State of Change, Chapter 15: Retail
The phrase being passed around is “living, breathing Web sites.” It’s being used to describe a new and ideal model for retail stores. Industry analysts have recently redubbed retail stores “physical outlets” or “brick-and-mortar locations,” in deference to the outmoded virtues of people being able to walk up to them, touch them, open their doors, enter them, and speak with their salespeople. “Physical” is a state of being that should, of course, continue to be exploited, analysts say, but not to the extent that it overpowers any retailer’s entire go-to-market strategy.
“Brick-and-mortar retail will increasingly serve as a ‘third space’ that’s only partly about transactions,” reads an August 2013 report from globally renowned advertising agency J. Walter Thompson. “Rather, it’s as much about experiences, unique environments and customer service. The hard sell is becoming less important than providing something more fun, helpful, satisfying or distinctive than e-commerce can offer.”
JWT seeks to reposition the physical store in the corporate mindset, in observance of what is often called “the new retail reality.” Whereas the store once represented the customer’s principal point of contact with the brand, in this “rebooted” version (which is what JWT literally calls it, like a comic superhero story) the store is recast as a value-add. “The physical store is a crucial complement to the online offerings,” the JWT report continues, “providing a unique way to experience the brand and all it has to offer.”
Keep in mind, this message is from an ad agency, not an IT systems vendor, cloud service provider, or even a retail consultant. JWT’s point is that the consumer’s perception of the brand is now entirely, not partly, generated through online transactions. As a result, it suggests stores become showrooms that substitute for smartphones’ and tablets’ lack of holographic projection capabilities, at least until technology resolves this temporary shortcoming. Once customers finally get 3D, who needs a mall?
The JWT report goes on to emphasize the limited, though still tangible, bonus perks of utilizing “physical” people in customer-facing scenarios. Despite that, as a result of the report’s very publication, retail consultants are now suggesting retailers dispense with such expensive frills, especially in scenarios where people just get in the way of the brand.
Think of it this way: Perhaps a retailer of any scale can outsource its entire sales and support to the cloud. Retail Online Integration cites the case of a men’s clothier whose retail space is used exclusively for trying on suits, but which contain no point-of-sale registers and no on-site inventory. The customer literally buys the product he’s trying on through his smartphone, and waits for it to be delivered. The publication characterizes this extreme outsourcing as “expanding the horizons of customers.”
Portion of a printed advertisement for CompuServe’s “Electronic Mall,” circa 1984.
What You Think is Real
Think of this new, emerging vision of retail not so much as physical, old-world, has-been, 20th century, or as Amazon CEO Jeff Bezos — arguably the world’s most successful virtual retailer — blatantly categorizes it with a nod to history, “Woolworth’s.” Think of retail, the consultants suggest, as an appeal to the customer, and as a provider of a shopping experience. Now that the customer is more in control of the channels from which she gets her shopping information, a store should try to reach her through all those channels where she is, saturating her with the brand’s image and message.
And think of “physical” as a complement to “real,” as a support structure for it, rather than as real itself.
The keyword here is “think.” If the evolution of retail technology is to continue to follow the evolution of retail itself, then technology should move along at a smooth manageable, incremental pace. (Keep in mind that the earliest known written records in Linear B script from 1450 B.C. are believed to have been invoices and sales receipts.) If newcomers to the field of retail technology are to gain a foothold in this market, they need a way to invent unique, competitive value, because there’s not enough incremental value for anyone to make a case. This is theoretically easier to accomplish if retailers themselves can be led to believe that their industry has already evolved into something unrecognizable, perhaps not even physical.
“By acknowledging that both the customer and the retailer seek essentially the same information, but in different ways and with different facets and nuances, the cloud model places information at the center and builds services around that information. Transactions affect the content of that information, and those transactions are processed by services, but no single service is the exclusive engine of the enterprise.”
So if there is to be a tempest, its cause should be something justifiable and believable — something that ordinary people, within their lifetimes, can say is dramatically different now than just a decade ago. Television is one candidate, which should not be counted out on its face. As J. Walter Thompson would most certainly agree, the greatest single force for establishing brand identity in the past century has been television advertising. The problem there is, the television industry is in the dumps, and the quality of programming has declined faster than demand for a Paula Deen cookbook.
