inflation, capital costs rising, and therefore growth is, is less easy to fund. And all of a sudden, more or less overnight, digital growth is less rewarding for financial institutions and markets than it was before. And this is not only on extreme examples like Zoom, so software that's related to remote work, and large companies are pulling people back into the offices. But you also saw this and still see this on blue-chip companies like Amazon, You see, you know, the peak during the pandemic, and then obviously, you know, pretty steep. I mean, it's it goes up and down, obviously, but you see a clear trend downwards. It kind of started to recover, but on a on a very different level. You see our friends from Berlin, Zalando. You see during the pandemic, obviously huge peak in terms of valuation stock price, huge collapse after the. You know, after the lockdown and you know Corona, let's say measures disappeared. Retail was physical retail was back open again. Slight recovery, but on a on a different level. And then you see a a company that at least in the German market is has been you know a point of reference for quite some time, which is about you. And they went public. When was it?

I don't know.

Last year. I don't know. Let's say less than 2 years. And ever since, this stock only knows one direction, starting at €24, €25-ish and a steep decline, less than €6 current valuation, if I'm not mistaken. And why is that? Because different to Zalando, different to Amazon, About You so far hasn't been able to show overall profitability. And that wasn't a problem before things changed with the Ukraine war. So it wasn't a problem before. Before, growth was appreciated, and the fact that you were writing losses was accepted. In fact, it was even expected to some extent that you write losses in order to basically finance growth and take market share. But this is a good, I think, a good visual to remind everybody on some of the changes, fundamental changes that we see in the market. Now, will that go back to where it was 3 years ago? I don't think so anytime soon. Yeah, it may, but who knows what's in the future, but I don't see this happening at least, you know, in the midterm. Now, the other thing, the other talk of town is, of course, funding. So venture capital, because obviously that's also, you know, a good indicator, you know, for how much, let's say, innovation and growth is being identified and is supposed to be supported in the market. And no surprise, again, here you see that during the pandemic, especially the larger rounds in gray, so larger $50 million rounds, Those in, in, in terms of number of rounds clearly skyrocketed and now cooled down significantly. Now, I would be careful to call this, you know, doom and gloom and it's all over, because when you look at— and this is again number of rounds— and when you look at the, the volume of those total funds or funding rounds, You definitely see the corona-induced spike, but when you ignore that spike, it's kind of continuing the trend line that it was before for quite some, some time. So I think, again, you know, it's a correction of something that was hyped up, that was overheated. But in terms of volume of venture funding into, into tech, you know, ventures, I wouldn't say— I mean, let's see how that line continues, but I wouldn't yet say, you know, things are completely over. I would say it's a correction. You know, we are, I think, more sensible, if you will. Layoffs is definitely a topic that you will have been confronted with in your network, directly, indirectly, or at least in media. And again, I would say the challenge is to cut through some of the noise and some of the, yeah, the hype that's been built up for different reasons. And this is a kind of a visualization of a kind that you see, that you saw, still will see pretty frequently, which just takes a snapshot at the numbers of layoffs over a certain period. And And of course, those are, yeah, impressive numbers, and it's bad. It's bad for every individual. Don't get me wrong. I'm super sympathetic with a situation like this. But it's important when you try to understand where things are moving, I think it's important to understand context. This is, again, layoff data. And what it does is it takes a look at not just the layoffs this year or last the last 10 months. Now, it puts it into perspective and in relation with the employee base that's— that has been built, had been built up before. And you see here Microsoft and Alphabet and Apple, and you see the amount of employees that they had on payroll in relation to the layoffs in red, uh, last year and this year. And I think that's a good gives you a good sense for, you know, again, there is a correction going on. You know, things, things, uh, get, get kind of put into, uh, perspective again. Um, but we're miles away from the levels that those companies have been operating, uh, before the pandemic. And the most striking one is, of course, Amazon. I mean, when you see, you know, what's in the media in terms of layoffs, that's the red bar you can hardly see. When put into context with the employee base and especially the ramp-up that they had to pull in to simply, you know, get hold of the demand that hit them during the pandemic. I mean, they were literally struggling to keep up, and to some extent, they weren't even able to match the demand and fulfill the orders that customers were throwing at them. being locked down in their homes. So now—

Professor Wenzel, can I make a comment on that?

Please.

