HANA is more than just an idea. Hasso Plattner has made the commitment that HANA means NO batch processing. Ever. Man, that’s a tall order. And HANA is being implemented at more than 1,000 companies, and more of SAP’s world is moving onto HANA every day. Retail planning is already on HANA, and General Availability (GA) for Business Warehouse and the Business Suite were announced at Sapphire.

In fact, the CEOs of McLaren Group, and major executives from the San Francisco 49ers, the NBA and UnderArmour were on hand to talk about the impact HANA has had on their businesses. When was the last time you heard a major executive wax poetic on the value of a database to their business?

• The NBA website stats area is powered by HANA. Visits and ‘dwell time’ have doubled since it was implemented.
• The 49’ers talked about tapping into consumer sentiment to find ways to get more people to their ballparks.
• UnderArmour talked about the importance of SAP in helping it achieve wildly explosive growth rates.
• Ron Dennis, CEO of the McLaren group mentioned their race cars are covered with sensors, generating 13 billion bits of data per car per race. He said this data is analyzed in a tenth of a millisecond and revealed and reported in simple to read charts and graphs. The data is used to analyze, simulate and predict events mid-race and for races to come.

Having said that, perhaps more important is the company’s continued commitment to improving the user experience. And so we’ll move on to the main sisters and some other, lesser known, but equally important siblings.

Reinvigorating and Reinventing the User Experience: The first room I bumped into when entering the convention center was the Usability Testing room. Nice. In truth, everyone from Bill McDermott, Jim Hagemann Snabe on down expressed the priority of creating “Consumer Grade Usability.” We reported on the notion of “Design Thinking” after attending Sapphire Madrid last November. The idea is powerful: applications must be feasible, functional and desirable. Desirability is all about the UI. I know the SAP mentors (a geek group that I am a proud member of) are very focused on the notion. As Jim Hagemann Snabe noted, “Design Thinking” helps SAP become part of the business conversation.

Creating Applications for Consumers: Retail principal Andrea France took me on a stroll through myRunway, which was developed for SAP in China (by engineers almost young enough to be my children’s children) and has been under wraps for a year. It is meant to be a Pinterest-like social network. The app can be found free at the iTunes store. Shoppers can pick their favorite brands, create wish lists, gain loyalty points and share information with their friends. It’s an early version, but I liked what I saw. It’s on my phone, and I’ll be watching future updates closely.

Finally, Hasso Plattner introduced “Fiori,” SAP’s next generation user interface framework. As RSR has pointed out, in an omni-channel world, where new applications, product information and selling channels spring up almost daily, architecture becomes extremely important. Fiori is meant to be the architecture that supports continued advancements and extensions of consumer-based technology with minimal disruption to underlying infrastructure.

The Cloud: Frequent RSR readers will know that I find cloud definitions….cloudy. So when hearing descriptions of “HANA in the Cloud” I could have had an internal debate about whether this was “true” cloud or not. (Sidebar: This is one great value of RSR partner Brian Kilcourse, who translates deep-geek for me. He was unable to attend because his father passed. Please join me in wishing him and his family most profound and heartfelt condolences.) But the bottom line is that HANA is available as a hosted solution. And that makes it far more affordable, especially for mid-market retailers.

SAP also is providing cloud-based mobile security. This enables SAP customers to eliminate hardware and platforms from the cost equation. Afaria is an end-to-end solution provided on-demand.

Finally, recent acquisition Success Factors provides HR via the cloud. Executives from Pepsico, Timkin and Nespresso were all on stage with Jim Hagemann Snabe talking about the value of the application in helping them grow their talent pools. Retailers take note! We are a talent hungry industry.

Collaboration: Ariba is already in the cloud, but it is being enhanced to support direct procurement and collaboration between retailers and suppliers. Anything that supports collaboration is going to be a help to the entire ecosystem.

I moderated a panel on the implications of omni-channel on the supply chain. Two retailers (from OfficeMax and Sports Basement) were on the panel along with an executive from Kraft foods. All agreed that collaboration is key to supporting customer satisfaction and delight in an omni-channel world, and the supply chain must be incredibly responsive and also profitable.

Openness: While SAP has been taking steps to open up its platform to partners for some years, HANA appears to be the most open platform yet. Mr. Plattner displayed a formidable list of companies, from large established tech providers to start-ups developing or already using Hana as a database.

And that brings us back to the beginning: HANA and Her Sisters. Honestly, I never thought I’d see the day when database technology would be sexy again. But it has happened. I also never thought I’d see the day when exuberant co-CEOs of SAP would be leading the cheers at a C&W concert. But it has happened. As my mother always says, “If you live long enough, you see everything.” True, dat.

