Both/And and the True Nature of Retail: Top 20 Takeaways from NRF, Part 1
I devoted almost all of last week to a jam-up NRF Top 20 Takeaways piece, full of brilliant insights into the dual nature of retailing today. I’m sure there’s a grand metaphor in here somewhere, but upon opening the document to publish yesterday, I found nothing but a blank page. This makes no sense, as my Word documents are supposed to sync with Google Docs. But somehow this one didn’t, and somehow something happened, but apparently the set-up on my computer isn’t great, and I’ve got something new being installed and yadda yadda yadda, trust me, you don’t want the details, but none of that does me any good now. My document is gone, and quite frankly, I don’t have the time, memory or inclination to try to reproduce it. Not to mention: there aren’t enough yoga classes on earth to counteract the blinding rage I am encountering at this moment and will be confronting for as long as I’m redoing work I already spent many hours completing. So, instead, here you have the quick-and-dirty recap of my more slow-and-thought-provoking recap, which in different and much smarter words said that the overarching theme that struck me at this year’s NRF was this: the road to success isn’t just one road; it’s a series of branched roads, and you have to follow all of the paths — and what is clear is that retailers are doing this. It’s both/and, not either/or. Core business and innovation. Recurring revenue and agility. Technology that is scalable and agile. And so forth. Anyway, I’m sorry you missed recap No. 1. I’m sure it would have changed your life.
Here are the first 10 of my current top 20 insights from the 2019 NRF Big Show — which took place Jan 13-15 in New York City — culled from the small number of sessions and exhibitors I was able to visit (relative to the total number available, which is a lot):
1 Recurring revenue and agility are key to successful businesses, but the key characteristics of each tend to build habits that could make them mutually exclusive. They don’t have to be. My mom always said: better to deal with few large car repairs on a 10-year-old model when necessary than to be forever shelling out monthly car payments. Luckily for Amazon, subscription-based retailers and other renewal-type business, my mom is not guiding other people’s children. Because of that, Amazon has more than 100 million Prime members shelling out $119 per year. That’s called recurring revenue, and it plays a crucial role in successful business, said NYU Stern School of Business professor Scott Galloway. Amazon’s busy building its world-dominating empire, and it’s never been all that focused on profits anyway, but isn’t it nice to have $12 billion bucks in easy money coming in without having to “sell” every month?
The flip side of this is that recurring revenue can lull you into a false sense of security as it provides for your basic needs, slowly eroding your focus on innovation and newness. Suddenly, you’re stuck with a fleet of horses and cars are filling the roads. Ideally, your company will walk both paths simultaneously. That’s what all the latest innovation hubs are about. Think Walmart’s Store 8. It’s good to have a way to try things small and separately, in a place where you can work rapidly and without concern about failure. When new ideas work, you can scale up quickly. Even here, however, it’s better for these two paths to lie closer rather than farther apart. An innovation hub too far from the core business may wander off to interesting places but ones that don’t really match up well and can turn into solipsistic exercises that don’t enhance the core brand.
2 Some people are optimizers and some are entrepreneurs. In a way, this is just a variation on the concept of recurring revenue vs. innovation. “Some people are by nature optimizers. They take a small problem and keep making it better. Others are entrepreneurs — think big ideas and rapid iteration,” says Anthony Marino, president of secondhand retailer thredUP. You really need to set up teams that incorporate each of those types “in the right way.” That’s because you need both types of people, some improving the business that already exists, and some creating growth in entirely new categories, channels or businesses.
3 Small changes can make a big difference. Small innovations — really more like those optimizations we were talking about above — may not shake up your world, but “10 of those over a quarter can be exciting,” says Marino. thredUP saw that consumers were putting one or two items into cart and then abandoning it. People wanted to shop, but didn’t want to pay for shipping. Because there’s no backup inventory — the nature of secondhand items is that they’re one-offs — you can’t add an item to your cart and hold it; it will disappear in 24 hours. To solve the problem, thredUP made some tweaks, allowing people to add items and pay for them, but to hold them until they’d purchased enough other items to earn free shipping (which involved a few tweaks in the warehouse, too). That was a win-win for the consumer and the retailer, boosting revenue and, surely, customer loyalty.