Look, that's very important, my dear fellow students. If you look, you really got to look, take out the noise like Mr. Wenzel was just describing. And the news does like to report about very spectacular events, so to speak, or its stuff, so to speak. Daily of 7,000. This is bad news for each, again, individual. Employee, but you always got to put into perspective. And you shouldn't take the extremes which are reported in the news too seriously. Because why is— why are the media companies reporting about something which is extreme, so to speak? Because that gets attraction, attention by the readers offline and online. That means they can charge advertisement higher, to make it quite simple. And it's very important. It shouldn't lead your management decision not too much. Always put numbers Or events or something into perspective, into context, Mr. Wenzel, right?

Yeah, absolutely. I mean, it's a— it's an effort. Most of those outlets have an advertising business, and of course, um, bad news, uh, you know, heated headlines, provocative headlines, of course they get clicked. So that's clickbait, and then you sell more ads, ad impressions, so forth. I mean, clear. Um, and of course it's really difficult to see through this because it may also be true. You have to make an effort to search more sources and try to get a more balanced picture. But yeah, definitely try to subscribe to more than one media outlet, more news feeds, and just put 2 or 3 views together and see, is there more to it than that one headline? Absolutely. Which is, by the way, The same when we talk about share, and that's a that's another talk of town subject I wanted to share with you. This is the the e-commerce penetration within the U.S., so that's percentage of of e-commerce of of U.S. addressable retail, and the the news that were associated with with that graph. the message was, you see, nothing happened. And I'm not saying that ultimately, you know, we're clear on what really happened during the pandemic. And the question is, was there incremental growth or was it just brought forward and now things calm down and we're back to where we were? And maybe that's even a very academical discussion. But back when those graphs came out, Benedict Evans, who is a guy I tend to to take content from, and it's worthwhile for you guys to have a look at his publications. He used to be an— he used to work for Andreessen Horowitz, the VC firm, and is now an analyst, an industry analyst. And he does number crunching himself. And so he tries to make that— go that extra mile and try to see through some of the stuff. And he said, okay, I get it on the, on the left. I understand why people say, you know, not much has happened. But then he looked at total volumes, so not percentages, because clearly when the retail stores reopened, the nominator had changed. So all of a sudden, you know, the, the physical retail had a growth in comparison to the, to the dramatically bad previous periods. So that's on the left, is a statistical effect to some extent. And when you look at the right in terms of total volume in dollars, you definitely see that there is a jump mark. And at least for now, I mean, let's see, let's see, maybe it does go down, but by the, by the time this data was pulled, you could see, you, it was fair to say it continues on a higher level. And again, that's a good example. So if you want to conclude, is e-commerce growth over? I mean, what's the situation? I think, you know, we need to be careful to not confuse, you know, percentage of addressable retail when retail has, you know, a one-off effect because lockdowns were all of a sudden over. And I'm not trying to make, you know, e-commerce more successful than it is, nowhere near that. But I'm just saying, always look at the one that's sending the message. And we have a lot of agenda politics and, you know, spin doctors, you know, that sell services or want to please their memberships and their, you know, industry buddies or whatever it may be. So take a breath, look at it. I would say to declare digital rise to be over, I would say that would be a foolish thing to conclude. All right, because whilst people are discussing, is e-commerce over, and other funny things, something happened in the background that, yeah, some may have taken notice, but it wasn't as visible in the media as some of the stuff that we've looked at before. Because guess what? Amazon, in terms of gross merchandise volume, surpassed Walmart. And Walmart in the US obviously had been the number one, let's say, retailer for decades. So this is, again, let's see how things continue. But to see those 2 lines cross each other, I think, is a very, very telling moment because it seems like something has now at large, on large volume, so large-scale changes are now visible in the landscape. Another data point, similar story. Amazon, I mean, you will have heard about a thing called retail media, and that's an advertising format on marketplaces. So the providers of the marketplace, they also sell advertising space for the merchants on the marketplaces. To help their business, their listings, their product sales on that marketplace. And that retail media has of course grown with the growing adoption of marketplaces as such. I mean, in Germany, 50% of the entire e-commerce business is through marketplaces.

50%.