Not the spiritual kind, mind you – not even at a company level. We’re talking about the nitty gritty of making store-based fulfillment real. At Epicor’s user conference there were zero questions about business case or rationale behind store fulfillment for the retailers who presented on the topic. All the questions were pointed and tactical – “how did you manage the incentives for stores?” and “when you take a store order for online merchandise, how do you handle the credit card transaction for something that hasn’t shipped yet?” These were the questions of retailers at a minimum already designing a project, not trying to think through how to sell it internally.

At Next Gen Retail, the titles were a little more diverse – a lot more marketing people sitting next to store operations and IT, which was refreshing – and so the issues were a little more strategic. The concerns focused on store inventory practices and how to manage inventory levels against cross-channel demand, alongside fears that they weren’t moving fast enough to counter-act Amazon’s move towards same-day delivery. And lots of questions and worries about the impact on their pricing strategies that would result from greater cross-channel inventory visibility. Even though there were retailers in the room who had already made some moves around cross-channel fulfillment from stores, there were still a lot of questions focusing more on the “why” than the “how”.

Mobile was also a hot topic across both events. If I could sum it up in one phrase, retailers’ mobile strategies are all about empowering a store associate to deal with an informed consumer. And again, between the two conferences, there was a fascinating difference between strategy and tactics. At Next Gen Retail, leaders across functions worried about how to do it. At Epicor Insights, retailers shared what they learned from their existing deployments. And while the retailer brand propositions were different enough across the spectrum of brands represented by attendees, there was remarkably little focus on using consumer smartphones as a proxy for employee-provided services. In other words, while retailers want to figure out how to use consumer mobile to better engage shoppers in stores, this is a marketing exercise, not a store operations strategy – they have no desire to substitute consumers’ phones for an engaging employee interaction. Which was also refreshing.

Across the board, whether luxury retailer or even grocer, retailers at both conferences expressed much more interest in employee-facing devices that are multi-functional – providing store associates with a way to meet informed consumers on level ground, but also being able to support both selling and transacting – and maybe even some operations functions along the way. Toward that end, retailers at both conferences also expressed a lot of interest in the iPad Mini, as well as the emerging “phablet” category of the convergence of phones with ever-larger screens and tablets with ever-smaller screens. Retailers seem to see this as a way to address both the front of store functions of assisted selling and mobile POS as well as enabling back of store functions like receiving and inventory functions. The idea is to keep it simple – provide one multi-function device that can be used by any associate for any function. Specialized devices are out, and the idea of a customer ever laying eyes on a traditional, clunky scanner gun – attendees literally shuddered at the thought.

The really interesting aspect of all of this is the intersection of the two – cross-channel fulfillment and mobile selling. Retailers seem to see these two as going hand-in-hand. Ironically, where the most doubt exists is around the infrastructure to support it. Oh, yes, there was some whining about the speed with which consumer technology evolves and that retailers can’t seem to reliably plan on more than a three-year horizon for many of these devices. What was most startling to me was the continuing concern over WiFi – either for store employees (though this was less of a concern) or public facing WiFi to enable all of these interactions of which marketers dream.

Ironic, that at both conferences, whether retailers still dreamed of possible futures or were neck-deep in the realities of implementation, the whole strategy can still be derailed by security concerns over WiFi. Is that fair? If wireless security vendors are to be believed, it’s not at all fair. So why are retailers still so afraid?

What grabbed me most was founder Evan Goldberg’s day two keynote presentation.  Having a CTO as company chairman has a lot of benefits to it, and one of the most profound from an analyst’s viewpoint is the ability to present deeply technical information (much of it forward-looking), while still maintaining the “big stage presenter” feel. There’s no eloquent way to really articulate this: just that it’s refreshing to have a deep tech pitch from someone who understands the sales side of things and doesn’t get mired in speeds and feeds, is all. It’s a balance rarely found.

The big things? The company’s spending $50 million in R&D this year; nearly double what it spent in 2011. And their NetSuite Mobile product is about as cool as it gets. It’s currently in beta only for the iPhone, but it will available in the iTunes app store in a couple of months, and you have to see this thing to know how slick and user-friendly it is. Four main tabs run across the bottom of your mobile phone (home, calendar, leads and contacts), and as you drill down into any one the level of granularity is simply staggering. Goldberg walked the audience through user experiences changing sales orders, changing product estimates: all as easy as buying a book on Amazon. The crowd waited until he showed how it was multilingual until they burst into applause.

