Transcript
Reva Bhatia:
You're listening to Next In Retail from Publicis Sapient, the podcast that shares insights on unlocking what's next in digital transformation. The roaring twenties have arrived. We are now entering the third decade of life online and the transformation this has unlocked has changed all of our lives at a rapid clip. Businesses have been incredibly vulnerable to these changes. Arguably none more so than the retail sector. It has been tough to predict the future for retailers. Every day we wake up to news of vast changes in the industry from folks closing shop to those breaking into new waters in an effort to stay afloat. Today we will gaze into our crystal balls and discuss our predictions for what lies ahead. Joining me are Hilding Anderson, retail strategy lead in the Americas and Andy Halliwell, retail strategy lead for EMEA and APAC. I'm your host for the session, Reva Bhatia. Thanks for joining me. Now, let's get started. To kick things off, I want to just start with a quick round table. What do you foresee as the biggest theme that will emerge in the 20s in retail?
Andy Halliwell:
The biggest thing to emerge in the 20s, I think, is going to be the evolution of robotics in grocery. Now, we've talked a little bit about this in the past, but one of the things we're seeing, especially with the launch of the new Amazon go grocery format store and with a number of other organizations like Kroger starting to experiment in this sort of ambient intelligence space, I think we're going to start seeing things like the Nova store from alert robotics becoming almost a mainstream kind of supermarket that is going to be launching, you know I think, in certainly very mature ecommerce markets around the globe. For those of you who haven't seen it, then this is a really cool concept. What they've basically done is they've introduced a lot of automation and robotics into a slightly larger warehouse back of house in a supermarket. They've increased the footprint of back of house and taken that away from the front of house.
So, where you would normally go and do your shopping. Instead, what you do is you use shopping lists on your mobile phone or on an app or on the loyalty app to buy in advance a lot of your dry goods and boxed goods and that is just ready and waiting for you when you arrive. But the things that you care about, those are the things that are still front of house that you still get to choose. So, it really is this perfect blend of an interesting experience and yet a time-saving device for ever busy shoppers.
Hilding F. Anderson:
I like it, Andy. That was pretty interesting. I think this next decade is actually going to be about the algorithmic retail, which really is about a lot of these retailers using AI machine learning much more systematically throughout their organization. So much of what most retailers in my experience are doing as I look across our book of business here in North America are really using some of these data to drive personalization and often not even that sophisticated personalization, you know kind of more baseline personalization. I think this next decade is going to be the one where that application of these models and AI really moves towards the operational excellence side of things and driving efficiency. As well as, of course, using much more sophisticated models on the front end, on the personalization side, and increasingly custom models that are really resonant with the specific segments, whether it's grocery or big box or high-end apparel or affordable, lower end apparel. Whatever the segment is, there'll be an ability to tune in and really optimize that.
And when you do that, we know that it drives tremendous outcomes from a financial standpoint where you're looking at 5-10 plus percent type of a lift. So, it's pretty compelling from an ROI perspective. The challenge when you do that is around, often, the organization and enabling the different teams to be able to make the changes they have to make, whether it's with the customer experience or with the tools they're using on the backend to take full advantage of these new technologies. So many of our clients are legacy clients that have huge investments in systems that work fairly well but are less flexible. So, that's an exciting but a daunting challenge for a lot of these larger firms.
Andy Halliwell:
You make a really good point in there as well, which is that it's not just about artificial intelligence or machine learning or all that kind of thing as the capabilities. The democratization of that. It's about how do you make that kind of capability, that sort of technology, available in the everyday sort of job and role of the people that are running a grocery store or the person that is working in the call center and wants to work out how to save that customer or what is this customer likely to be phoning about even before they’ve picked up the phone? I think that's where these kinds of technologies are really going to start to have an impact.
Hilding F. Anderson:
I was just on a call with a client and it was absolutely about implementing the CDP-plus, this move towards algorithmic. By far, the most tense part of that call is the activation side and how do you get the different business units all aligned and excited and willing to change and change the way they operate to capture the value that you can capture here. It's so much easier when you're a wayfarer or one of the more digital pure plays that were designed from the ground up. Even in Amazon, Bezos in the late nineties, started with the premise of we're going to be a numbers-driven analytical organization. Very different start than call it a Macy's or one of these larger retailers that have a completely different starting point focused on the store.
Reva Bhatia:
So maybe shifting gears here. Sometimes in order to determine one's future you need to look to the past. What do you think has been the biggest miss for retailers in the [inaudible 00:05:30] in 2010s?
Hilding F. Anderson:
I mean, I think in retrospect, one of the biggest misses is not growing ecommerce skills and expertise aggressively enough and quickly enough. So, you look at, especially in the early 2000s, the decision by Marks and Spencer and Target and others to host most of their ecommerce platform on Amazon. And not only did that, of course, help accelerate that Amazon knowledge of the retail business, but it really deprived Target and others from the internal skillset that they needed to be competitive for the next 20 plus years, 30 plus years. It's been a challenge for them finding the right balance between having great talent in-house and choosing the right partners to drive their business in the right way.