And the clear dominator of that 50% is of course Amazon. So Amazon is more or less, I don't know, nearly 2/3 of the German e-commerce, uh, business. And the retail media business of Amazon globally has surpassed the $40 billion mark. And by doing that, they have outgrown the total volume of global newspaper advertising money revenues, which is absolutely mind-blowing if you think about it. So Amazon alone and the retail media on Amazon's marketplaces globally, that revenue is more, is larger than the entire global newspapers advertising business that there is. Quite telling. And it's, and for Amazon, by the way, it means that more or less they get more revenue, or at least nearly as much, as they spend for their own marketing. So they get more or the same income from others paying them to do marketing on the platform than they spend themselves to generate the traffic to their platform. So it means the merchants basically pay Amazon to generate the traffic that it then sells merchants. I mean, it's nearly funny. Anyway, and why is all that? And that's something you guys definitely will know, but it's again interesting in how many meetings I sit and people are still somehow assuming that there is a growth vector called analog. And I think that's a dangerous bet because what the driver behind those pivotal moments, you know, Amazon surpasses Walmart, Amazon's retail media is bigger than global newspaper advertising. The driver behind this is, of course, you know, adoption of computers and most importantly adoption of smartphones. So with nearly 90% adoption rate, and even in countries where there is no desktop computer at all, I mean, China basically completely leapfrogged desktop computers. I mean, they went straight into mobile and mobile commerce. So with nearly 90% or 7-odd billion smartphones being around, this is where people live. This is where people do everything that they care about. You know, it's out-of-home advertising is like, it seems like, you know, a funny concept because nobody looks out the window when they are on a bus. They stare at their screens, they're on Instagram, they're on TikTok, they read news, emails, whatever. So nobody looks outside the window, you know, at out-of-home advertising. And the mobile phone, and maybe, you know, in a couple of years it's something else, maybe it's mixed reality, let's see. But for the time being, rest assured, this device and all things on there matter the most and also should be a guiding principle for your strategic discussions how to access consumers. If you are not happening on mobile, in what shape or form is to be discussed, but if you're not taking place on mobile, there's a fair chance you aren't taking place. Those fundamental changes you know, is what I think should be on your strategic list, topic list, when you sit in your companies, when you start to flesh out discussions that ultimately formulate a strategy. Let's look at a few, let's say, you know, thought-provoking teasers. One fundamental change that also, again, Benedict Evans, you know, brought up, and I just loved it. So when you think about the customer journey, and we used to cut it into, you know, very fragmented small pieces, he says, well, forget about that. Let's make it simpler. Let's assume you have only 2 components in a customer journey. So the user needs to discover you, your service, your brand, your offering. So they need to discover you. And then they need to get hold of this. So in retail, it's the product. You learn about the brand, the product, and then you need to get it. So he says it's fair enough to say, or it's at least a scenario to describe the customer journey with just 2 components, discovery and logistics. And that's a fundamentally important, let's say, picture Because the reality is that discovery, as we talked about a minute ago with regards to mobile phones, discovery basically is digital. And we can— I mean, we can have a lively discussion whether it's 80 or 70 or 90, it doesn't matter. The lion's share of attention, time spent during the day, is on mobile. So when you want to promote a service, a product, a brand, if you are, are not doing this through digital media, it's a fair chance nobody will ever see it. So discovery is predominantly digital. And when you look at the landscape in retail, then we are looking at 80% physical retail share. So that's an interesting disconnect, isn't it? So discovery is basically fully digital, and then the, you know, in terms of logistics, getting hold of the products, we still look at, you know, approx 80% that differs by category, but overall approx 80% of, you know, analog physical share. That leads to, or led Mr. Evans to do a calculation and say, okay, let's assume everything that's shippable will be shipped at some point. I mean, why not? Why would you not offer an option to get it shipped if it's shippable? And that's what you see on the left. So he went into the— that's 2020 data from the US. And he said, okay, e-commerce is whatever it was, $600 or whatever billion. And he said, okay, but what of that other, of the gray part the physical retail, how much of this could be parcels? And that's kind of the share that he says is at stake. So think about a scenario where everything that could be a parcel will ultimately become a parcel. Take out grocery, take out, you know, restaurants and so, but all the things in a traditional retail sense Just imagine that what could be a parcel will ultimately become a parcel. That's an interesting discussion to be had, because if discovery is predominantly digital, why do you run stores? What would happen if you were to remove the stores? Would you lose the sale, or would they shift to a parcel? And that's— of course, I, I can't tell you the answer. But we see a few of