But for me, the little things were the real story here. They showed that designs are coming from users – from user feedback. In the full NetSuite product, for example, digital “stickies” enable spontaneous, creative ideas to be quickly stored –and shared – without the danger of getting lost or thrown away that physical post-it notes present. And the ability to drag and drop information within NetSuite proved the crowd appreciated the little things, too. Goldberg hadn’t even gotten done showing how a user could drag an existing sales receipt right onto a corporate record before the crowd interrupted him with the loudest applause of the day.

Throughout the multi-hour presentation, Goldberg was joined by partners displaying how their newly-acquired products strengthened the suite. Joseph Funh, CEO of Tribe HR gave an impressive demonstration of his end-to-end “Social Human Recourses” suite, whereby a new employee named Jesse was recruited, hired, on-boarded, promoted, and ultimately given a raise all within the NetSuite dashboard, and all within full view of his fellow employees  – all the way up to the CEO. And then Patrick Grady, CEO and Atakan Cetinsoy, VP Product Management  from Deem@work showed how easy a travel and expense report can be via “Jason’s” demo (Jason knows which hotels he can choose from on his business trip to Chicago and gets the benefits of prenegotiated deals on anything he buys).

The thing NetSuite seemed most proud of was its growth, and I definitely get that. Even having never attended the event before, the fact that everything was bigger and more exciting than it was just 12 months ago came across in the show’s overall “vibe.” Fewer defects despite growing users, more enhancements being delivered, faster performance, increasing uptime – they’ve got a really good story to tell. And retail just might be ready to reap a lot of the rewards from everything NetSuite has already learned from its manufacturing, services, and wholesale distribution efforts.

What was unfortunate is that much of the good could have easily gotten lost in the constant game of kick-our-competitors’-shins that NetSuite’s presenters felt compelled to play. I’ll spare the details here, but it was egregious, to say the least. I really hope they don’t pursue this tack much further, because it appears they have the type of thinking and technology capabilities retailers really DO want. But if there’s anything retailers DON’T want, it’s to be funding their vendors’ wildly expensive competitive marketing/bashing. Even the smartest of the big guys have stopped playing that game. Because to understand Retail 101 means to know that tight margins lead to subsequently tight tech budgets; the costs of these silly ego games get passed right along in the deal price, and everyone knows it.

It will be interesting to see how they fare with time.

It began two years ago when the company started talking about its web services in the context of enabling its version-locked installed base to get on an upgrade path without triggering an entire system selection process. Along with that message, JDA started talking about total cost of ownership and how the burden of integration shouldn’t be on the retailer – it should be on the vendor. Very encouraging stuff to hear.

And while a lot of people scratched their heads (myself included, at first) at the i2 acquisition, at last year’s Focus, JDA had a clearly expressed vision for how the acquisition would accelerate and enhance its move to a web services-enabled, on-demand delivery transformation.

This year, that transformation is nearly complete. New capabilities – for example, a lifecycle approach to fulfillment that seamlessly leverages capabilities from both assortment and replenishment – demonstrate that, in many areas, JDA is ready to move from assimilating past acquisitions to leveraging those acquired capabilities in new and innovative ways.

So then how does RedPrairie fit into all of this? Well, first, it’s not nearly as much of an overlap as past acquisitions. And with the foundation of on-demand solutions already in place, JDA’s acquisition offers an opportunity to accelerate the plans that RP already had in place.

But honestly, RedPrairie is not the heart of JDA’s story. I don’t want to minimize the significance of the acquisition, but what’s more important to me is the fact that JDA really does want to change the world – or at a minimum change the way that retailers buy and use software. You may hear JDA talk about cloud computing, and the importance of mobility, and a focus on user experience. But what that really means isn’t a collection of buzzwords. They are well down the road in transforming the purchase of enterprise software into the equivalent of opening an account on salesforce.com. They never want to see a customer face a version-locked implementation ever again, and are determined to get to a point where “upgrades” happen monthly, seamlessly.

There are a couple of significant implications that come from this strategy. One, corporate IT becomes something totally different. Gone are the hardcore tech guys, replaced by essentially super-users that are “application managers”. Gone are point-to-point integrations that make upgrades difficult and expensive. It’s the kind of transformation that is so huge that traditional corporate IT departments will resist it with every fiber of their being. A CIO who would embrace the nature of change that JDA is proposing is also embracing cutting about 75% of his or her staff, leaving only strategy, finance, a handful of architects, and business analysts on staff. The rest aren’t needed – because of “the cloud”. That’s a brave CIO, indeed.

