If ever there has been an exciting time to work in retail, the time is now. There has been more disruption in the past 10 years than any time in modern history. And, we are just getting started. As I reflect on the past 10 years and think about what’s to come, it becomes increasingly clear the path to a new retail reality isn’t actually clear at all. There is no silver bullet, and the ways in which retail fortunes will be made and lost are still very much being written.
That being said, one thing IS crystal clear – shoppers are in charge and the retailers who win are the ones who are paying attention to their needs and desires. At RetailNext, we chose “Blurred Lines” to be the theme of this year’s Executive Forum because it aptly describes nearly every high profile dynamic of retail today. Whether it be the blurring of channels, the fine line between technology and retail, or even the sometimes minimal distinction between influencer and associate, it’s not always clear which is which. That being said, I believe there are five important “blurred line” trends that deserve our attention, and they are:
- Omnichannel grows up – disparate channels converge into a single (omni)channel.
- Business models evolve – malls become retailers, influencers create brands, and everyone has an angle of what retail should and will look like tomorrow.
- The new retail associate emerges – the employee model is rewritten at the intersection of associates, technology and millennial confidence
- Retailers become technologists – with Amazon leading the charge, retailers unlock the power (and value) of technology-first strategies.
- Geographic boundaries get erased … sort of – Global distribution is a near-term strategy for digital natives and emerging brands, while legacy retailers find growth well beyond the boundaries of their home countries. But, what about China?
Omnichannel grows up
Not too many years ago, the number one buzzword in retail was the elusive “omnichannel.” At this time, say, six to seven years ago, e-commerce and in-store experiences were very separate – remember when you couldn’t return an online purchase in-store? – and organizational teams were still siloed with very little interaction between the two. During that time, consumer expectations were miles ahead of retail’s capabilities and retail seemed somewhat clueless about it. Naturally, consumers wanted interplay between the channels and were extremely frustrated by the added friction in the experience. During this time, every company also had an omnichannel team and a corresponding “strategy.” The problem was everyone was reacting to the consumer and the consumer was moving too fast to keep up.
Retailers would roll out “Buy Online, Pick up In Store” (BOPIS)/”Click-and-Collect” programs and would add additional friction by putting the pickup location in the back of the store, or in the basement or on the top floor. In the retailers’ mind, it was great as a way to get shoppers to travel throughout the store, but for shoppers it was a nightmare. This, of course, launched a whole new set of omnichannel experiences like curbside pickup, better BOPIS, and much better return processes. But, in many cases, these experiences still missed the mark on customer experience. Lately, however, this has begun to change.
Today’s best retailers have a much different mindset and put their shoppers and their experiences front-of-mind. Nordstrom probably has taken this to the greatest extreme, as its Nordstrom Local concept is an investment in the omnichannel experience. A full departure from the typical mall location experience, Nordstrom Local is meant to feel like your neighborhood boutique. The locations – three at last count, all in and around the Los Angeles market – offer everything from BOPIS services to onsite alterations. Some locations even include nail salons, grab-and-go food and a cobbler. To me, this is the best of all worlds – the service and selection you would expect from Nordstrom with the convenience and intimacy of your local boutique. Nordstrom has created this new footprint for how retailers can seamlessly service their shoppers across all channels, while keeping its consumer connection front of mind.
The second convergence of channels is happening between social and physical. Google has been itching to get into the physical shopping space for some time with initiatives like Google Express and its new Shopping Actions program. The problem is it still feels like a mashup of channels with the only benefit, in Google Express’ case, being convenience. While convenience is certainly an important element of any shopping experience, it still misses opportunity to really surprise and delight customers, introduce them to new products and brands, and connect in a meaningful way.
Where I get really excited about the convergence of experience and commerce is via social media shopping experiences like Pinterest and Instagram. It is becoming increasingly seamless to cruise through your social media platforms, see something you like and instantly buy it. Instagram has a unique opportunity to rewrite the rules of omnichannel retail through its discoverability and its increasing shoppability, and I believe Instagram is perfectly positioned to disrupt Amazon, if it plays its cards right.