those bets at least playing out at the moment, and you see growth rates predominantly in online. You see no growth, stagnation, or decline in offline, at least in most categories. And I would at least take this as food for thought when you map out your scenarios moving forward. And one of the problems, um, that, that is, um, it's pretty obvious, you simply lack margin to do what's actually needed. So when you look at a typical retailer margin, so a middleman, middlewoman buying things from one source and then selling them on, this typical margin, I don't know, Zalando has 40%, maybe some have 50%. But that's kind of the gross profit margin one. So after cost of goods, that's kind of what's left in the bank to pay all the bills. Let's assume that's 50%. And then you look at a physical retail P&L and you look at the share of rent and staff that you need to, to even open a store, no sales yet. That percentage of cost is easily 30%. So when you have 50% margin and 30% fixed costs plus for rent and staff, there isn't much left to generate, you know, a margin, pay overhead, pay headquarters and the rest of it. And that's why a lot of companies start to look differently at the world and they start to cut it into different chunks and not take the retail store as an all-in phenomenon. No, but they cut it into what do I need, where do I need to spend my money to get access to the customer, and what's the most cost-efficient way to fulfill, to do the logistics for this transaction. And you come to very different discussions and very different outcomes when you cut it like that. It will not be possible to have retail stores in prime locations on the current cost levels with no variable component. It's a fixed rent no matter what you sell. Those models are from a day and age where traffic in inner cities was growing. Those times are over. Frequencies in inner cities are in decline. broadly speaking. And especially the bigger ones, the bigger cities are suffering even more because of people not going into the offices that much anymore. So everything that used to work doesn't work when you look at the retail P&L. And that's why this has started, the different way of looking at cost structure and how to allocate money to make sure that you get discovery and then find this the, the most cost-efficient way to fulfill that discovery. That's kind of a different way of looking at it, and I find it highly, highly helpful because we're not in the business of maintaining channels. We're not in the business of finding, of finding arguments for a touchpoint. If a physical store doesn't carry itself from an economical point of view Well, that tells us something, right? It's either too expensive or consumers don't care. And our mission is not to make them care again. It could be, but I would much rather listen to the consumers and try to understand where they are and what they want. And maybe you come to different outcomes. US is, of course, you know, a special situation. You see here the retail square feet per capita. And of course, the US is, let's say, has too much retail space and there is correction going on. But even Germany, when you look at it in terms of shopping centers, retail standalone, standalone retail, you still see that after the UK, we're number 2 of the pack. So take the US out of the equation, but still there is a lot of space also, retail space also in in our geography. And what you see happening, and that's again US data, what you see happening is a shift. So investments have started to move away from opening retail stores, retail space, and it shifts into warehouses. So, you know, coming back to our discussion, discovery versus logistics. So if stores are nothing but a very expensive place to do my fulfillment because people walk in and pick up what they saw on digital before, not 100%, but a large chunk, then it's a very expensive logistics concept. And that's why you see investments going into dedicated warehousing and fulfillment solutions for the increasing demand in remote orders, in digital orders. That's, I mean, when you, when you see the red line, that's a trend that's pretty substantial in terms of acceleration. And we shouldn't be surprised to see similar things over here in Europe. Again, we don't have such an overload on retail space as the US, But we have the same problem that the retail P&L in a lot of cases isn't carrying itself anymore, and that companies would need to invest into digital but can't afford it because the stores are kind of, you know, heavy stones in their backpack. So they will also need to think about how do I get my digitally enabled orders fulfilled in a more cost-efficient way. And that's most likely not an inner city store. Most likely that's somewhere on the outskirts, you know, a warehousing solution to fulfill those orders. And why does that matter? Because as I said, e-commerce is still that growth momentum in retail. You see global sales development Shown here, that's Forbes data, and you see the global growth rates. And of course, you saw what you know. I mean, it's I mean COVID is of course something you can simply ignore. But when you look at nineteen, and then you know at the moment it is under pressure, as we discussed. But we're now at a four four five percent growth rate. In in in retail, and then you see it's not quite double. In fact, it's it's more than double in in most cases. You see a substantially more dynamic growth rate in global e-commerce. So any company that's trying to capture growth cannot cannot. Ignore or has to have a strong digital DNA and component of their strategy. And last but not least, that's the German data for the German market. That's the 2023 forecast of the German Retail Association. And again, you see on the right, you know, No growth