Andy Halliwell:
I mean, I have to agree with that. The only thing I would add on top of that though is that a lot of these companies, when they kind of were asleep at the wheel missing out on the promise of ecommerce, they also missed out on the opportunity to reorganize their business and really embrace their agile startup mindset and ways of working that go with that. I mean, I think for me, that was one of the things that ... you know some of those companies you talk about, the ones that really managed to embrace digital technologies and have really managed to thrive through the period over the last 10 years, have been those companies that have really gone for not just the ecommerce, but let's build it in a silo, but they've actually embedded a lot of the thinking and the cultural change into the heart of the business. That for me, I think is the key.
Hilding F. Anderson:
As I think about the last two decades, I think loyalty was too often thought of as a strict cost and points driven programs as opposed to you look at what Patagonia or what REI have done in terms of really making loyal to be much more about lifestyle and much bigger than just a dollars and cents perspective. I think that's one of the reasons they had such a strong year or a decade over the last 10.
Reva Bhatia:
So, on that topic, we've been discussing this. The web has really created a storefront for retailers that didn't exist about 25 years ago. As you mentioned, Hilding and Andy, retailers have continued to struggle with how to rise to the needs of consumers while maintaining profitability. What do you think the years ahead have in store for ecommerce and retail? Specifically, how retailers will adapt this channel in order to no longer bleed money?
Andy Halliwell:
I mean, I think some of the things are there's two trends that I'm seeing at the moment that I think are really going to take hold over the next few years at the very least. So, one of those, actually Hilding just mentioned, I'm a huge fan of the brand Patagonia, and Patagonia is doing a couple of really interesting things. So, I'm just going to talk about that for a second. So, number one is they have become a much more vertically integrated brand. They're taking more ownership of everything from the stores and the front-end customer experience and every touchpoint they have with you all the way down through the supply chain into the sourcing and the manufacturing of the product. So, it used to be that brands like this, and there are hundreds of other brands like this that are doing the same thing.So, it doesn't have to be Patagonia. You can look at what VF Corp are doing, you can look at what Nike and Adidas have done as well, but they've become a lot more about the services and the points that customers engage with their brand and how do they make sure they own that wholesale. And that is something that I think you're going to see a lot more organizations doing over the next five years. They're going to realize that actually there are all these tools and technologies available to them that will allow them to have this really meaningful sort-of service and value-led experience with consumers, which means that, frankly, they don't need the department stores and the curators in the same way that they did in the past.
Hilding F. Anderson:
Yeah, I just think that's such a fascinating shift that we're seeing. To me, it's a very simple equation, which is great products win. And how do you deliver great products? Of course, we're digital experts. We're focused on the evolution of commerce online, but so much of the value, if you think about the future of retail owning and its connection to the customer, it's about do you have the right product at the right time? Are you creating and bringing unique products to the market? I think that's a big shift that we've seen in terms of a lot more co-branding and collaboration across brands, across industries.
Hilding F. Anderson:
That's, I think, a key driver. As you think about, well, how do you inject some new thinking and some new ideas into your product mix? Whether you're a department store or an apparel retailer or a big box store, how can you get ... I like to think about it from a VC or private equity side, how to get that proprietary deal flow where you have unique products that you can bring to customers that are ideally a better fit for your customers than your competitors' products. And that's going to be a key reason for people to come in and visit your site instead of someone else.
Reva Bhatia:
Hilding, to your earlier point, making decisions on the products to lean into and the products to develop that are rooted in data will certainly be, as we've discussed earlier in prior podcasts, a trend that we continue to see.
Hilding F. Anderson:
Absolutely. That's such a key part of trying to anticipate demand, anticipate styles, and using all of these new data sources to make good decisions about how many units and what should they look like and what are the next wave of styles. But there's also, of course, human ingenuity and having great people who are doing that design and merchandising and understand their customers and doing all that core blocking and tackling of product design is, perhaps, more important today than ever.
Reva Bhatia:
So, on the topic of data and, Hilding, as we kicked off the conversation, you mentioned flavors of this, but it's really tough to argue that data's been having well more than its 15 minutes of fame over the past few years. It's also tough to argue that the decade ahead will likely continue to see wide sweeping changes as it relates to how retailers are expected to manage data and how they should approach leveraging data to influence their ability to succeed in these times. As you look to the decade ahead, what do you think we have in store for retailers in terms of data?