Financial consulting firm PricewaterhouseCoopers advances this alternate candidate: the metamorphosing global economy. Rather than say technology is a force which is changing our lives, PwC subscribes to the oft-debated notion that society is a stronger force with much broader influence. Its theory is this: As the economy forces consumers to tighten their budgets and become smarter shoppers, retailers can no longer afford to warehouse any kind of product long-term. This applies to a long list of products that includes exercise bikes, knit sweaters, television sets, and Wi-Fi routers.
Throwing a gauntlet directly into the façade of Moore’s Law, PwC perceives that no single manufacturing industry can afford much longer to produce products that sit on shelves. The evolution of almost every durable goods category, including technology, may be too slow for retailers, especially in a world where peaks in consumer demand are never what they were, and tend to drop off in mere weeks. This daunting vision impacts Amazon and Wal-Mart just as much as, if not more than, the brick-and-mortar store at the corner (assuming it’s not another big-brand drugstore). In fact, it advances the case where the small, specialty retailer with low overhead may survive a future economic shakeout where the major brands simply cannot afford to stay afloat. Quoting from the PwC report on its vision of “the new retail reality:” (PDF available here):
Increasingly demanding consumers and multi-cultural demographics will create smaller market segments with specific needs. In short, competition for the consumer’s dollar will require that retailers refocus to provide innovative and quality products and services. Retail companies will also be forced to shorten product development cycles and create stronger linkages between their product development and supply chain operations.
Communications is another candidate for catalyzing the retail technology tempest. Mobile devices have existed for longer than people realize, but true mobility occurred when the right devices, the right bandwidth, and the right services first came together. Suddenly, the consumer has visibility into the retail value chain — something the retailer has historically worked diligently to occlude, but today really has no alternative but to accept. This does change the ballgame, and this is a trend that “disruptors” can capitalize upon.
Whether mobility actually changes the function of the store — the physical outlet — depends on perception. And perception is one of the easiest things to change. Just ask any former president.
But now the race is on for multiple players in retail technology, both veterans and challengers, to change that perception successfully, which is precisely why J. Walter Thompson concerns itself with this topic. The dynamics of the race itself comes down to a question best phrased by the late Texas congresswoman Barbara Jordan: “Change from what, to what?” Literally, it’s not about looking forward in time from where we are now. This race is an effort to redefine the present in order to justify a preferred direction for the future.
Each player in this race wants retailers to think that the specific component in which it specializes is already at the core of retail. When making its pitch, it shows off diagrams that place its component at the center of a wheel where everything and everyone else is a spoke.
For example, an ERP vendor will make its case by showing stores, branch offices, mobile devices, and maybe even Uranus and Neptune while it’s at it, as spokes in the wheel whose center is the modern cloud ERP service. A network parts supplier, meanwhile, will make its case by demonstrating routers, switches, and Wi-Fi gateways as spokes in the wheel whose center is the integrated retail dashboard, which exists in the cloud. NetSuite and Cisco, therefore, are going at each other as equal opponents. The emerging picture of the contestants in the retail technology space, is divided into four categories:
Established players in retail computing (e.g., Microsoft Dynamics, SAP, IBM, Sage, QuickBooks) perceive the nucleus as the software and envision databases, storage, and integration services as complementary. The theme of these players’ value propositions is that change can be incremental, so a migration to the cloud can take place in well-planned, careful stages. These players have the advantage of being able to place any department they wish (e.g., CRM, marketing, warehousing) at the center of the wheel, at any time they wish, for whomever they’re making their pitch at the time.
Newcomers and relative newcomers to retail computing (e.g., NetSuite, Salesforce, GT Nexus, Shopify) perceive the nucleus as the service that they are presenting, usually through a SaaS model — software coupled with outsourced administration. The theme these players put forth is that change is monumental, and pain can be minimized by means of self-service provisioning that enables new retail customers to take the dive in less than a day. These are the players who say the cloud changes everything, because the provisioning of the platform is so quick. Of course, this often masks the fact that migrating to that provisioned platform may take years.