on physical retail, decent growth on on e-commerce. A couple of days ago, they lowered that initial forecast, so it's now six percent growth rate projected for this year for for online. And of course, there's inflation part of it. So when you deduct that, it's of course substantially lower. So I wouldn't say it's a great year in e-commerce either, but there is. some growth whilst physical is in decline, especially when you remove inflation and especially in consumer supermarkets, consumer goods. Yeah, and a last word without making it too complex, but a last word on the way we report those numbers. For those that are a bit more familiar with performance marketing and online marketing, There is a phenomenon that's called attribution. So anybody that's able to measure marketing tries to attribute touchpoints, channels to the order. So like in a football game, if the ball gets, you know, carried through by 4 people and then score a goal, all 4 will get a— will get an attributed piece of the reward. And depending on how well they played along, they may get a bit of, you know, a bit more than the others, but it's an attribution across those let's say, components that contributed to the success. What we do when we talk about offline versus online shares, we look at the last-touch attribution model. So we look at the till systems in the retail stores, and if they clock 80% of total volume, then we say physical retail is 80%. And of course, that's as wrong as it is for years in performance marketing when we're not using a different attribution logic. So if you, if you consider that 80 or whatever large number or large share of discovery, when you consider that that is driven by and through digital, you would actually need to consider that in the share at the till. And it will be, it would be in that logic substantially lower. And that's interesting, we seem to never talk about this. So it's kind of fooling ourselves by thinking the till is an indicator for where the order was generated through, and that's not correct. For some it is, but the share of consumers that walk into the high street have no understanding what this is all about, see your window, go into the store and place an order not knowing you, all the sales, all the conversion is done right there and then. I think that's more theory than reality. The reality is they have been following you on Instagram, they have been seeing your TikTok Shorts, YouTube Shorts, they have been receiving newsletters. Your influencers have been jumping around in the hoodie, wearing the sneakers. You know, they're hyped up, they're pumped up, and then they they may just grab the product as they pass your window. But that's not to be said that they wouldn't have bought it if you didn't have a space. Most likely, they would have bought it online anyway. But that's that's kind of the we need to appreciate at the moment the industry looks at a last. Touch attribution model. And in that sense, you see the data and you see the, the, the dynamic that the industry is expecting for this year. Yeah, so those, those are, you know, from my point of view, the fundamental changes that are worthwhile digesting and discussing in your, let's say, strategic workflows. There I brought 3 things Um, that you could call— well, there's even more change. One is, um, something that I hardly dare to even say anymore, but let's not fool ourselves, a year ago that was the thing. So remember when Mark Zuckerberg renamed his company from Facebook into Meta and he went all in? I mean, he spent more than $10 billion now in building his version of the metaverse. By the way, that's more money, I read a couple of weeks ago, than Apollo 11 took to fly to the moon. So just imagine, you know, the capital that he deployed against this thing called the metaverse. But it's of course not the metaverse, it's Web3 with everything that comes along, NFTs, blockchain, and so forth. I would say, of course you are aware that this does exist, of course you are aware that kind of the hype is over. I think as much as the hype was exaggerated, I think the, the, you know, at the moment we're again exaggerating by saying this is— this all never happened. Now what will be of relevance? Let's see. Will it be NFTs or blockchain that will survive? Maybe some forms of, of a, you know, business-related metaverse.

I don't know.

But it doesn't take much. And Monday So in 2 days, could be a day where things change dramatically because Tim Cook, our friend from Apple, maybe this time, you never know, it's been announced, I think, quite a few times, but maybe on Monday he will present a VR, AR, or mixed reality device, maybe. And remember, we saw some of the early adopters smartphones, uh, years before Apple came along. And, you know, I don't know if you ever tried any of those early smartphones. They were ridiculously bad. And they came along and they changed the category. The App Store they brought along and they changed the world. I mean, once technology meets a form factor and the usability quality that people really, the mainstream wants to have, wants to use, starts to like. Once such a moment happens, I mean, games can easily change as we saw. I'm not saying that this will happen on Monday. Maybe there is no mixed whatever thing. Maybe it's nothing. Maybe it's the next Apple Watch and we're all yawning. But let's see. But I wouldn't say Web3 is off the agenda. I would say at the moment it's kind of on hold. Well, it's not, of course, but it's, you know, it's nothing you need to jump at quite now, but have it on your radar. Consumer to manufacturer. For those that produce goods, you know, amongst you, for those that are a brand, a manufacturer, this is definitely something you should be aware of if you aren't already.

Already.

