Global Retailing Conference: ‘Everything Is Retail’
April 23, 2013
The Global Retailing Conference, hosted by the University of Arizona Terry J. Lundgren Center For Retailing, is a concentrated dive into the state of retailing from the perspective of the executive suite. The conference is both a gathering place for business leaders from throughout the industry, and a teaching opportunity; in addition to all the retailers, 200 students from the university sat in to hear what goes on “in the real world.”
The agenda arguably features the best lineup of C-level speakers of any event anywhere, and the 2013 version was no exception. At this year’s event (April 11-12 in Tucson, AZ), the theme was “Accelerate Your Brand/ Get Ahead Of Your Shopper”, and underlying virtually every discussion was the message that the consumer is moving faster than retailers are, and its time for all to recognize that reality and get on the change-train. Another underlying message is that retail really is “global”, i.e. the notion of thinking of retail in any other context seems arcane (“Of course its global!”, exclaimed the NRF’s Vicki Cantrell). Retailers, suppliers, and consumers now reach across geographies to interact with each other. What makes this all possible of course is the “digital domain”, particularly access to “anytime/anywhere” (and increasingly, “everything”) information, and mobile.
Macy’s CEO (and event host) Terry Lundgren got a bead on the audience’s perception of the digital imperative by polling attendees with the question, “what’s the biggest game changer in retail?” The top 3 audience choices were, “omni-channel”, “multi-channel”, and “mobile”. Now at RSR, we have argued that retailers have experienced a progression of changes, starting with “multi-channel” in the 90’s (when “e-stores” proliferated as part of the Web v.1 bubble), through “cross-channel” (retailers’ attempts to integrate channel-specific processes and systems), to “omni-channel” (one set of processes and supporting systems to serve all the selling channels). But the kicker – the single technology that made “omni” an imperative – is “mobile”, because now consumers carry “the store” around in their pockets and purses, and that new behavior mandates that retailers create a consistent experience across all touchpoints.
Macy’s CEO’s comments indicated that the company is already there, with the “my Macy’s” concept. So in response to his own question, Mr. Lundgren said the top game changer is “Inventory optimization” (perhaps to the surprise of the audience). Lundgren’s choice implies that the company has a clear vision and plan for the selling side of the business, and is setting its sights on the merchandising practices that have to be in place in order to profitably offer anytime/anywhere products and services to consumers.
The CEO explained “inventory optimization” as “using all the network of our inventory to satisfy our customers.” He pointed out that the best place to pull inventory from to fulfill an order may not be the closest location to the customer. His rationale: “avoiding a markdown is cheaper than avoiding a shipping cost”. According to Lundgren, “the math” to help the retailer make the right fulfillment decisions must be technology enabled – there is simply no other way to deal with the volume of the data involved or the complexity of the computations. And as an interesting followup to the “omni” fulfillment discussion, Lundgren said that the way Macy’s incentivizes its employees to get behind anytime/anywhere fulfillment by giving credit “100% of the credit for the sale” to the store where the order originated, and “50% of the credit to the fulfillment location.” Acknowledging that that is “double dipping”, the CEO maintained that while that might be an internal-only number, it triggers the incentives needed to build support. As my RSR partner Paula Rosenblum has said many times, “people do what you pay them to do.”
The Progression of Changes to Support the Empowered Shopper
The thing that I found most interesting about Mr. Lundgren’s comments is that they highlighted the progression of thinking: figure out how the integration of the digital and the physical works for your company, then figure out how to support that with your merchandises management and supply chain practices, and (as an overlay to those two big changes), figure out how you’re going to engage your customers in an ongoing dialogue that builds towards loyalty.
A number of speakers focused more on the changed nature of today’s customer. For example, Rob Garf of Demandware and Anita Bhappu from the University of Arizona discussed the results a joint study about the “digital diva”. This is a shopper who enjoys fashion (“style over practicality”), who reads about, and talks about, fashion. Such customers are 2X more likely to use a mobile device while in a store than other shoppers (making the notion of an “endless aisle” capability important to the retailer’s overall offering). And for these shoppers, “social capital” is very important – they like to “curate” a social dialogue about what they see and buy. According to the research, 59% of digital divas are loyal shoppers, 37% are “fashion forward” trend setters, and only 4% are “closet couponers”.