Business models evolve
The retail landscape is in an unbelievable state of change. In 10 years we have literally gone from “the retail apocalypse” to “the retail renaissance,” and everyone wants a part of the action. Driving this retail renaissance are a few unlikely heroes.
The first heroes are malls and their operators. Yes, the malls. It’s no secret mall landlord/tenant relationships have been rocky over time. In the heyday of the enclosed mall, the landlords held all of the power and the tenant brands were resentful. But oh how the tides have changed. Today, with mall vacancies at an all time high; and with anchor tenants closing left, right and center; brands have an increasing amount of power and many malls are courting them like the homecoming queen. And to court these beauties, landlords are pulling out all stops. There are generous tenant allowances, percent rent deals and, increasingly, turnkey areas of a mall that emerging retailers can test their retail concepts at little to no cost.
The second set of retail heroes are influencers. Never in history has being popular been so profitable. Influencer brands really emerged with the evolution of fashion beauty bloggers, but the trend has spread to every area of consumption. Instagram and the visual impact of the mobile phone have been key to this growth, but so has the overexposure of many other brands and the consumer thirst for discovering the latest up and coming brand. The billion dollar power of the Karsdashians is well documented, along with many other beauty blogger brands such as Glossier (brands that are both created from bloggers and brands that see breakout success because of blogger adoption), but it is somehow more incredible to me that influencers like Arielle Charnas of Something Navy can build meaningful lifestyle brands on their personal styles with a combination of fashion blogging, paid endorsements and partnerships with companies like Nordstrom. Moreover, what brand wouldn’t want access to Ms. Charnas’ 1.1 million followers? While these influencers aren’t without controversy – it can be argued that they don’t really have the design chops to sustain the hype – I wouldn’t be surprised if this is how the next Ralph Lauren- and Tory Burch-type success stories will be born.
Almost as interesting as the influencer brands are the viral sensations – brands and products that are built online without celebrity spokespersons or paid endorsements, the most famous of which has to be the Orolay Coat sold exclusively by Amazon. This coat became an overnight New York City mom sensation with it’s affordable price point and stylish design – repeatedly compared to Balenciaga at a much more affordable price point. Vox Magazine detailed the inner-workings of the coat’s success in a fascinating article this past February with the headline and opening paragraph adding intrigue to the story, “How a coat on Amazon took over a neighborhood – and then the internet. A case study of a trend that maybe wasn’t one.” In summary – a few stylish women in New York started wearing this $89 Amazon coat, a few fashion bloggers and magazines took notice, and before you could say “Balenciaga,” the coat was selling like hotcakes.
Blurring many of these trends, but with a voice of their own are the conscious commerce brands. Brands like Armour Vert and Rothy’s are built on sustainability; Everlane has built a brand on supply chain transparency; Thread Up and the Real Real are re-commerce giants pushing billion dollar valuations, and brands like Le Tote and Rent the Runway are changing the way we dress through fashion rental platforms. All of these brands, and more, have latched onto the notion that millennials and Gen Z generations care deeply about the products they consume and the footprint they are leaving on the environment. When you consider the fashion industry is the second largest polluter in the world behind the oil industry, you can expect to see conscious commerce brands joining the mainstream retail heroes.
A final set of heroes I’ll discuss here are the emerging brands, or “digital natives” as they are often called. There are the famous, well-documented brands like Warby Parker, Bonobos and Casper, and then there are literally hundreds more waiting in the wings for their big breakout. It makes sense, right? You start with a concept that you quickly take live on a Shopify site, you buy ads against the site on Google, Facebook and Instagram, and you start collecting data. This data is gold – with it you can tweak and optimize and quickly figure out what works and what doesn’t. These brands build their empires to a point and then – WHAM! The cost of customer acquisition escalates while leadership teams ponder “How do we attract new customers to our brand?,” and the decision is often made to open physical stores. We have documented 500 or so of these brands we believe could open stores one day, further entrenching this new model of digital-first retail followed quickly by physical stores that support brand awareness, customer acquisition and human interaction.