Andy Halliwell:
So, I think there's a huge volume of data that retailers are not doing a very good job of leveraging at the moment and that is looking at all of their transactional data or all of their consumer behavioral data and looking at what that means for assortment forecasting and allocation. You guys have heard me talk about this a couple of times, so you know it's a hot button for me, but how do you make the most of this data? How do you engineer this data so that it is useful to you? And then how do you use it to detect buying signals and understand interest and trends that are near real time in the marketplace? And how does that inform, where are you putting your product? When are you reordering your products? Which products do you need to go back and modify slightly to see if you can improve their popularity?
I think those are all ways in which there's a lot of data there, but people don't really know how to use it yet and people are not yet doing a good job really of leveraging that data to inform a lot of the inbound supply chain and the front part of the value chain. So, I think there's a rich source of value that some retailers are just starting to unlock. I mean, Intertech is a good example where people talk about this a lot and, I guess, also done some really interesting things with fit data, with how they're influencing people to purchase. But I think these are all kind of siloed use cases or stories and I don't think we've really seen a comprehensive data-driven approach to how you're driving your entire supply chain to make the entire organization more efficient. I think that's going to be one of the big [inaudible 00:13:35] for some of the younger, more nimble retailers over the next few years, especially in apparel where it's just so critical.
Hilding F. Anderson:
I am shocked by how many conversations I'm still having about some of the core infrastructure in North America of data. So, we see a lot of retailers, to your point, not using the full set of data. We see a lot of retailers that have invested in multiple elements of their Martech stack but haven't really consolidated all of their data in one spot so that they can actually take full advantage of that marketing stack. We see major gaps in the connection points between some of the enterprise systems and ultimately the outreach to those customers. So, as I think about this next decade, there's a huge upside and, given the ROI with all of this, there's a huge upside that's available to a lot of retailers if they're able to consolidate that use of it and build the systems actively. It's boring to talk about, but it's very exciting when you start to combine that with the experience and the ability to change the website and change all of the digital touchpoints very quickly to respond to those needs of the customers.
Reva Bhatia:
Yeah, and interestingly enough, Hilding, and this goes back to the topic that you had mentioned in relation to one of the biggest misses the past few decades. In research that Publicis Sapient led with Adobe, we found that one of the biggest gaps that retailers see in their sentiment around their ability to leverage data to its fullest has been around talent and gaps with talent and being able to truly unlock what the capabilities of data are in this space.
Hilding F. Anderson:
So true.
Reva Bhatia:
So, you mentioned that data's not the sexiest topic to talk about, but it's foundational in a lot of the other elements of what we want to see retailers lean more heavily into. In order to get experience right, in order to get products right, in order to get all of the different ecosystems right, you need to have data right. Again, we're finding that it's a huge struggle.
Hilding F. Anderson:
Yeah. And I think one of the ... we increasingly have this role of the chief digital officer in a lot of retailers, and I think one of the pieces that she should be responsible for is painting that vision of what is the future of the data and the use of data throughout the organization and how do we enable it? Then work of course with that data team and the data scientist team to make sure that they are making good decisions about the data that you do have.
Reva Bhatia:
So, shifting gears a little bit. Over the past decade we've really seen the rise and demise of brick and mortar and now we're seeing a re-rise of brick and mortar. What role do you see the physical store playing as we enter the new decade?
Hilding F. Anderson:
Yeah, I mean I think there's no question that we're all physical beings and we enjoy going in and touching and seeing and experiencing the products in the physical space. The question is, how do you do that in a cost effective way and how do you tune your model so that you can actually continue to be a viable business when people sometimes just don't have time to go into that store? One of the things from this past holiday season we saw is the byline pickup in-store jumped over 20%. I think it was closer to 40 actually on reflection. That connection point between the shopper exploring online, making a purchase, but then being able to get it on her way home or as part of a much more efficient path is a key aspect of the store.We also see the round a store. We actually see a lift of ecommerce as well, both from an impact of the advertising benefit of having a store as well as people just sort of experiencing and being familiar with it and the buzz around that store itself. So, there is this synergy between ecommerce sales and the physical store that retailers, I think, too often forget as they focus on cost cutting and try to manage their portfolio more tightly.
Andy Halliwell:
I think this is a really good point. For some retailers, the economics of whether a store is a creative or dilutive to their business is something that they need to reassess, and they need to maybe change the formula. One of the clients that we've been working with who has been going through some store closures, we know from having looked at the data that the area where they down a store, they see a sharp drop-off, like 30-35% drop, if not more in ecommerce sales in the same area. That's not just because people can no longer click and collect, for example. This is just because there is that huge presence and that huge advertising banner on your high street that says, "Hey, we're here" and jogs people's memory and makes people think about going to the ecommerce platform.When you shut that down, it sends two messages. One, it sends a message that we don't care about your trade in this area. And two, it sends a message that maybe that company is not a successful company and people don't necessarily want to buy from unsuccessful companies. So, you've got to think about these things. You've got to link them together and go, "Well, okay. So, maybe this store isn't directly a creative based on current traditional metrics, but what can we do to change the usage scenarios for that store? What can we do to change how we're using that store state and what can we do to make that a different economic model and using it as a base for click and collect or using it as a [inaudible 00:18:50] store for distribution, for example?" Those are the kinds of things that I think people are going to have to do a lot more thinking about in the future before they start just closing down stores that they don't believe are profitable.