And you see, um, how Shein, which is one of those companies that do consumer-to-manufacturer, you see how they gained traction compared to what we just saw, the blue hype line of metaverse. That's the same blue line but in relation to Shein. So you see the blue line is still the metaverse, uh, hype graph And this is the red one, is Shein. Shein is a Chinese, now they're based in Singapore, Singapore-based Chinese consumer-to-manufacturer company. It's called the TikTok of fashion. They understand what's hot. They listen and read and, you know, evaluate social media. Once a design, a trend seems to be picking up, they copy it. And then within 3 to 5 days, they turn around a design idea into a product into the market. They do small batches, they test demand. If it's successful as they thought, they will then produce more. A couple of thousand suppliers, manufacturers are directly hooked into their ERP system. It's a very aggressive model. There's a lot of things we need to complain about and, and need to criticize them for, awful working conditions, copyright infringements. I mean, it's the list of things they get wrong is impressively long, but that's a different discussion. What's interesting is how can you change a traditional retail model or manufacturing model, I should say, where in fashion you have 9 to 12 months lead time. People think they are able to assume what's on trend in a year's time, which is ridiculous. That's why the industry has 30% overstock at the end of the season, 30% discount rates on average. It's just mind-blowingly crazy how much we throw away because we don't know what's hot. We try to sell what's on the truck, and they changed the model. They're not selling what's on the truck, they're waiting for the truck, and once they understood the truck, they fill it. That's a very different model. And I think, you know, especially in conjunction with artificial intelligence, where technology helps you to make those decisions at scale, real time, or very rapidly. Those are things that I think we need to embrace as an industry and see how much inefficiency we can take out of our manufacturing and sales processes, which is not only good for the P&L but also very good for the environment. And I think we will see a lot of those models soon in cinemas near us. Because, I mean, the commercial value of reducing inefficiency in such an industry, the commercial value is mind-blowing. And then, of course, AI. I mean, as I said in my introduction, ChatGPT is the new hero on LinkedIn, but it's bigger than ChatGPT. I mean, ChatGPT is an application. a conversational application on top of a model called GPT. And that's, you know, a large language model, and there's great stuff you can do with this. But AI is, of course, a lot bigger, and there's very different things are under that, let's say, umbrella called artificial intelligence. Now, this is, of course, something that has been around for decades but now broke through. It's kind of the App Store moment, I think, that we have with with GPT, Bard, and others now, you know, having landed hard and successfully in mainstream. And this is, I would say, I would dare to say we at the moment, we have an App Store moment, and it goes beyond ChatGPT. It is AI in a bigger sense, and we will all become more and more superhumans with copilots based on AI helping us to match our day, you know, write copy emails. We'll have bots doing our WhatsApps. Maybe in a couple of months only bots will talk on our behalf, and hopefully they won't tell too much bullshit. But I think it's absolutely unbelievable the pace in which we now see services emerge. But at the same time, there are also fundamental things like You know, supply chain management, process automation. There is so much technology-based, you know, improvement possible that everybody in this call, I'm absolutely sure, will benefit and companies will be busy with this. And that's very different to metaverse. This is real. This has landed. Metaverse hasn't. Those 3 curves in comparison, you see that Shein dwarfed metaverse, and you see ChatGPT is dwarfing already, uh, um, Shein. So taking a breath, we saw now and we discussed what's, what's out there, what are the fundamental changes. Mobile dominates the world. We see technology coming up. Digital is— won't go away, will be, you know, in the center of consumers' lives. And if you deal with consumers You need to be in that center. And I would say if there is one thing that you take into your next corner office strategy team meeting discussion kickoff for a strategy process, whatever, I mean, if there's only one thing, it's this, it's relevance. This is, I mean, I, it's hard to imagine that, you know, how often we sit in meetings and people use those words. But there is no real meaning associated to it. If you're truly relevant— and, and it's— I'll show you a few examples. Very different things can be relevant. But as soon as you are relevant, you break the laws of physics from your peers. When everybody in other companies, when your competition is drowning in fixed cost in, in cost of acquisition, needs to pay an awful amount of money to get customers through the doors. As soon as you break into relevancy, you break those patterns of problems. And I show you a few examples. People on the web don't hunt the lowest price only. I mean, they started with this, and you see in Dark blue data, Google Trends data from the UK. Dark blue twenty in two thousand and four. Of course, they started predominantly with what's the cheapest product? Where do I get this product the cheapest? But what happened over time, and and that's