The new retail associate emerges
Forever the backbone of a solid retail strategy, the store associate has never been as powerful as today. And, coupled with the confidence, talent and bravado of the up and coming generations, and you have a recipe for transformation.
The first transformation I see with associates is how they functionally perform their roles in stores. Historically, retail associates spent a tremendous amount of time on tasks unrelated to selling and serving, including restocking, filling out paperwork for corporate offices, or executing markdowns, returns or other necessary functions of the store. Today, technology has streamlined and automated a lot of those tasks – for the better retailers, paperwork has become almost a thing of the past with integrated systems that take the tedium out of the day-to-day. Additionally, some of the other tasks are less disruptive when prediction engines are enabled to predict the slow and busy times of the day so the task-oriented work is completed in the slower hours of the shift, leaving the associates to best serve shoppers and customers when they are in-store.
The second transformation is centered around staffing and labor allocation. Companies like Uber and Lyft have transformed how we think about part-time and contracted labor. Drivers are able to drive when they want, leaving them tremendous flexibility to pursue outside interests or responsibilities. Retail hasn’t fully caught on, but some startups like mobile store start-up Enjoy utilize flexible labor models to give employees a lot more choice. I imagine this trend is going to only increase over time.
The third associate-focused transformation, and the one I am probably the most excited about, is the use of associates as brand ambassadors. Retail teams have always had responsibility for clienteling and developing one-to-one relationships with their customers, and the best relationship builders are typically the best commission earners. With social media, this is easier than ever, and retailers are catching on. Macy’s, for example, has a program that pays associates to build influencer communities online – the associate styles looks they love and if their followers buy from those looks, they are rewarded with cash. How cool is that? This becomes part of the seamless integration of digital and physical experiences, and rewards what Macy’s wants to achieve – a seamless, integrated experience focused on the need of shoppers. This type of program provides incentives for associates to reinforce and build out on the company’s strategies, creating over a short period of time a strong corporate culture completely bought into the strategic vision.
Retailers become technologists
There is no question that in today’s world, retailers must understand technology. But the question is, do they have to be technologists themselves? In a recent upgrade note written by Oppenheimer’s Brian Nagel, Nike was recently referred to as a technology company, and there are unicorn valuations popping up for fashion start-ups all over the place – Rent The Runway, Stitch Fix and Casper to name only a few. Walmart and Macy’s have also gotten into the game with acquisitions of, or investments in, companies like Bonobos, b8ta, Story and Jet.com. Amazon, of course, is certainly more of a technology company than a retailer.
So, what’s the deal? Are these companies retailers or technologists? And, what does the winning formula for retailers look like? Well, I’d say it’s a bit of both.
There is no doubt technology is crucial to the overall shopping ecosystem and many of these technologies, largely mobile phone-driven, have rewritten the rules of retail. Setting Amazon aside, tech giants like Instagram and Google are also getting into the action with their own shopping applications – most recently with Instagram announcing the expansion of Instagram Shopping. The ways retail and technology continue to intersect is one of the most fascinating aspects of today’s retail reinvention and I believe we are just getting started! There are a few key technologies that I believe are ready or near ready for primetime and that can have a fundamental impact on stores as we know them.
- The connected journey – the holy grail of data and analytics for retailers has been the vision around connecting the digital journey with what’s happening inside of the store. This vision is becoming reality, and RetailNext is very excited to be squarely in the middle of the capabilities.
- Artificial intelligence and machine learning – with applications that span from to inventory management to labor allocation to more state-of-the-art applications like automatically classifying shopper actions like shoe try-ons or shelf-reaches in store, we are just starting to see the possibilities of layering these technologies into the store.
