BGV General Partner Eric Buatois sat down with John Deane for a discussion on the future of retail, e-Commerce and logistics. The following blog post is the first in a two-part series that captures a paraphrased transcript of the dialogue.
ERIC BUATOIS: John, thank you for joining me. We’ve had the great pleasure to work together on the board of Profitect (acquired by Zebra Technology), and given your vast experience in the domains of food, fashion, retail and broad-based analytics, I wanted to discuss with you the direction these sectors are moving in. I recently published an article on the future of global supply chains that makes a few predictions on where things may be headed, but your insights here are particularly valuable and could help us refine our hypotheses. Before we jump in, could you tell us a bit more about yourself and your very accomplished background?
JOHN DEANE: Absolutely. And thank you for initiating the discussion. By way of background, I have been active in the tech and business improvement spaces for over 40 years — half of that as a management consultant, and the other half as part of a company’s internal team. In the last 20 years, I’ve been CIO in many different kinds of companies across the healthcare, restaurants and fashion retail industries. The businesses include: Caremark (now part of CVS/Caremark), MedPartners (14,000 physicians), Wendy’s International (6,600 stores across 11 countries), Bravo/Brio Restaurant Group, Donatos Pizza, Abercrombie & Fitch (1,100 stores in 10 countries) and Ascena Retail Group (4,400 stores, Ann Taylor, LOFT, Lane Bryant, Dressbarn, Catherines, Maurice’s and Lou & Grey). I also served as COO for Wendy’s International after my time as CIO.
While I don’t consider myself a technical CIO, a certain degree of proficiency is certainly required for the role. Strategy and process improvement have been my core competencies. As a result, advanced analytics (descriptive through prescriptive) has been a passion of mine for quite some time.
ERIC BUATOIS: Very impressive! It’s clear we’ve come to the right place for this discussion. In recent years, we’ve seen a convergence of e-Commerce and logistics in the retail space. How do you see COVID-19 impacting this convergence?
JOHN DEANE: When it comes to eCommerce and logistics in retail, COVID-19, it seems to me, has added fuel to an existing fire. What we see is that mobility restrictions have rapidly accelerated the decline of brick and mortar stores and triggered an upsurge in the prevalence of omnichannel sales. Historically, the retail world placed physical stores front and center, viewing them as the primary vehicle to drive customers and sales. Technology, by contrast, was seen as a supplement. Moving forward, the equation has inverted. Many stores — especially those in shopping malls — have assumed the role of a mini-distribution center, storing inventory and boosting delivery speeds for e-commerce sales. The novelty lies in the transformation of physical stores into a specialized complement of a business’ overall e-commerce, logistic and delivery value chain.
As a case in point, look to the performance and actions of modern apparel retailer Zara, as it tries to navigate through the challenges of COVID-19 and the fierce competition from H&M. Even Zara, standing at the forefront of value chain logistics innovation, has upped its use and reliance on eCommerce as a strategic operational tool. Blurring the lines between its stores and its digital presence has become an explicit goal for the company.
In many ways, the pandemic has exacerbated differences, and initiated unintended dependencies, in global supply chains. COVID-19 has exposed China as a single point of failure, resulting in manufacturing shutdowns, and throwing the need for more regionalized and localized production alternatives into sharp relief. Among the alternative production options lies another key trend: the rise of Robotic Process Automation (RPA) as a tool to mitigate, or even eliminate, indiscriminate outsourcing based solely on the cost of manufacturing labor.
But the challenges are not restricted to product development and manufacturing, they exist also in product delivery and distribution. Some brands, it’s quite clear, were prepared and well positioned to maneuver the market through this pandemic, while others have suffered tremendously. Look at restaurants that were already well equipped with pickup and delivery solutions. For fashion brands, t-shirt logos and print designs with trendy sayings that could adjust quickly to the cultural shockwaves. On the social responsibility front, I sense that consumers and the public at large seem to have gone from interested to concerned, to activist, to full-blown protester on a whole range of issues. Brands that cannot adapt to these market “sea-changes” with relevant positioning, products and/or services, will be left inexorably behind.
ERIC BUATOIS: In your view, what kinds of retail companies are poised to succeed in this environment, and which will struggle? What are the critical factors of success for emerging leaders in this space?
JOHN DEANE: Success will belong to those who have “listen, learn and adapt” DNA, starting with those that can leverage advanced analytics to execute on their core competence, based on new insights. Beyond its position as a market leader, Amazon presents a great example. The company stands squarely on the active change curve at all times. Fundamentally, this requires a willingness, on the part of leadership, to jettison norms and habits that no longer apply in the new world (as defined by the requirements that pop up every day). This can be challenging for executives that have claimed positions of leadership based on outdated business principles, fixed cost architectures, and legacy systems. Those that suffer from this “dinosaur effect,” and cannot liberate themselves from old modes of thinking, will confront insurmountable anchor drag and are destined to fail.
Self-criticism and open mindedness are critical to chase new opportunities, to identify the narratives and patterns revealed in financial statements, and to work with partners and stakeholders in new ways. This could mean establishing alliances that complement the delivery of aligned retail experiences. It also means a deep integration of technology across the entire business, not restricting this adoption to the periphery of business strategy. Adaptability, self-criticism and open-mindedness at the leadership level have represented key drivers of success or failure for eons, but are even more critical today.
ERIC BUATOIS: Our global supply chain is currently undergoing a massive transformation. How will this re-configuration impact the world of retail? How will it impact our food supply chain?
JOHN DEANE: This question really revolves around the concept of repatriation, or careful selection of partners for critical manufacturing, such as pharmaceuticals and other sophisticated processes that are based on cheap labor. The truth is that this process has already begun, and we’re beginning to identify which sectors are critical, and which are just hiding behind a barrier of profitability, politics or red tape. Antibiotics are critical. Apple phones are not.
We’re capable of formidable transformations in this country, and we’re now embarking on one of these large-scale transformations. The US economy, for example, pivoted towards energy independence once we understood the risks posed by dependence on petro-dictatorships, and we effectively diffused the associated costs. Today’s transformation is really no different. Once the fog is lifted on our pre-COVID-19 supply chain infrastructure, and a broad-based consensus emerges around the true costs of offshoring, then this will demand a total commitment reminiscent of our shift towards energy independence.
Regarding food production, we must really protect all forms of food production, including the intellectual property that supports it, especially as it relates to genetic biology. In fact, we’d be well-advised to rethink food production along those lines, given the speed of technological advancement in this domain (and our ability to shorten the time cycles in the production of traditional protein foods). I would go so far as to treat genetic modification for the increase of protein production as a strategic opportunity asset. This could very well change the power structure of the President’s cabinet, as in the elevation of the Secretary of Agriculture to a higher status, closer to the Secretaries of Commerce, State, Intelligence and Treasury. Food production is of paramount importance to our sustenance, and can become a critical vulnerability, precisely at times of crisis like this pandemic, a war, or other unforeseeable shocks. The acknowledgement of this reality, not just in the US, but with our close allies, may lead to the establishment of NATO-like alliances for the assurance of food and health asset availability, and act as a sort of insurance policy in times of crisis.
Whatever structural changes emerge as a consequence of current events will affect much more than critical services, as they will translate and impact what happens in the core retail value chain and associated logistics.
Part Two of the Blog Series will be available next week.