I’m not saying it won’t happen. JDA already has customers like True Religion willing to get up on stage in main-event sessions and talk about how they’ve done exactly that. And I’m not saying it shouldn’t happen – I firmly believe that retailers are getting to a point where their existing IT infrastructure is preventing them from taking advantage of needed new capabilities, and that old ways of thinking – long release cycles and point-to-point integration – keep them locked out of future opportunities. Retail IT needs to embrace the internet age. But saying that and watching it happen are two completely different things, and I worry that JDA’s biggest challenge is not its vision, or its capabilities – but a lack of vision and capabilities on the part of its prospects and installed base.

With all of this as context, I believe that the company sits at a crossroads. Two of them, in fact.

The first crossroads centers on the customer data element. JDA currently bills itself as “The Supply Chain Company” – in part, as CEO Hamish Brewer half-joked at Focus, because they haven’t come up with a pithy catch-phrase that accurately describes what they really are now. Oracle and SAP have already made significant moves around embracing “customer” as a data element that needs to be incorporated into all solution areas. With the RP assets (namely, loyalty and clienteling), JDA now has the beginnings of customer. Will it transform itself to embrace customer as part of its solutions? That remains to be seen.

The second crossroad focuses on commerce. With the i2 acquisition, JDA ended up with, of all things, an eCommerce platform. However, with RedPrairie, JDA’s commerce capabilities received a significant injection of new life. Clienteling and call center capabilities both play roles here, along with a “better” eCommerce platform and a strategy that RP had already begun to pursue that put a lot more emphasis on commerce capabilities. JDA, like SAP and Oracle before it, now has all of the pieces and parts to transform how retailers engage with customers – what our survey takers have pretty passionately embraced as “a single customer interaction platform”. Even though JDA’s competitors theoretically have a head start in enabling this platform, the reality is that JDA could still move fast enough to be the first to deliver a truly converged commerce platform that crosses channels. If they choose to pursue it – which is not currently a certainty.

Here’s the thing. Cloud, the way that JDA has implemented it, enables some remarkable things. I get the sense that JDA feels like it could be the “supply chain cloud,” and leave Finance and CRM and even commerce to some degree to others. JDA doesn’t need those capabilities – it just needs a clean web services call to reach those capabilities. I get it. But as much as cloud capabilities are transforming the way that JDA delivers software, “customer” is transforming the way that retailers think about supply chain. Customer data isn’t going to be a simple call to a loyalty program. It’s going to be integral to merchandise & assortment planning, to allocation, to fulfillment options and how those options are ultimately presented to the customer.

And retailers aren’t thinking about the future of POS in terms of “transactions”. They’re thinking about how to get more capabilities into store associates’ hands (places where JDA’s mobile and user experience strategies could become key), and the transaction itself is an afterthought. I can see a future where 80-90% of “point of sale” is actually a combination of supply chain and customer-related capabilities. And the remaining 10% is order management, complicated in the store only by the need to take cash. In JDA’s shoes, I would not be willing to let the market evolve to where I have to fight and compete for the 90% because I didn’t want to deal with the other 10% – especially when a 100% offering would overnight transform the market.

But none of this speculation would be possible if it wasn’t for what JDA has already accomplished. The company really is trying to change the world of enterprise software. They’ve seen the future and the entire company is bent towards making it a reality. It’s a future that retail needs.

Retail doesn’t get any more “real” than it is for independent operators, and I’ve enjoyed attending events by the National Retail Hardware Association (NRHA) for the last few years, and getting the opportunity to talk to many of those independents. This year I was asked to present RSR’s view on the changing nature of technology-enabled consumers and what it means for retailers (a subject we’re fond of expounding on). But for me the best part of the event was an awards ceremony that we have nothing to do with: NRHA’s 17^th Annual Young Retailer Of the Year Awards.

Family, Community, and Common Sense

Unlike publicly owned retail companies, for independents the business is equal parts family and community tradition. As pictures of the stores that the recipients represented flashed on the projection screen, there were no big-box-power-mall-mega “destination” stores. What you saw were stores that fit right into their surroundings: a neighborhood hardware store in a neighborhood, a lumber store on a rural highway, a store with a big sporting goods section near a lake, etc.