Joseph Bona, the President of Branded Environments, put the role of the store in the omni-age succinctly, “Everything is retail… and I should also say, retail is everywhere.” He then said that the physical store as “the place that captures all of the senses – sight, hearing, smell, touch, taste”. He further pointed out that social interaction – “being with other people’ – is still important: “That’s why football games and movies theatres are so popular.” In the speaker’s opinion, merchandising is only one-quarter of the value proposition, the other 3 parts being stores, community & people, and technology.
Hot Tips for the Digital Side
It might be argued that for all the “truth” in what the speakers said about the need to embrace the “omni” nature of today’s consumer, it should be a settled matter by now. After all, are there still a lot of doubters out there about the changed nature of consumer shopping behaviors?
But even if most retailers get that, there’s still a lot of room for improvement on digital facets of many retailers’ offerings. The conference had something for that, in the person of Doug Mack, CEO of One Kings Lane (OKL). Mr. Mack is classic “Silicon Valley”, and brought that West Coast perspective to the agenda. In discussing OKL’s offering (home furnishings), he said that the most important thing for them is to present unique products. According the CEO, 98% of OKL’s products are only available via their website. “If you’re working the other 2% – something with a UPC on it, Amazon will crush you.” As for the impact of mobility, Doug stated that mobile now accounts for 28% of their revenue (60% is tablet-based, and 40% is smartphone) – and growing.
OKL’s CEO made these recommendations for those seeking to build out their digital offerings: #1, get some “E-comm nerds”, for example veterans of Zappos or Ebay. #2, make sure you have strong retailing skills in house. #3, acquire media/editorial expertise, for example people from Disney. #4, get great technologists. As a coda, the CEO stated, “Forget everything you learned before 2005 (about E-commerce)”.
But most of all, the retailer said that you have to have an authentic commitment to the customer. In OKL’s case, that means real people answering the telephone – San Francisco-based, college educated staff (I had recently spent hours trying to resolve a billing snafu with AT&T, and so I can personally attest to the truthiness of Mr. Mack’s advice, by way of negative example).
Finally, the OKL representative outlined “5 trends” that have Silicon Valley’s eye. First, “winners always deliver” – a strong merchandise strategy, a commitment to service, and a blazing fast experience. Secondly, “first movers have great leverage”; knock-offs wither away. Third, “Focus” is critical; being a “category killer” plus “thoughtful expansion” plus “profitable unit economics” equals “built to last”. Fourth, you must be local, social, and mobile (but not necessarily in that order; ‘local’ is not universally applicable, ‘social’ is great for marketing, but ‘mobile’ is truly disruptive. Finally, “harness big data”, for sourcing intelligence, marketing relevance & precision, creating a customer-specific experience, and creating service differentiation.
Most Importantly, The Basics
The best speaker of the conference was Jim Sinegal, co-founder and former CEO of Costco. Of course, the story of Costco’s amazing success is well known in the industry, and they have repeatedly rated #1 in overall customer satisfaction in spite of the fact that the company has no ads, no PR to speak of, doesn’t accept most major credit cards, and doesn’t bag products for customers. The secrets to their success? They have an “absolute pricing authority” (“we must be able to show savings, or we don’t carry the product”, said the Costco founder); they are nimble (Costco manages no more than 4000 sku’s, of which about 3000 are “basic”, and 1000 are continually changing); and they hire and keep excellent employees.
According to Mr. Sinegal, the formula is pretty straightforward: focus on getting and keeping the best employees, and encourage a “treasure hunt” for consumers, and the profits will come.
I couldn’t help thinking about my own start in retail many moons ago. I’m pretty sure that my qualifications came down to being able to fog a mirror. But the 200 or so young people assembled in the back of the room at the 2013 conference were getting a lesson from really successful retail leaders, and they will be “loaded for bear” when they get their start in the real world. NRF CEO Matt Shay outlined recent NRF research that reveals that young employees want their opinions heard, want their ideas and decisions implemented, and want a chance to manage their own projects… in their first job! That bodes well for future retail, if current industry leaders are smart enough to encourage them. Those business people who attended the conference (and clearly, those companies who – like Macy’s and Walmart – were actively seeking out future employees) get it, and so should every retailer.