not breaking news. It didn't change overnight, as you clearly see. But for more than ten years, what actually outweighs the search for cheapest price is. The search for best solutions. People are lost. We are all lost. If you want to make a purchasing decision for a washing machine, good luck. It's impossible online, and most likely also offline by now, but it is impossible, you know, to find efficient— efficiently information about what should I do, what is the best, what's— I'm on a mission to solve a problem. Where is my help to get this sorted? This is a huge, a huge problem for consumers, and it is a huge level of intent, as you see. So if you look at your own business, to what extent do you actually design and tailor solutions that help your consumers find solutions? In most cases, we're not. And this is an opportunity. If you don't choose this path, well, actually only the path on lowest price remains, and this is not a good business. So if you choose to be the cheapest, I wish you good luck because there will always be the Amazons of this world that have different models, can cross-subsidize, have different ways to fund low retail prices. You will be outpriced somewhere, someone will be cheaper than you. I don't think that's a great business. I think that's, that's a huge coffin nail that you may be polishing. So that's why I would start to think about what are alternatives to cheapest price and biggest assortment, and that's relevance. Um, the second is retail. For what reason ever, and especially in Germany, retail is more a warehousing activity So we think more than warehousing staff instead of marketing and sales. You know, Germans, especially Germans, really struggle with the concept of selling. Ah, it's a bit dodgy, and no, no, no, it seems desperate. No, we're not. It's overselling under. It's it's overpromising, and no, we don't do this. And of course, that's that's um it's completely completely wrong. And especially, you know, in a global competitive landscape, people want experience. They don't want bullshit. You don't, of course not, but people want experience. And of course, what experience is, is a long debate to be had. But, you know, there are institutes out there that look at the current landscape of, and in this case, the 81 largest e-commerce websites in the world. And they did a— I mean, it's publicly available. It's an institute called Baymard. There are others, but they do this publicly. And there's a huge catalog of criteria that they apply to those websites, and they measure user experience performance in a scientific approach. And then they see the dots, and the dots show the results. And this is aggregated. You can expand it and you see 408, you know, 400 guidelines underneath, and you can zoom in and you can see what the criteria were and what website scored how and so forth. But I think the overall result is impressive because especially on mobile, remember, mobile e-commerce is more than 60% in most countries, and mobile is everything. And then you look at the mobile web performance here. And of the 80, 81 largest e-commerce sites on the planet, zero, zero are either good or perfect. And not even good. So the best ones are decent, but I would say the majority is mediocre. So these are companies that do nothing but e-commerce and Still, they hardly score sufficiently when it comes to user experience. This is an opportunity, of course. So for what reason ever they decided to not focus on user experience? Because I don't know, they focus on efficiency, they focus on biggest assortment, they focus on, I don't know, most payment methods, great logistics. Great, whatever. I mean, I'm sure they focus on a lot of great things, otherwise they wouldn't, wouldn't be the 81 largest ones. But what none of them is focusing on apparently is user experience, and especially not on mobile. So if I, if I was to decide, you know, where, where to put my eggs, I would go there where they are not, where they are not strong. It is easy to outperform Amazon on user experience. It's an awful user experience. They score on all other things but user experience. I mean, logistics is so great, you could say this is also a great user experience, and it is, but the actual user interface is awful. And the more products they get, the worse it gets, of course. So that's, that's an opportunity. When you look at the development of Shein, and we talked about it a minute ago, a minute ago, You see here the development of 2 companies, Zara and H&M, who used to be called the disruptors of fashion. They introduced the concept of fast fashion, yeah, and now they get disrupted by what's called real-time fashion, and that's the red bar. So Shein already outperforms H&M on total revenue global, and they are on the trajectory to outperform, catch up and then outperform the Inditex Group in total, which is, I mean, it's unbelievable if you consider that those companies have been around for so long, and especially Zara is far away from being a bad company. I mean, they do so many things excellently, and I mean, it's, it's mind-blowing that this is possible. And, and I think the key, the key takeaway that I see in this, or at least one of them, and of course there's technology involved and, and so, but the key takeaway is a laser-sharp value proposition. I mean, what, what Shein is delivering is cheapest possible fashion on trend. Some have cheap fashion, but it looks awful. Others have on-trend fashion, but it's, but it's expensive. They combine 2 things: cheapest possible, on-trend. This is a laser-sharp proposition. The way they execute it, I mentioned it, is in, in