Likewise, at Belk, the company has significantly improved its sell-through with size-pack optimization tools from SAS, says Belk’s director of planning and allocation, Tim Carney. By integrating the tool into its order entry, replenishment and allocation systems, the retailer is more precisely matching demand in terms of size and style assortments to specific stores, which is helping improve profitability by size, he says. Those small changes add up to big profits.
4 With technology, you need to reuse capabilities to enable new experiences. If you think about the need for speed as well as change in today’s apparel supply chains that is required to meet consumer demand, well, you can’t change the underlying technology every time your customer fires up a different side of her personality, or, heaven forbid, adopts a completely new technology to use along her shopping journey. There has to be a recurring component as well as an agile component. In real-world terms, let’s think of it this way: different shoppers have different customer journeys, because people are different, and their personalities reflect differences in how and why they shop. Digging deeper, each shopping journey represents a different goal that the shopper wants to accomplish at that particular moment.
As a retailer, you need to be able to engage with your shopper via a variety of devices and physical locations, offering personalized and relevant content and offers and product, without reworking your technology again and again to be compatible with these changing journey-and-technology matrices. Put simply, you don’t know what your shopper’s journeys will be, but you know what capabilities you need to put in front of them. “Agility requires separating capabilities from experiences,” says Aptos’ vice president of retail innovation, Nikki Baird, and each capability must be both independent and interoperable, reaching across the enterprise. Via the company’s AptosONE platform, you can take those capabilities as the starting point, string them together, and design how you want them to look from a user experience.
5 Sometimes the side hustle isn’t so side. Especially when your side hustle is meatballs. Back to that idea of core focus vs. innovation, and how you need both, because not keeping up will get you left with a fleet of horses. Amazon, Apple, Google and Microsoft would be all but forgotten today if their core businesses had not evolved drastically since the year 2000, says Sucharita Kodali, vice president and principal analyst, Forrester. To wit: nearly 100 percent of Amazon’s revenue came from first-party retail 19 years ago; today, third-party retail, hardware and cloud services represent approximately 40 percent of revenue. Apple: 2000 revenue was 80 percent Macs; today just 10 percent of revenue is represented by PCs and laptops. Google’s 2000 revenues were 44 percent Google ads. Today, 16 percent is off-Google; licensing and on-Google (e.g. YouTube, Waze). Microsoft’s 2000 revenues were about 80 percent Windows and Office, while today approximately 50 percent comes from cloud, hardware and social networks.
Here's another interesting side hustle: Walmart is experimenting with being a landlord, not just a retailer, by taking advantage of its vast parking lots and turning them into town squares, leasing its land to other retailers. Even the nature of retail property is changing and evolving.
Then there’s IKEA, everyone’s favorite DIY furniture store. Think IKEA and you think of that time you sat around for six hours trying to put together your new bed. But, did you know that IKEA is also one of the biggest restaurants in the country? The amount of revenue it rakes in from selling its Swedish meatballs (and some other food) at its store restaurants — close to $2 billion — is comparable to that of restaurant chains Red Robin and Carl’s Jr., says Kodali. That’s a pretty impressive side hustle.
6 The factory is coming to a store near you. It used to be that manufacturing and design were in the same region, or at least the same country. Then it almost all went offshore. Now it’s in a store. Nike’s House of Innovation in NYC has a large customization floor, replete with sewing machines, where for a cool $170 you can customize your sneakers with jewels, paint and other substrates. There are options for selected apparel customizations as well. Likewise, you can screenprint designs of your choice (your artwork, or theirs) onto your sneakers at the Converse flagship in NYC. This hearkens back to the olden days before ready-to-wear, but instead of made-to-measure, it’s made-to-personality. And when you’re making in small batches, or personalizing to a market of one, there’s more need for equipment closer to the source. This is just one of the (many) reasons we’ve seen an uptick in Made-in-the-USA manufacturing, with clothing made here rising from 2.2 percent in 2009 to 3.0 percent last year. Expect that to inch upward.
7 Successful businesses require strong digital and physical presences, and the most effective merge the two in a seamless way such that they create a third entity (some call this phygital, but I’d prefer that word didn’t exist) that is greater than the sum of its parts, and which creates a richer shopping experience for everyone. I think by this point it’s not news that omnichannel retailers are better poised to serve the consumer. Addressing the rivalry between Walmart and Amazon, Jeremy King, Walmart’s EVP and CTO, says: “What you really see now is the internet switching to our model.” That’s because the omnichannel model works, and Walmart, he says, has a huge advantage, with stores that are 10 miles from almost every American. “If we can make that shopping experience better, we win. We have a real competitive advantage with our stores and our digital investments,” he says.