Several of the recipients were born into their families’ businesses, and those that weren’t were taken under wing by owner-operators who are like-family. Because of these strong personal ties, the Young Retailers exuded a sense of their close connection to the business. That’s a connection that every big retailer should envy. At the awards ceremony, each of the eight recipients had a word of thanks for their parents, the people who bought them into the business, and the communities that have supported their efforts to be as good as they can be. The presentations got downright emotional at times – the featured Young Retailers weren’t just talking about their jobs, they were talking about their lives.

Among the award recipients, those family connections were prominently featured. One video presentation showed off a letter written by award recipient Meagan McCoy Jones of McCoy’s Building Supply of San Marcos, TX when she was 5 years old to her dad, saying that she wanted to work in the store (but didn’t want to have to get up at 5 AM). Try to imagine your 5 year old writing that kind of a letter to BigCo’s CEO! Jeremy Stine of Stine Home + Yard in Lake Charles, LA returned from study abroad and a stint with the U.S. State Department to work with his dad and uncles in the family business. Kim Ytsma of the Alliston Home Hardware Building Centre in Alliston, Ontario Canada, was thrust into the business when her dad suddenly died from a heart attack in 2010.

Being so close to their communities, the Young Retailers used common sense to create more value for their customers. Jesse Loucks of Mount Shasta Do It Best Hardware in Mount Shasta, CA rightly figured that being so close to a big outdoor destination created an opportunity for more fishing and hunting supplies. Willow Yoder of the Seattle, WA Greenwood True Value Hardware store turned the store into the community’s go-to location for eco-friendly supplies. Ceva Courtemanche of Hensel’s Acre Hardware in the small (population 17,500) Northern California coastal town of Arcata expanded the store to create a destination for home improvement projects, offering kitchen fixtures, flooring, appliances, and furniture. Kyle Herbert of the New Milford Hardware store in New Milford, PA expanded the value proposition to offer more construction materials and a drive-though lumber shed.

Big Shop Concepts, Applied

There’s a mistaken notion that somehow “big” retail and “small” retail are different: a different mindset, different offerings, and different tools. While that may be true of the mindset and the offering, it doesn’t necessarily hold true for the tools. For example, Justin Ellis of Builders Do IT Center of Roswell, NM used “big shop” concepts like category reviews to reposition departments and remerchandise every category. This was all done in an effort to re-brand and remodel his New Mexico store to create a sense of relevancy and excitement in the community. And it seems to have worked; the Roswell store has experienced a 17% sales increase. Jeremy Stine brought e-commerce to the Stine Home + Yard operation, integrating e-commerce functionality into the store’s website and building a database of over 40,000 customers – and creating a social media presence with 20,000 Facebook followers. And Meagan McCoy Jones, whose McCoy’s Building Supply was by far the largest retailer (84 stores, $600M in revenue) represented in this year’s award recipients, centralized sales and consolidated routes to get the most out of the company’s fleet of delivery trucks.

Small Shop Concepts for Big Shops to Emulate

Several things about the recipients’ acceptance speeches stood out by virtue of their consistency. First is the aforementioned family connection. The bond between these Young Retailers and the businesses they run is up-close and personal. There is much talk today about companies’ lack of loyalty to their employees and employees returning the “favor”. Not so at NRHA. The Young Retailers on the stage understood clearly the connection between the well-being of the store and their own well-being. One has to wonder how if is that so many big companies have lost that connection, and what has to be done to get it back. Based on the comments from virtually every one of the recipients, it must have something to do with the fact that each of the retailers represented, whether it came from parents and family or from that nice old couple who ran the store for 50 years, took a very personal interest in the young up-and-comers’ success. Based on the announced results, they have been paid back handsomely.

The second point is about allegiance to the community. Each and every one of the award recipients thanked their communities for supporting their store. Of course it’s a virtuous cycle: the store listens to the community and tailors the offering to meet the local needs, the community feeds back, the store fine tunes the offering, etc. As long as all are communicating with each other (talking and listening), it should keep getting better – there is no upward limit.

A third thing was that most of the award winners expressed gratitude to the ecosystem that they operate in (no kidding!). Whether it was the Ace Hardware network, Orgill, or the Do It Best membership, the Young Retailers expressed gratitude for all the support and advice that they got from willing local corporate reps.

Finally, of the eight recipients of this year’s NRHA Young Retailer Of The Year award, four were women. Who says that hardware stores are just for the guys?

It can all be summed up this way. As Meagan McCoy Jones said, “retail is a noble business”. She meant it, and coming from her it rang true. Helping the people of the community that you work in is noble.