Outsiders to retail computing software (e.g., Cisco Meraki, Motorola Solutions, Dell) place network infrastructure at the center of their value propositions, while endorsing the theory that as little as none of that infrastructure needs to be installed on-premise. Such players perceive change as fundamental overhauls, enabling them to pitch their principal products as substitutes for existing infrastructure, which would in turn enable their exclusive service platforms. These are the players who want to blow up the proverbial retail superstructure by setting off bombs in the basement. If they can replace retail infrastructure, even at minimal margins, they may yet make their projects pay off by selling services that are exclusive to that infrastructure. (Another of the many lessons of Steve Jobs.)
Total outliers to the retail computing market (e.g., Informatica, Tibco, nChannel) avoid the “disruption” metaphor entirely. They put forth instead the idea that existing software and services can be improved through integration, often by introducing supplemental processes on an entirely new layer that make applications work together that were never engineered to do so. What these players sell are methods for retail customers to develop new methods of interoperability for themselves. Think of this as a life support system for the existing model, but also in many cases as the most viable and affordable improvement many retailers can make. As such, this dynamic has every likelihood of being the winning one in the end.
What You Think Is Not
You would think that vendors’ value propositions for the software that runs your business would not be so strongly predicated on what you would think.
Quantum physicists think (or at least, so they think). As a result, they postulate realities where infinite universes exist simply to support the myriad number of times where you, personally, chose to turn right instead of left. “No wait, I’ll turn right,” and poof, there’s a new universe where you turned left instead. Thought can lead you any direction you want to go; next time you’re changing channels and happen to pass over “16 and Pregnant,” consider that someone actually had to think of this.
In a world... or, at least, a marketing world that upholds the ideal of “disruption,” the ultimate disruption is where the world as you know it ceases to exist. If you can imagine the world having disappeared to that extent, you can imagine almost anything in its place. And perhaps that becomes the product. If you want to view paradise, said perhaps the single wisest “thought leader” ever thought of, simply look around and view it. In a world with competing visions of paradise, almost anyone professing to have found it will gain some followers.
Thus the death of the retail store can be predicted within weeks of the equally insightful prediction of the rebirth of the retail store. In the absence of reality — or at least, the complementary part of reality that’s merely “physical” — just think of the possibilities.
“Retail guys are going to go out of business, and e-commerce will become the place everyone buys. You are not going to have a choice,” stated investor Mark Andreessen (as founder of Netscape, a world expert in the failure of ventures) in an interview with PandoDaily’s Sarah Lacy. “We view this as a long term opportunity... I’d bet on the pure plays in e-commerce. Software eats retail.”
Some perceive consumers as an upgraded version of lemmings, forming channels of fashion and style by following one random lemming who turned left instead of right. One retail solution that addresses this class of consumer, they declare, is an upgrade of the shopping experience, one where stores become “living, breathing Web sites.” (Cue the Willy Wonka music.) Note this particular interpretation of the retail revolution begins with the acknowledgement that the consumer is the one in power. But yet another retail solution candidate offers a downgrade of that same experience, a subjugation of the consumer to the efficiencies and methodologies of software. This alternative revolutionary interpretation concludes, in the Netscape founder’s view, with the consumer having no power at all, not even so much as a choice.
Still others perceive a vision where the retail outlet becomes a point of contact for the customer, not just with the brand and the message but with the value that outlet presents. It’s a distribution point that provides some value over and above merely placing a call with one’s mobile device and waiting for packages to be dropped from the sky.
The question, states IT vendors and cloud solutions providers such as IBM and Cisco, is how technology can hard-wire and expedite the components of the supply chain, increase visibility for managers throughout that chain, and give salespeople the information they need more readily to address customer needs and respond to their concerns and demands. No, this is not the question at all, states branding, marketing, and financial consultants. The “real” question, from their vantage point, is how technology can motivate consumers to justify the continued capital expenditures that retailers must continue to make in real estate and shelf space, if the economy as we know it is to continue.
They are dueling revolutions, predicated on completely different world views, only one of which — if either one — can actually happen.