parts awful, but the proposition is laser-sharp. And the point is, to have a laser-sharp proposition is one thing. The second, uh, art form is to stay on your toes, to stay paranoid, because already the next company is disrupting Shein. And that's a company called Temu, if you haven't heard about it. So Temu is already the company that Shein— well, it not only sees in their mirrors, in some countries they have even overtaken. So they take a very similar approach. It's also consumer-to-manufacturer. But full assortment or broader assortment. And they go head-to-head, bare-knuckle into the supplier networks of Shein. They eat out suppliers through price and commission models. So it's a war that they have on the supplier side with a broader assortment and a marketplace model, which, by the way, forced Shein now to also open a marketplace a couple of months ago. So it's a good reminder that even if you think you got your sharp proposition, and most don't, but even if you have, think, stay paranoid. And the best example I think is the pharmaceutical industry. By design, every, I don't know, 8 to 10 years or whatever that is, their patent expires. That's a business. I mean, that's what they do for a living. They have, let's say, a 10-year lifespan of any product, and then that's gone. It's a generic afterwards, and they can't make money with this. So they line up new products, you know, they do F&E, of course, but they line up new products to be the next cash cow for the next 10 years. And this is more the model that we need in retail and in consumer goods rather than I have a concept and I'll keep going for the next 30 years. That's very unlikely to sustain. So ownership is the last chapter that I'd like to share with you, and then we can dive into a discussion and take your questions. So ownership. There is great research been done by MIT, and the link is underneath and you can check it out later. They looked at more than 700 companies, and they tried to understand what influence does innovation, adoption of innovation, and what influence does that have on growth rates, both on revenue, but also on margin. And they clustered the results into 4 components, you know, who is a fast company, and who is an innovative company. Uh, and the biggest impact on both margin and revenue growth had those companies that were classified as fast and innovative. And for a lot of companies, this is unfortunate news because a lot of companies, especially in Germany, would not claim that innovation is of utmost importance. I think speed is something that they start to get used to being a requirement, and they say, yeah, we're a bit slow, but they are slow. But speed, I would say, is generally more accepted than innovation, and true innovation is something I rarely see in our space. But innovation plus speed is what, at least in this, in this research, showed to have the the highest impact on revenue and margin development. And when you then look at how we as a country, how we perform against other countries, then unfortunately, and I know it's not just Germans in the call, so you may be up on that list, but unfortunately, bad news for the Germans amongst us is we're so bad. So if we think, you know, we have a, you know, a structural advantage because, you know, we invented the car or the fax— oh no, that's gone. Those advantages are gone. We are really, really bad. I mean, in fact, we're number 19 in what's called the digital competitiveness ranking across other countries. So, you know, ranked 19, this is awful. You see, here's another one, Digital Maturity Index. 100 is the index, and especially retail is not the worst, but it's really bad. So in terms of, you know, how digitally equipped are we, how mature are we in our industries, and especially now in retail, because that's the context, we're really poor. And this is another one. Share of failed change projects in percentage in Germany, 56%. So in consumer goods and retail, more than half of every change project fails. So even those that do make an effort and try to change something, those projects tend to fail. Now, of course, we can discuss how reliable is Manager Magazine with Porsche Consulting in the background as a source. I don't know, and it doesn't really matter if you ask me whether it's 56 or 50 or 45, at least a significant chunk. And look into your own companies and look at your former employers. How many great change projects did you see? Or in other words, was your organization ever in a way that you didn't even need a change project to apply change? Because that's actually where we need to come. Get to, right? In a world that's ever-changing, you know, it shouldn't be a change project to adapt to change. It should be my natural corporate operating system should be in a way that I'm able to adapt to change— technology, consumer demand, changes in, I don't know, logistics and supply chains. Um, so it is down to us to do it. That's, that's the closing remark. It doesn't help You know, we can point at regulators and governments and infrastructure, no point. It's down to us. If we don't get it done, nobody will do it. I think there is ample of opportunity. It's a challenging time, but it's ample of opportunity. Don't believe the hype, try to cut through, make your strategic homework, be excellent in operations, but remember, it's all about relevancy. Thank you very much. If you want to connect, be connected with myself, feel free. Scan the code. LinkedIn is our friend, Twitter, whatever you like. Happy to continue the conversation afterwards. And with that, let me get— let me hand back over to Professor Fassnacht.