Figure 1: The Big Picture

Source: RSR Research, May 2013

The contrast couldn’t be any clearer: Winners plan to open new stores – not only in the geographies where they’ve already had success, buy also in new markets around the globe. They view stores as a vital component to their overall brand offering. Yes, consumers may be using any number of physical and digital channels in their paths to purchase, but stores still play a vital role in that equation, and their plans reflect this fact.

By way of comparison, laggards seem to have given up on the store entirely. Perhaps they already have too many stores. Perhaps they need the money; but no matter the reason, one in two struggling retailers is planning to close stores in the near future (compared to 10% of Winners), and another 21% say they just plan to stop opening stores altogether. Whatever plans they do have for expansion are for smaller-format stores than what they currently operate.

While it is important to recall that Winners are looking through an optimistic lens at the future of the store (and laggards a dire one, from Figure 1), Figure 3 sets the stage for the overall retail environment right now: Those who are “in the know” recognize their stores need technological revitalization, and are addressing that need post-haste. Laggards, on the other hand, just don’t “get it”: they have labeled the store as irrelevant, when in fact it is their lack of attention to those stores that has made their locations undesirable to consumers in the first place. Quite simply, why would a consumer want to visit an antiquated, poorly arranged store whose personnel can’t answer even the simplest of product questions? It becomes a self-fulfilling and downward spiral.

From Here to There

When it comes to operational challenges, getting exciting new store-based technologies up and running – and playing well with both new and existing cross-channel tools – takes top honors. But the most interesting data points in Figure 2 are the 48% of retailers who acknowledge that implementing cross-channel process in stores is a top challenge, and that keeping employees focused on selling and service is, as well (Figure 2).

Figure 2: It Ain’t Easy

Source: RSR Research, May 2013

This makes perfect sense; for the best retailers, the store must evolve, and that means it’s going to be a significant challenge to ensure new store-based technologies do not operate in a vacuum. Consumers don’t care about “channels”, and new store systems will only be of value if they interoperate with all the other “channels” retailers operate. For the worst performers, this challenge may prove difficult enough to phase them out completely. Laggards’ problems are only further compounded by how little importance they place on an educated, helpful staff in stores: only 13% (compared to Winners’ 38%) identify hiring good people as a top priority.

The full report examines much more of the challenges, opportunities, and technologies retailers perceive as being most helpful during this transformative time, and as always, we find stark differences throughout based on retailers’ sales performance. We hope you’ll take the time to read it here.

As stores try to find their way in a brand new digital world, we asked retailers to candidly share their experiences.

Key Findings

• Retail Winners see stores helping to compete with the online experience and are less likely to think future growth will only come from digital channels. They expect they can reverse the erosion of the store — if they can better incorporate technology as part of the store experience.
• Winners plan to open new stores in both new and existing geographies. Laggards are closing existing stores, and the few who do plan new opens will do so with smaller-format stores.
• Retailers continue to see increased value in communicating with consumers within the store walls, all while neglecting the wireless infrastructure to do so effectively.
• All retailers are concerned that stores are spending too much time on the wrong things (including distracting store technologies and administrative tasks for corporate), while Winners worry they are not spending enough on cross-channel selling and fulfillment.

“The Relevant Store in the Digital Age” contains analysis of the business drivers, opportunities, and organizational constraints surrounding retail store strategies. It also offers up baseline recommendations for navigating the future of stores, particularly as retailers struggle with the industry changes brought on by cross-channel shoppers. The report is part of RSR Research’s ongoing efforts to provide market intelligence on retail technology trends.

To find out more, download the full report.

Sponsored by

1. What is the future of the store and how do we make it relevant in an increasingly digital shopping experience?

I’ve been saying since 2010 that the store is in trouble, and that hasn’t changed much in the intervening years. The store simply is not keeping up with the standards for a customer shopping experience that are continually being raised online. Between personalization, rich product content, and access to other shoppers with similar needs and experiences, online delivers a far more effective experience than the store.

The challenge in tackling this question comes from two different directions. One, stores seem to mostly work okay right now. Sure, online and digital channels continue to grow, but it takes massive experimentation on the scale of JCPenney to kill store comps to a degree that threatens the store’s existence. But my theory is that the economic model of traditional stores falls apart somewhere around the time that digital channel sales reach about a third of total sales. The retailers who operate “balanced retail” – business equally distributed between online, store, and direct/catalog – tend to have a different store strategy from retailers who depend heavily on stores for revenue. They operate more of a “flagship” or concept store environment – store as entertainment, store as services, store as brand destination. Think Cabela’s and Bass Pro, or Nike or Under Armor.

