The following article by Richard Kestenbaum was published by Forbes on January 28, 2018.
This Is What The Retail Industry Is Talking About Now
In the retail industry, the largest annual exposition is usually the National Retail Federation Big Show that takes place every January in New York. Notwithstanding the enormous amount of recent retail store closings, the mood at this year’s just-concluded Big Show was buoyant. Mike Webster, Senior Vice President at Oracle said it straight out, “We’re optimistic on retail. Stores and physical experiences play a critical role in the value proposition.” Oracle is a paradigmatic exhibitor at the Big Show; the companies on display are primarily technology companies. They are there to promote every conceivable electronic solution to retailers’ problems and there are thousands of exhibitors from companies big and small. It’s not a simple matter for retailers to wade through all the possible technology solutions. As Michele Dupre, Group Vice President at Verizon Enterprise Solutions told me, “[retailers] have to pick the right technologies and implement fast to make themselves relevant. It’s incredibly complex.”
Over the course of several days, I met with the senior people from a broad array of some of the largest tech companies, including AT&T, Cisco and Cognizant Technology, as well as many other companies, large and small.
One of the things that struck me about the people I met at these large companies was how impressive they all were. To a person, they were articulate, thoughtful and knowledgeable about their challenges and opportunities. At a time when the state of our national politics is such a mess, it’s a comfort to know that these tech companies whose sales total close to $1 trillion, a sizable chunk of the U.S. economy, are adapting to how the world is changing without dysfunction. They are honest with themselves about the challenges they face to build their companies for the future.
The Conversations Are All About The Store Experience
The conversations revolved around one big topic – what’s now thought of as a critical issue for stores and referred to as “the customer experience.” What’s caused them to talk this way? Retail stores are challenged now, they have to offer something better than they have in the past to motivate customers to come in. The tech companies are doing everything they can to address these issues. Dirk Izzo, Senior Vice President of the Industry Solutions Group at NCR said to me, “The challenge we see is that more and more retailers need to integrate the physical world with the digital world.” What he means is that NCR and other tech companies are facilitating the collection of the same type of data about customers who are in stores as retailers already collect about customers who are shopping online. For example, when a consumer shops on a website, the retailer can see what they click on, what they buy, what they delete from their shopping cart, how long they dwell on a product image and many other behaviors. In physical stores, it’s harder to see and measure those metrics. New technology is now devoted to analyzing images and video and making human-like judgments from them. It won’t be long before a retailer will know what a customer looks at in a store, what they pick up and keep, what they put down, where they walk in the store, where they spend time standing and what catches their attention. Many consumers say that sort of observation “creeps them out.” But the data show that consumers actually prefer it. Last week the Sports Industry Association held its Outdoor Retailer Show, the biggest trade show for the active outdoor market. At that show, Ruben Martin, Co-Founder and CEO of the e-commerce software solution provider Quivers, quoted a report from Accenture. He said, “65% of consumers say they are more likely to shop at a retailer in-store or online that knows their purchase history.” That’s not exactly what creeps people out, but we’re getting closer to it all the time and consumers have shown they want it if it gives them additional convenience and service.
Having specific information on each consumer will allow a retailer to offer more products that are specifically tailored to each consumer’s individual preferences. Laurence Haziot, Global Managing Director and General Manager of Consumer Industries at IBM, said to me, “Marketing was segmenting consumers. Now, each consumer is one segment on their own, with expectations heavily depending on the moment and the context. Consumption habits are evolving and the consumer wants what they want: New, safe, without gluten, allergy-free, safely and ethically produced and they just want to buy it the way they want.” Aggregating all that information lets a retailer see how to better organize their store which leads to better outcomes for consumers. That’s what tech companies are talking about and I’d bet the word “experience” was used more than any other at the conference for three days straight.
Matt Powell, an industry advisor at the market research firm NPD Group, spoke at the Outdoor Retailer Show and he agreed with Haziot of IBM. Powell said, “Consumers are in charge of trends. It’s a brand’s responsibility to recognize those trends and to feed them. Brands and retailers don’t create trends anymore, consumers do.” That can’t be done without technology, it’s the only way to satisfy so many different needs simultaneously.