These world views center upon the very definition of infrastructure in the retail industry. In the pre-cloud era, there were distinct categories of software which catered to historically compartmentalized business silos. The ERP category served the function of inventory management and procurement. As such, it maintained a database whose snapshot at any one time reflected the transactional status of the business. At the birth of e-commerce, Web sites maintained online catalogs which reflected such snapshots of a store’s inventory for some period of time in the past. The end customer, it was reasoned, doesn’t really require complete visibility over the entire supply chain.
Aside from the Web catalog, there was a separate category of point-of-sale (POS) software that serviced retailers’ on-premise cash registers. Oftentimes this was linked to, or part of, accounting software. But this software treated its database of transactions and inventory as “the books” — as the central nucleus of data for the entire business.
“In a world with competing visions of paradise, almost anyone professing to have found it will gain some followers.”
The result was at least two, perhaps as many as four, varying aspects of a single picture of the business — or, as data scientists refer to them, multiple truths. For any one category of software to function as it was designed, it had to “believe” it had the sole version of the truth. Any other program that was outwardly responsible for alterations to that truth either had to integrate its data with that sole source, or be compatible with something else that did.
Many projections of “what we see” with respect to the evolution of cloud computing, come from vendors with a vested interest in defending their respective strongholds as the sole source of truth. The future, from their perspectives, is a curious magnification of the present. ERP evolves to “cloud ERP;” POS migrates toward “cloud POS;” warehouse management systems become “cloud WMS;” and accounting morphs into “SaaS accounting.” And their respective versions of the truth move with them.
The vehicle for that movement, however, looks nothing like a cloud. “Migrating from any POS to another can be difficult, but the best way to convert is to export your entire inventory and customer information to a spreadsheet and then send it to your provider,” advises Entrepreneur magazine. “Any good cloud POS company will import those items into your new account for you as part of setting up your account, so you can be up and running quickly.”
Of course, the converse also holds true. In response to intense customer demand, this provider of cloud ERP services added a function for exporting sales data to one’s locally stored copy of QuickBooks accounting. And one cloud WMS provider’s methods for inbound processes, outbound processes, inventory management, and storage management is summed up by the menu command “Import/Export Excel.”
It’s all just one step removed from using Norton Utilities to make database backups onto floppy diskettes every Friday afternoon. But the tradition of importing and exporting data to spreadsheets and accounting files has become engrained in the conscience of IT workers everywhere, including retail. As a result, “import/export” is being passed off as just another cloud-based process, evidently because so many customers ask for it that vendors don’t have the heart to tell them it should ideally be unnecessary.
Omni-presence
To combat the entrenched players’ efforts to codify the past as the present, a new breed of competitors is advancing the following theory: Because customers are using mobile devices to shop both in-store and offsite, live inventory systems should present their version of the truth directly to the customer. The Web portal, such as retailers have come to know it, should therefore be replaced with mobile outreach. It’s being called omni-channel retailing, and it differs conceptually with “multi-channel retailing” in that it maintains an ethic based not on several customer channels running in parallel, but rather one channel available by multiple means.
The extraordinary reality that some analysts are already noting is that some retailers have expedited their mobile customer outreach so swiftly and efficiently that their customers have better visibility into their inventory than their own managers. According to data compiled by Esther Lutz, vice president for European marketing with cloud platform provider GT Nexus (though at the time with TradeCard Europe), the internal sales and transactional data that would be subject to import/export for any conventional-style software migrated to the cloud, only accounts for 16 percent of all the data required for a purchasing manager to attain full visibility into the supply chain. And although a customer probably doesn’t need to see the complete set of supply chain data to determine the availability of a product she wants, that complete set will be necessary to address the consumer’s key question: How soon can it get here?
This helps the new competitors make a compelling case for disrupting the old order — overhauling the old database, and replacing it with a new, single version of the truth that centers around them. Sourcing Journal Online managing editor Patrick Lamson-Hall makes such a case in a recent white paper (PDF available here) published for TradeCard Europe (now part of GT Nexus):
Retailers need complete inventory visibility across all channels. They need agility to accommodate any consumer who walks into any store and requests any particular item. The retailer must know the exact location and stock of the item, in the requested color and size, and have it available to the consumer in his or her preferred mode. Power has clearly shifted heavily towards the consumer. Consumers know their options and will buy elsewhere if their needs are not met.