The other side of the challenge is the technology side – all of the things that retailers have at their disposal to bring more of the digital experience in stores has already been done in one form or another. Yes it’s true that the cost model has changed significantly, and with smartphones the opportunity to offer bring-your-own-device deployments radically changes the model. But retailers still struggle with the same-old same-old. You want to put a kiosk at the front of the store to offer a more personalized interaction at the beginning of the shopping experience? You’d better be prepared to provision that, either with wifi or hard-wired internet connections, and power – and the training for store staff to maintain it and serve as level 1 help desk for lost consumers. Even if you move that kind of functionality into a smartphone app, store employees better know what it’s all about, and there better be in-store public wifi to ensure the customer has access to the experience you’re trying to deploy.

1. What role should social data play in generating customer insights?

On a completely different note, we’re seeing increased interest in starting to use all of that social customer data that has been collected over the last year or two in order to make better operational decisions. There are some intriguing questions that could be asked and theoretically answered by social data. Questions like, does a high product rating translate into increased demand? Or conversely, does a low-rated product see a drop in demand? Can the comments and reviews about products be mined to make decisions about which channels should carry products (Will it do better online than in stores? Should an online-only product be extended to store inventory?)? And finally, can customer sentiment be used to predict purchasing behavior, the holy grail of social data?

Alongside these questions, retailers are faced with some tough challenges – finding the resources who have the skill sets to ask and answer these questions. For an industry that has struggled with promotion optimization, simply because more of the basics of customer data have been difficult to come by and maintain over time, taking on social insights is fairly ambitious.

1. Who should run all this omni-channel stuff internally?

If I could develop an org chart that lays out what an integrated/converged channel retailer looked like, I think I’d have enough consulting work to last the rest of my life. Everyone, from grocers to luxury retailers and in between, are trying to figure out three main organizational questions: one, who should be the owner of the customer experience? Marketing? A new “customer experience executive”? And what is the true span of control for that executive – does it reach into stores?

The second question: Who should drive the retailer’s brand strategy, marketing or merchandising? Can the organizational successfully transition from a product-driven company to a customer-driven company? And does this mean that merchandising no longer drives the brand promise, but merely acts on it?

The third question: As marketing reaches more deeply into the customer experience, how do we get marketing and IT to better work together?

None of them are easy questions to answer.

1. How do we better leverage inventory to meet demand that could come from anywhere at any time?

My favorite question. This is the one that promises, actually, to have the most impact on the retail enterprise in the next three years or so, I believe. Yes, even more so than the other three questions. Here’s why. Retailers have spent the last 5-10 years integrating the selling side of their business so that they can at least fake one face to the customer, even if the reality of the behind the scenes is the worst sausage-making factory in the world. But the volume of cross-channel, integrated selling business has grown to the point that retailers can’t hide the baling wire and gumworks in the back. The strain is starting to show, and the cost of maintaining it increases as the volume grows.

Up to this point, retailers have done a good job isolating their supply chains from all the changes happening in their selling channels, but as soon as you start raising questions like “How would ship from store work?” you can no longer maintain that isolation. The supply chain also has to become more sophisticated – and integrated with the cross-channel selling that is already happening today.

Saving the Tough Questions for Last

Questions 1-3 above require long-term change – a sustained change management effort that must fight against the status quo. Like all good procrastinators, retailers will leave these hard questions for later. First, it’s time to bring supply chain along to meet the new demand sources and shifts that cross-channel selling is creating. Along the way, however, retailers might just get a better sense for how to solve the other three.

I’ve got to be clear, just the fact that I don’t have to drive to Aventura to get to a Whole Foods Market is reason enough to celebrate. I’ve written many times what an annoyance it is getting in and out of that town, regardless of the season. It also doesn’t hurt Whole Foods that my local Publix appears to have lost a step – especially in the produce department. In other words, I’ve been eagerly watching construction and waiting for the store to open just 30 blocks from my house. But Whole Foods Market made its store opening a true theater adventure. I was greeted in the parking lot by bands playing, special activities for kids, and policemen directing traffic. Yes, it really was that crowded (although as a local I do know the back way in!). But once I got inside the store it wasn’t about all that. It was about the products. The store contained a moveable feast similar to Costco, where I could sample everything from key lime mustard marinade to Parmesan Reggiano. Everyone likes a free lunch. But I learned some really valuable lessons during my first visit and did more than just chow down on site.