- RFID in the supply chain and into the store – RFID has made tremendous advances and has created huge value in optimizing supply chains for retailers around the globe. However, the in-store applications are still lagging. It is still a tedious task to wand scan a fixture for inventory management and the ability to instantaneously understand where every piece of inventory is at any given moment is still some ways off. However, we believe that the underlying capabilities are improving and this is certainly an area to watch.
- Endless aisle applications – in a win for everyone, shoppers can engage with endless aisle applications – like magic mirrors or other in-store interactive signage – to find the styles and sizes they desire, and retailers can optimize the investments they have made in merchandising optimization. These applications are being seen across retail and I expect that trend to continue.
- Autonomous checkout – If I had a dollar for every retailer who asked what our “Amazon Go” strategy was, I wouldn’t be writing this article! Amazon has definitely created pressure for retailers to rethink their own POS strategies. While I do not believe the Amazon Go experience is right for everyone, I do think there are thinks everyone can learn from Amazon’s experiment with cashierless stores.
- The WOW effect – by this I mean layering in state-of-the-art technologies to augment the store experience. Whether it is a virtual reality-enable golf experience that gives you the feeling of being at the Masters Tournament without the travel and expense or an artificial reality application that allows you to see a couch in the context of your own home, these applications are starting to find their way into mainstream retail. Some of it is goofy and unnatural, but some of the experiences are super cool. It will be very interesting to see who brings the best experiences to the store.
Geographic boundaries get erased … sort of
The barriers to global expansion have never been lower and the ability for shoppers to find the international brands they are looking for is easier than ever. Luxury shopping sites like Farfetch give high-end brands a home in the global ecosystem, and mass market brands like Primark are exploding on the U.S. scene. Global boundaries have been softening for years, and today social media, influencers and access to cultural trends make it easier than ever to find, for example, your favorite Japanese anime memorabilia, from anywhere in the world. This is leading to a blurring of cultural identity. Travel to the streets of London and many of the shops you see are not British at all. And, this is exacerbated in higher growth/emerging markets like those in southeast Asia and China, in particular. Whereas brands used to open their first global flagship in London or Paris, Shanghai and Beijing have now taken that spot.
However, the biggest influence on how retail evolves globally will be China. China’s unique perspective on technology, social media and influence, consumer privacy and government control has allowed it to create an entirely new ecosystem of retail capabilities. Beyond the well documented ability to shop and pay via the social media platform We Chat, China is also rolling out incredible capabilities for cashierless checkout, automated payments, AliPay’s Pay by Smile, facial recognition and more. Much like Amazon has put U.S. retailers on notice for how they manage their retail organizations, the retailers and technologists in China are doing this on an even larger scale.
What does the future hold?
As I stated in the beginning of this article, “If ever there has been an exciting time to work in retail, the time is now.” But the big question is, what does the future hold? How will these trends play out, what will stick and what will languish? What are the technologies that will truly change the way we shop and which are those that will fade into the sunset as a nice but unscalable idea, or an idea that was before or after its time?
Retail’s first blurred lines were certainly in the blurring of the channels and the changing nature of shopping itself, but today I see blurred lines going far beyond omnichannel and more as a driving theme. Whether it be in relation to the role of the associate, the responsibility of the brand or retailer as a good global citizen, or the role of technology in the evolution of retail, these are all lines that are increasingly blurring across the industry. The biggest unknown that remains is which legacy retailers will respond and thrive under the new rules of retail and which will languish. Equally interesting is where will the innovation come from – will it all be driven by high growth digital natives or will others get a piece of the action?
The best advice I can give retailers and brands is to care deeply about your shoppers and pay attention to the trends and preferences that motivate them. The shopper is in charge and only by keeping up with their changing expectations can you expect to win at retail. We know that channels have blurred and that the way we shop is fundamentally different than the retail most of us grew up with. Retail will continue to evolve, and while I imagine in 20 years the landscape will look extremely different than now, its foundations will undoubtedly be rooted in today’s blurred lines.
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