Reva Bhatia:
So, how do you predict consumer spending will shift in the years ahead? What impact do you foresee this having on the sector as a whole?
Hilding F. Anderson:
Yeah, I mean, I looked at the January and February numbers really strong in North America, but I think that everybody where we stand right now around, of course, the coronavirus. You can't have a podcast like this without at least touching on that from a consumer demand standpoint. I think we'll see how that plays out, but that is going to have a significant impact on the economy. Certainly, for last month and for the next, I would say, two to three months at a minimum. That has a negative effect on consumer sentiment. Lacking that effect, I would say that this looks like a very strong year for the North American economy. I think, with that depending on how bad that impact is, it's going to have a considerable effect on consumer spending.
Andy Halliwell:
Yeah, I mean, I agree. So, what we're already seeing is that travel consumerism has taken a huge knock because of people's fears around traveling in general. So, some of the high-end department stores and stuff are really starting to notice an impact on their takings and their revenue in this quarter. So, that is definitely going to be a consideration. But, as we start to look a little bit further out, I really think what you're going to start to see is some of the emerging markets are really going to start to explode. So, China I think, is a market which is ripe for expansion.I think India, as well, is on the cusp of some really, really explosive growth in consumer spending and the burgeoning middle class in India, which happens to be where I am today. It's just on the verge of really taking off and I think you're going to see a lot more of these emerging markets create their own brands which are then going to take off and are going to become these worldwide phenomenons, as well.
Andy Halliwell:
So, I don't think we've really seen too much of that in recent years and I think you're going to see more and more. That's where people are going to be spending their money. They're going to be welcoming something different, something from a different market. And, I think the emerging markets are really going to be driving a lot of expansion over the next few years.
Reva Bhatia:
So, let's wrap with your most out of the box predictions for the years ahead. This is where you can get loony a little bit.
Andy Halliwell:
It's going to be all about robots, drones, and augmented reality. No, actually. So, my prediction for the next 10 years is that I don't think any of those things are going to come to pass anytime soon. Self-driving cars, augmented reality glasses, people wandering around in a minority report style shopping mall with robots and drones following them around. Honestly, do not see it happening. I mean, not in the next five to 10 years anyway. Those technologies are just not at that level of maturity where they're going to happen. So, that's my bah-humbug prediction.As far as what I do think is going to be one of the big predictions, again, honestly, I think you're going to see a huge amount of robotics in store, but it's going to be behind the scenes. I think you're going to see a lot of stores change format and I think you're going to see the shopping mall completely change over the next five to 10 years. So, this is a trend that I've really just started to notice, but places like BOXPARK in London or if you look at Ponce City in Atlanta, the Meatpacking District in New York, these are all really, really cool places to hang out and they are as much about shopping as they are about food and entertainment. So, I think you're going to see these things become more and more of this heterogeneous blend of different kinds of experience where you can go from one to another to another and they are all slightly different. Neighborhood goods where they have a restaurant at the back. You've got Nordstrom where you've got a coffee bar next to your click and collect area and you've got a cocktail bar upstairs. Ponce City where there's shops just below the roof where you can go to a fair ground. These things are just going to become so much more integrated and the success of places like Kidzania in White City here in London, I think, is just an indication of what's to come. So, what I'm saying is I think the shopping mall is dead, but I think it's going to come back and it's going to come back in a completely different guise.
Hilding F. Anderson:
Totally agree on the shopping mall. I think that the other one I would say is I actually do think there will be a completely re-imagining of the square footage rules that we see and we'll just see a lot more smaller stores with fulfillment handled through digital channels. I think that's going to be widespread across multiple industries, whether it's big box or even in the apparel space. It's already happening. Department stores as well are going to have the same question, what's our purpose? Why are we here? And you're going to see more click and collect type of solutions. A smaller overall footprint. Malls are going to no longer have the same square footage anchored on either end to drive traffic through the middle. You're going to have a much smaller JC Penney's experience, and it's going to be a much better one across the U.S. in the different kinds of malls.
Reva Bhatia:
Cool. Well, Andy, Hilding, thank you so much for your time today. This was a great conversation.
Andy Halliwell:
Cheers, guys. Always a pleasure.
Hilding F. Anderson:
Thanks, Reva.
Reva Bhatia:
Thanks for tuning in to Next In Retail. Be sure to subscribe so you don't miss a beat on the future of digital and retail.
