Weekly Insights September 23 2016

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Key Points

  • This week’s note “From the Desk of Deborah Weinswig” discusses German hard discounter Lidl’s preparations to enter the US market and what shoppers should expect.
  • At New York Fashion Week, a number of designers grabbed attention as they adapted to the shifting fashion calendar; Tommy Hilfiger’s carnival runway, Tom Ford’s cocktail dinner show and Rebecca Minkoff’s shutdown of a street in SoHo all garnered headlines. However, not everyone in the fashion industry is embracing the see-now, buy-now strategy.
  • Shop Direct’s premium e-commerce banner, VeryExclusive.co.uk, unveiled its first menswear offering on September 20. The offering currently has 25 brands, including Kenzo, Whistles, PS by Paul Smith and Vivienne Westwood, and the company plans to increase the list to about 35 by summer 2017.
  • Japan’s Prodrone has unveiled a dual robot-arm drone, which is able to carry heavy items; grasp objects of varying shape and size; and cut cables, turn dials and flick switches. The drone is also designed to perform tasks in perilous environments. For example, it can retrieve hazardous materials or objects at high altitudes.
Source: Dotcom Distribution                 
                                                                                                                                                                                                                                 Base: 1,000+ Internet users aged 16+ per country
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FROM THE DESK OF DEBORAH WEINSWIG

Lidl Learnings as the Company Prepares to Enter the US

News reports this week confirmed that Lidl is getting ready to open stores in dozens of US cities along the East Coast. Stores could number 150 in the Mid-Atlantic region by 2018, according to property research firm CoStar. A focus on the East Coast will put Lidl in competition with Aldi, which already has a significant presence in the Eastern US. So, what can American consumers expect from the privately owned German discounter?

For those readers unfamiliar with the format, “hard discounters” such as Lidl and its bigger rival, Aldi, focus on private-label goods and offer a very limited selection of products. Consequently, they operate smaller stores. In-store merchandising is basic, staff levels are low and efficiencies are squeezed out at every stage, resulting in a no-frills offering. The gain for customers is in very low prices, usually without any significant compromise on quality versus products from nondiscount retailers.

Lidl Moves Toward “Soft Hard Discount”

Lidl has led the charge to soften the hard-discount format, and competitors such as Aldi have followed. We think the flexible approach Lidl has shown to catering to shoppers in various international markets bodes well for its US operations. Here are some of the ways in which Lidl has adjusted its format as it has expanded worldwide:

  • The retailer has adjusted the small-store format. In France, its largest store is believed to be 17,200 square feet and it has been remodeling existing stores in the country to make them larger. In the UK, its largest store is 15,100 square feet and new-format stores in Italy have been around 14,000 square feet.
  • Similarly, Lidl has been growing the number of stock-keeping units (SKUs) it offers shoppers. In the UK, the SKU count was around 1,450 in 2012; it grew to 1,600 in 2013 and to 1,700 in 2014. In Italy, the SKU count was 1,650 in April 2015. These are well above the 1,000 or fewer SKUs that discounters have traditionally offered.
  • Lidl has moved well beyond the discount tradition of offering just one SKU per category, and offers premium ranges under the Deluxe brand. Likewise, it offers organic foods. Lidl has also been more aggressive than Aldi in bringing in third-party brands, such as Coca-Cola and Kellogg’s.
  • Quality fresh food is at the core of Lidl’s offering and the company uses fresh categories to draw in shoppers in markets such as France and the UK, where many consumers are less familiar with discounters. In-store bakeries and an emphasis on quality and provenance in fresh foods have attracted shoppers in categories where brand names are not important.
  • Lidl has been dipping its toes into the e-commerce waters, too. Full online grocery services and the discount model are incompatible due to the costs that fulfilling orders adds to a company’s operations. Yet Lidl has pushed online in a cost-effective way. For example, it has sold ambient grocery products in Germany since 2014: these goods can be sent via regular mail rather than via the temperature-controlled trucks that most online grocery services use. It also sells nongrocery ranges, including apparel and DIY goods, in countries such as the Netherlands and Belgium.

 

What to Expect in the US

We think Lidl will further evolve its format for American shoppers. The company has reportedly been looking for stores with a gross area of 30,000–36,000 square feet, suggesting its US shops will be bigger even than its largest European stores. We do not, however, expect it to use this space to radically increase the number of private-label grocery SKUs it offers, as that would demand adding substantial sourcing capacity for a relatively small store network. Instead, we expect Lidl to use the extra space to improve the shopping experience and to go big on fresh foods, as it has done in other markets where shoppers are unaccustomed to the hard-discount format.

  •  You can find our in-depth report on European grocery discounters at

   bit.ly/FungGroceryDiscounters

 

Source: Company reports

Source: Company reports/Fung Global Retail & Technology

 

 

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