This picture of the retailing world contrasts with the sci-fi image I depicted earlier in several key respects:
The store exists. There’s a door, or some similar form of entryway, where customers enter and exit. Maybe they know the information they need before they do enter, but they make the journey anyway, even though they now have the power.
Things are sold at the store, and customers may walk out with them in their hands. Say what you will about the power of the retail Web site, but until someone invents the molecular transporter, speedy delivery is not a complete substitute for having a thing. The best warehouse managers for multi-national retailers know how to plan for same-day deliverability, if not always in-store availability.
Retailers retain some power of bargaining, even if reduced. There’s a difference between “agility” to respond to customer needs and outright subjugation to those needs, and that difference lay in the retailers’ retained ability to influence those customers’ needs with factors other than mere price and availability. That’s what this “marketing” thing is all about.
“Exact location” is a very granular thing. It implies a level of not only geographic but warehousing coordination that a rehashed, re-hosted accounting system completely lacks.
This picture of electronic retailing is closer to realistic. It acknowledges the reality that the customer is far more knowledgeable and more clever than before, and therefore holds more power in the bargain. At the same time, it does not surrender to the customer, and grants the retailer its right to make a decent value proposition. One consequence of the wide publication of Michael Porter’s original value chain was the acceptance of the notion that customers pursue one of only two things: low price or premium quality. But one fact about which J. Walter Thompson is indisputably correct, is the value which customers attribute to the brand. And in the absence of people, that value only goes so far as a colorful logo can take it.
This more practical e-retailing model is also more conducive to being influenced, and indeed improved, by cloud computing. By acknowledging that both the customer and the retailer seek essentially the same information, but in different ways and with different facets and nuances, the cloud model places information at the center and builds services around that information. Transactions affect the content of that information, and those transactions are processed by services, but no single service is the exclusive engine of the enterprise.
In an optimum cloud computing environment, the programs you use — wherever they are hosted — are services. No single program is ever the “backbone” or the “center” or the “nucleus” of the system. This is contrary to the way businesses have been conditioned, especially with systems where most every transaction record must be exported to the software at the center of the wheel.
One example of this principle in play comes from Meraki. Acquired by Cisco in December 2012, Meraki is a suite of network appliances built specifically for retail, with the idea that in-store IT should perhaps look and work more like a consumer appliance. Meraki’s “door buster,” if you will, is the now-indisputable fact that walk-in customers appreciate in-store Wi-Fi. So it sets up a wireless router infrastructure that plays right into Cisco’s home turf.
From there, Meraki presents a platform where customers logging onto in-store Wi-Fi may download and install exclusive mobile apps. This way, customers actually can check prices and availability, giving them real insight into the value chain — and yes, this does reduce some of the burden on salespeople. But it also gives retailers a toehold, and perhaps a permanent one, on the most valuable beachhead in marketing today.
That having been done, Meraki gives the merchant tailored, cloud-based services that run on its exclusive platform. Because those services are unlikely to unseat existing accounting and POS software overnight, Meraki adds cloud-based integration, so that the back-office processes of merging new functions with existing ERP, warehousing, and CRM applications runs somewhat in the background, eliminating the import/export hassle.
As Meraki solution architect Pablo Estrada explained in a recent video, the very integration process itself enables events that were not feasible before in a previous CRM suite. For example, the in-store app can alert the staff when a VIP customer enters the store. Borrowing data from the CRM or from its own database, Meraki then presents the store clerks with identity data and transaction history for that customer, before she’s even greeted.
And in the background, Meraki stores observational data concerning what that customer is doing. For example: What aisle is she on? How long was she standing there? Did she pick out anything? If not, how effective are the displays on that aisle? What did the salesperson help her look up? Did that help lead to a sale?
In other words, a commerce application that carefully observes the shopping and purchasing behavior of its customers, without eliminating or disrupting or destroying the existing order of things. There’s a phrase for this: “living, breathing Web sites.” Just imagine what you could do with this idea, this time without letting your imagination run away with you.