In its moves toward omnichannel, Nordstrom has really hit its stride with the opening of its NYC men’s store in April 2018. Shaye Anderson, director, program manager, Nordstrom, says that the retailer is focusing on a local market strategy to cater to the specific experiences and services that matter most to the NYC customer, most of which bridge the online/in-store gap.
Specifically, while BOPIS is offered in all of its 360+ stores, its New York City men’s store is unique because BOPIS is available 24/7. The store also offers same-day delivery, with delivery in three hours or less. For its loyalty customers only, there’s reserve online, try on in store, allowing shoppers “to reserve items without up-front commitment of making a purchase,” says Anderson. New too are its digital styleboards: digital hand-picked recommendations sent to the customer’s phone, for quick and easy fashion help wherever they want to receive it.
While traditional retailers took a while to get their feet under them in moving to e-commerce, online-only retailers have been moving in the opposite direction to open new stores. UNTUCKit, originally online only, has been opening stores, using data about the location of current customers to help make decisions about where to put its brick-and-mortar locations. So far, that’s usually been in big cities, which are easy to pinpoint. The more difficult part is determining the optimal site to locate within those cities, and how business in a new location will affect other business, says CEO and co-founder Aaron Sanandres.
8 Retail is sales and retail is service and sometimes retail is Retail as a Service (RaaS). It’s a model gaining traction (you know this because it has its own -aaS formulation now). As giant players master their own logistics and fulfillment empires, they are taking those skills and offering them to other retailers. In January, China’s giant online retailer JD.com announced it would bring its RaaS, replete with delivery drones and robots, warehouse worker exoskeletons and AR platforms, to the United States.
If you’re not familiar with JD.com you might want to read this article about how e-commerce and JD.com are transforming rural China. Its the only authorized drone-delivery company in China, with 100 drone bases, 7,000 delivery centers, autonomous delivery vehicles and even white-glove delivery drivers. “We’ve always had the notion of giving the customer what they want, where and when they want it,” says Harlan Bratcher, global business development head. Which brings us round to:
9 The partnership of technology and business can really transform people’s lives in fundamental positive and uplifting ways. Via drone delivery, JD.com is bringing much-needed medical supplies to remote rural areas via its UAV clinics. Here it delivers to the cliff-top Chinese village, Xuanya, high in the mountains, in just four minutes. That journey otherwise requires six hours by car and then two hours of climbing ladders to reach. “It makes life in the village much easier,” says Bratcher.
10 Boundaryless retail is the new omnichannel. Most retailers still have far to go when it comes to creating a seamless omnichannel experience, but there’s a new kid in town, boundaryless retail, who’s kicking the can out farther. What is boundaryless retail? It’s omnichannel, but with an even greater blurring of the lines between brick-and-mortar and digital, smoother and faster and even more integrated, with deliveries so quick it’s almost like you went to the store yourself, or physical stores so unpeopled it’s like you’re shopping from inside your computer (this will soon be a movie entitled, The Matrix: Reloaded Grocery Cart). Who can do this? Companies with the logistics and fulfillment infrastructure and advanced technology to support it. So, JD.com, for one, which offers online grocery shopping with immediate delivery from local offline stores, and Alibaba, whose similar concept is called “New Retail.”
Boundaryless also looks like this: Alibaba.com and JD.com have moved into the brick-and-mortar space, opening highly automated grocery stores. Many of Alibaba’s Hema grocery stores include restaurants, where food is ordered via app and delivered by robots that look something like hotel room-delivery trays. JD.com’s 7Fresh stores are completely autonomous — sales clerk-free. “You face a scanner. You shop around. There are magic mirrors. You pick up an apple. The mirror behind the display lights up with a map of the world, where it came from, its sweetness content and sugar level. You put it in an autonomous cart that follows you through the market. It follows you out and you leave. Yes, you can buy an apple online but people want to touch the apple. Physical retail is not going away,” says Bratcher.
“In China we developed this massive e-commerce business. But now that we have this, we’re going in the opposite direction, opening physical stores, and using the tech we have along the way to build them.”
Continue to Part 2, Nos. 11-20, here.
Jordan K. Speer is editor in chief of Apparel. She can be reached at [email protected]