Stephan Schambach, Founder & CEO of NewStore told me, “Retail is grappling with technology changes and how to create better shopping experiences. There’s a lot of renewed interest by retailers in technology to meet the bar that Amazon has set.” Tom Chittenden, Vice President and General Manager of Retail Industry Solutions at NCR said, “NCR is about traveling to a specialty retailer and the grocery and having the same experience… Retailers today want to out-innovate their competitors and that’s how they’re staying relevant. How do they do that? With access to data.”
The offerings from technology companies are fantastic. Ted Westerheide, an advisor to IBM said, “Discovering intent and taking action is the goal. We differentiate it from [Amazon’s smart speaker] Alexa’s understanding of key words… [This is] understanding intent and [the] meaning of a sentence.” The underlying technology I saw is so remarkable there were many I never thought would happen in my lifetime.
It is tempting when you talk to technology people who are so impressive and compelling to get tunneled into thinking that great new technology will solve the big problems on its own. While technology is now a critical factor to retailers’ success, it will never be all that’s necessary. Retailers have to deliver great product and technology can enhance that but never replace it. Cara Peckens of Imre who spoke at the annual Outdoor Retailer Show said, “Be tech-enabled. Not tech-led. Technology is most valuable when it feels invisible to the consumer.” Webster of Oracle said it right in our meeting. “We’re not as excited by the shiny objects you’ll find at a trade show like this… The ability to execute those [new technologies] and make them work for our customers [is the key].”
What’s Needed Along With Technology
One of those execution questions is the store associate. No matter how many whiz-bang gizmos you put in a store, they are only effective if the store associate knows how to use them and has the right interaction with a customer. Every consumer knows all about the ill-informed sales associate or the store helper who couldn’t give a shoulder’s shrug about what you need. That person is making $11 an hour and they are not moved to bridge the gap between their employer and the in-store customer. Technology addresses that to some degree by making the store associate more efficient and more effective. But it doesn’t address the issue of an imbalance between skills and motivation and what customers need. It may be that the greater efficiency created by new technology justifies a higher wage for a sales associate and that makes the equation work. But that won’t be true all the time, it’s just a partial solution. Guy Yehiav, the CEO of Profitect, said in our meeting, “what concerns me about artificial intelligence is that at the end of the day it still creates a report that humans have to read, understand and act upon. If you don’t get people all that great information and act on it, it won’t accomplish the goals that retailers have. Just identify and prescribe to them what you want to find and how you want them to act. People inherently want to do the right thing.” If you don’t have the right people using all that great information and acting on it, it won’t accomplish the stores’ goals.
Even more important than the sales associate and the technology is what the great staff and great technology are being used for. With all the focus on the latest software, it’s easy to forget that the essence of a great store isn’t technology, it’s about helping consumers to buy. Online retailers talk a lot about converting online visitors into online customers. But nothing has been invented that is better for converting visitors to customers than a great retail store. Technology is a critical piece of conversion and so are great sales associates but what does it mean to have a great store in 2018 and beyond? It can’t be what it was historically, that doesn’t work anymore given all the changes in consumer behavior we’ve seen. So what is a great store experience now?
For that question, I went to a conference the day after the NRF Big Show. It was entitled The Future of Retail and it was run by a consulting firm called PSFK that specializes in consumer and retail. Naturally, they also talked about technology, you can’t discuss the future of retail without it now, it’s foundational to the business. But they also raised some other topics relating to what needs to happen in stores now.
There were a number of great speakers at the PSFK conference but two were particularly relevant to the questions that the NRF Big Show raised. One was Rachel Shechtman of Story. If you’re not familiar with it, Story is a retail store in New York that changes its entire presentation every 4-8 weeks. (My fellow Forbes.com contributor, the always-interesting Pam Danziger, describes Story in more detail in a recent blog you can find here). Shechtman says she views retail as a media channel. What she means is that she connects her ever-changing merchandise to themes that relate to sponsors and advertising that communicate to customers in her store. Shechtman thinks a store is not just a medium to sell things. It’s also a medium to convey advertising and have promotions of other brands that can drive new streams of revenue. In a store that is limited by square feet, selling advertising takes almost no space and adds directly to profitability. It also generates themes around which Shechtman sells merchandise. Most important, the sponsorships and themes make the store so much more interesting and entertaining for consumers and that’s the power of Shechtman’s creation. Story has more sources of revenue than most stores and they are not always obvious candidates for a retail store. “I get excited by unlikely bedfellows,” she said. “When I got an email from CIGNA…I didn’t know what to do. So we created a relaxation lounge and had Pilates on weekends.” She sets up her store “to give a higher return on investment for time.” Her store can also extend beyond the store itself. “Sometimes we have Thirsty Thursdays or Snack Saturdays. Food trucks are small businesses that want exposure. They become co-marketing partners and they’re grateful for partnership and exposure.”