Lesson #1: Branding is about more than Brand Name: Upon entering the store you walk smack dab into the fresh produce department. And the signs you see are “Organic: more than 91 products today” and “Local more than xx products today” (sorry, I don’t remember how many). In other words, the store found a way to hit both my hot buttons. I’ve definitely gotten religion around non-GMO food over the past year, and buying local just makes good sense. But the reason I’m calling “Organic” and “Local” brands follows.

Lesson #2: How Whole-Paycheck Became Half-a-Paycheck: As I said, there are particular foods I’m really fussy about buying USDA-certified organic. Nuts and grains in particular are on my list, because I’ve read so much about how the seed stock has been tainted. Corn, soybeans, peanuts, almonds; it’s (rationally or irrationally) making me very nervous. So I want my almond milk to be organic. As it turns out, Whole Foods had half-gallon jugs of its 365 brand almond milk emblazoned with the USDA certified organic label. Into the cart it went. And so it went with many of the products I bought. The net of this was that the final bill was about 1/3 less than I’d expected it to be. So I saved myself some money, got what I wanted and left very happy. What happens when quality is defined not by the brand, but by the contents? It’s a really interesting phenomenon.

Lesson #3: Store Employees Really Do Matter: People who move to South Florida are generally surprised at the indifference-bordering-on-surliness of the average store or office employee. For whatever reason, they really aren’t very nice. But the Whole Foods employees were genuinely happy. Check-out lines were short, and when I realized I was working with a brand new Whole Foods employee at check-out, who really didn’t know how to ring up “complicated things” like yams, she was so sweet that I just didn’t mind waiting. The person who was training her said “Don’t worry, within a few months you’ll know them all by heart.” She smiled broadly, and that just made me happy. How many of us can even expect our employees to be around for “a few months”? Maybe there is something to this conscious capitalism thing. I have a friend who has worked for Whole Foods as a produce manager forever. He put his daughters through college with his stock options. How many of us can say the same?

Being a technology analyst, I suppose I should comment on the in-store technology, but I honestly didn’t notice much. Yes, the check-out lines were short, but it remains to be seen if this is a “new store opening push” or a permanent staffing reality. I’m sure hoping for the latter.

So while I’m hearing a lot of buzz around Amazon getting into grocery, and Walmart getting into the neighborhood market business, I’ve got a whole other thought process. Give me the assortment that I want, surprise and delight me with your service, and don’t cause me undue pain, and I’ll happily go on a discovery adventure at a local food store. I just have to remember to bring a shopping list next time… because nova lox without cream cheese is just not good enough. My bad!

So it only makes sense to share a sneak peek with RPW readers, too. No one store can be all things to all people, and as a result, confusion about what a store should be has set in. Recent months have seen headlines of old models falling on the sword of show-rooming (Best Buy) and very public failed re-imaginings (JCPenney).

It therefore only makes sense that the first thing we wanted to know from our retail respondents was what they saw for the future of the store. As you can see from Figure 1, at first blush, its perceived future does not look overly bright.

Figure 1: An Incomplete Vision of the Future…

Source: RSR Research, May 2013

However, these opinions are heavily influenced by retailers’ current status in the market. It comes down to one simple question: are you a Winner or a laggard?

Night and Day

One of the prime examples of this difference is in how Winners regard the future of the store. As seen in Figure 2, Winners have an entirely different point of view from their peers: they see stores as helping to compete with the online experience (49% strongly agree to laggards 24%), and they are much less likely to think that future growth will only come from digital channels (6% to laggards’ 18%). They are much more realistic in their goals, and understand that they can reverse the erosion of the store only if they can better incorporate technology as part of the in-store experience. They are also more likely to believe that they are already on the correct path: believing that the current technology investments they are making will be the ones to help them get where they need to be.

Figure 2: …Comes Into Focus

Source: RSR Research, May 2013

In essence, Winners have a completely different view of the future, and keeping in mind this “lens” through which they look while reading the full report (which publishes later this week) will help explain the myriad different tacks they are taking to help return stores to their rightful place of relevance.

Furthermore, this vastly different perspective shows they understand the problems stores currently face: while a happily-ever-after scenario may have previously been possible for retailers offering unique products or superior customer service, today, those functions absolutely require new technologies in the store. Customers demand them. In fact, they are an absolute necessity for anyone operating on anything other than a low-price model. And while we’ll discuss the importance of pricing several places throughout the full report when it releases, history has already proven there are very few retailers who can compete on a low-price basis. This report will be about how technology can help every other store-based retailer compete with rock-bottom-price competition – whether it’s coming from other stores OR the online channel.

We’ll make sure to send you a link to the full report as soon as it is available this coming Thursday afternoon.