The other super-relevant speaker was Ron Faris, who sold a company to Nike and is now General Manager of Nike Digital Studios & Nike’s SNKRS app. Faris talked about four elements that make retail successful in the way the world works now. Those elements are:
It sounds vague when he says it, but when he explains it, it’s not vague at all. Faris describes energy as the intersection of product, story and experience. Like Shechtman, he sees products as needing a storyline to be compelling. There has to be something about them beyond their intrinsic usefulness that makes them even more desirable. The experience of buying the product and the time spent using it has to be worthwhile and entertaining to the consumer.
Engagement sounds ambiguous but it’s measurable. Faris tracks the number of social media shares that a product or a campaign gets. People who want to tell their friends aren’t just consumers, they’re enthusiasts. People who don’t feel compelled to share aren’t the best audience to help grow sales.
Urgency and scarcity work together. When a product is scarce, it requires effort to get and that generates urgency. The people who have the drive to get it are product leaders and Faris thinks of them not as shoppers but as gamers. They are involved to get a win, which they define as buying and owning the product. That makes them evangelists for the product which naturally leads to social media shares. Social media spreads the word to more casual, less energized buyers. It builds demand for a later time when a product is less scarce and more obtainable. Powell of NPD agrees. He said, “Scarcity is [an]… important message…Scarcity and newness are important traffic drivers. Scarcity is a good thing.”
In traditional retail, you design the best possible product and put it up for sale. It’s always been a complicated business but now the skills required for success are orders of magnitude greater than they ever were. When you look at what you need to do in technology, creating a story, creating urgency, creating shares on social media, it’s clear that many more disciplines are now required to motivate a consumer to make a purchase, especially at full price. Retail is now a much broader business than it ever was, very different than it was historically. It needs additional, different skills than were ever required before and the organizations that can succeed now are very different too. If you’re structured as a traditional retailer, this can be a scary time because grafting all these skills on to a legacy organization is highly challenging.
It’s no wonder that when you go to a trade event or conference, there’s a range of topics that were never the focus of the conversation before. The skills needed now are so broad that it’s easy to get focused on one big aspect of it like technology and think — that’s all that’s needed. Herding all these various disciplines into one entity that produces a product, markets and sells it is hard and it makes retail more challenging than ever before. But it’s also fascinating. All these great theories and strategies are now being tested in real time. No one knows what will ultimately work, companies are trying everything and that is a great opportunity for consumers and fantastic to watch.
Rob Katz, the CEO of Vail Resorts, also spoke at the Outdoor Retailer Show. Vail has been highly innovative in how they approach their consumer and that has led to their continued success over an extended period. One of the things Katz said about change is that “Changing involves personal risk. You can fail, you can look silly, you will likely be called silly and dumb.” What’s worse, Katz said, is that innovation never comes at zero cost. “Innovation requires conflict,” he said. To have successful innovation, Katz believes the forces resisting change will always push back and if you’re not ready to have conflict to innovate, you won’t succeed. Innovation is not just about having a good idea, innovation is about making it happen in the face of substantial and vocal opposition. Kristin Carpenter-Ogden, an outdoor industry analyst at Verde Strategy told me, “Change is the new normal in our business and we must get used to being in a constant state of remodeling. That’s counterintuitive and scary to many people. It’s not uncommon to have pivotal people within brands and retailers working to protect the status quo to protect their jobs. Nothing makes change harder than that.”
In his presentation at the Outdoor Retailer Show, Ruben Martin of Quivers quoted Harry Selfridge, the founder of the Selfridge’s store. “Excite the mind and the hand will reach for the pocket,” Selfridge said. We think that so much has changed in retail but Selfridge said those words over 100 years ago. Perhaps the changes happening now are only getting us back to the essence of what a store needs to be. Powell of NPD put it simply, “Retailers must get back to the days of inspirational and aspirational products that surprise and delight customers.”