February can be the coldest month of the year for retailers as holiday shopping — and returns — season comes to a screeching halt and year-end sales figures get tallied.
We won’t sugarcoat it: Holiday sales weren’t as uniformly jolly as projected, says the Wall Street Journal. A record 9,300 stores closed last year, 35% more than 2018, according to Corrsight Research, an advisory firm that tracks the retail industry. Already in the first few weeks of 2020, Bose and Papyrus announced they will close all their stores, while Pier 1 Imports first said it would close about half of its 942 locations and then filed for bankruptcy protection. Chico’s will shutter 250 shops, and Express last month abruptly closed 31 stores, with plans to shut 91 more in the coming months.
And yet... 4,000 new stores opened last year. Call it creative destruction on steroids or simply the new retailer reality. The question is: How can these new businesses thrive, and established ones reinvent themselves for a smooth road to success in what has become a disrupt-or-be-disrupted world?
That’s what retailers and consumer brands from the largest chains to niche specialty shops to ecommerce upstarts were talking about last month during the annual National Retail Federation’s “Big Show” in New York City. The event, among the largest gatherings of retail and consumer packaged goods executives and technology providers, drew 40,000 attendees.
At the massive conference, executives shared where they are prioritizing investments in in-store technology, omnichannel sales and marketing, loyalty programs, data security and more. Here are five top trends we spotted at the show.
We also discovered a dozen or so cool retail technologies at the NRF Innovation Lab.
To succeed, omnichannel must be more than surface strategy. For many retailers, the website and stores carry the same logo and branding, but under the covers, data is still siloed. Only by fully integrating customer databases, inventory management platforms and financial systems can you really know your buyers.
Some are doing better than others. In last year’s Future of Retail survey of 1,200 consumers and 400 retail industry executives by NetSuite and Wakefield, 80% of consumers said retailers aren’t providing a personalized — that is, unified, convenient and relevant — shopping experience both online and in stores. The numbers look somewhat better in this year’s survey, which will be out in a few weeks.
Investing here will pay off: 42% percent of those surveyed in the 2019 poll said they’re willing to pay more for improved personalization. Among millennials, that figure rises to 63%.
How some of the largest retailers have transformed themselves to get personal with customers took center stage at NRF. Fortunately, many of the advances that are enabling this intimacy are within reach of smaller sellers.
Case study: Starbucks now has more than 31,000 stores that employ over 400,000 people. But CEO Kevin Johnson insisted that size and intimacy are not mutually exclusive and outlined how Starbucks is using advanced technology to provide a more consistently personal experience.
The digital ingredients are grounded in a concept Starbucks introduced last year as Deep Brew, an initiative that uses artificial intelligence, machine learning and IoT-based sensors that can automate inventory management, sequencing and customizing orders, and employee scheduling, among other routine tasks. Deep Brew can now predict how many baristas are needed in 30-minute increments.
If that sounds like a better deal for Starbucks than its employees, Johnson is way ahead of you.
At NRF, he underscored that Deep Brew isn’t about marginalizing work now done by employees; rather, the use of AI “is all about finding ways to help humans have more time to be human. It's not about robots to replace baristas. This is about technology that frees up our baristas to better connect with one another and connect with customers.”
Overstaffing stores, whether a large chain like Starbucks or a single-location shop, can have a dramatically negative impact on margins. Conversely, not having enough workers on hand could drive customers away before they make a purchase. But more important, being overstretched means employees can’t connect with customers in a way that makes them feel welcome.
The good news is, you don’t need the size, scale and resources of a Starbucks to use technology to both maximize labor and personalize customer outreach.
Westside Market NYC, a seven-store, family-operated grocery chain in Manhattan, deployed a solution that helps customers find products using an app based on technology from SIRL that operates like a GPS. At the same time, the system provides store managers with a view of how customers are engaging with specific products and enables them to adjust pricing based on demand, or lack thereof.
Suitsupply, a midsize chain that sells high-end suits and jackets, has begun putting RFID tags in each garment and is working to deploy the infrastructure to read and process the information on the tags at all of its shops.
Thomas Milstead, manager of the Suitsupply store at New York City’s World Trade Center, said that at locations with RFID enabled, employees spend far less time tracking and looking for inventory and more time connecting with customers.
“An item comes in, you just wave a wand over it and it checks everything in,” Milstead said. “You can click a button and the system can tell you where the stock is and all you need to know about it.”
Today, retailers such as Macy’s and Target and brands such as Nike also put RFID tags on their apparel. If the last time your company priced the technology was several years ago, it’s time for another look. Tags are as low as 5 cents each, said John Kidd, a retail industry adviser with NBTK Consulting.
“The technology has become much more robust,” Kidd said. For companies that have done the work to integrate customer databases and inventory management platforms, it’s a logical next step.
Customers now want, and in many cases expect, an online experience that is an extension of what they do in store. That means the loyalty card in a consumer’s physical or digital wallet must be in sync for activity in a store, online or using a mobile app.
And it must offer consumers a reason, in the form of some perks, to keep returning. That was a priority for Target, but Rick Gomez, the retailer’s EVP, chief marketing and digital officer, made no secret at NRF that it has taken a number of attempts to get it right.
These missteps are an object lesson for those just launching loyalty programs.
Case study: Several years ago, when Target launched its Red loyalty card, it became a popular perk for customers by automatically giving them 5% off their entire purchases by just linking it to an existing preferred debit or credit card. Target had also separately launched a mobile loyalty app, called Cartwheel, that offered coupons and discounts.
Uptake of the Cartwheel loyalty app was low because it was a separate app that wasn’t easy to use. “It also prevented us from unlocking the power of personalization, which is key to winning in marketing and overall retail strategy today,” he said.
Target initially developed a new offering, called Red Perks, that offered points based on purchases, but “it was too transactional,” Gomez said. Ultimately, Target came up with its Target Circle program, which provides added discounts, personalized offers, early access to sales and the ability to direct Target’s contributions to community nonprofit programs. And Target Circle and the Red loyalty application are integrated within the Target mobile app.
As of mid-January, 50,000 customers have signed up, and the program was used for more than 40% of all sales during the most recent holiday season.
Another way to extend the online experience is the popular BOPIS, or “buy online, pick up in store.”
Last year, Target began redesigning its stores with pickup sections in front of the facility and established dedicated parking spaces; some locations will even bring orders to customers’ vehicles. Kohls and Walmart now have retrofitted their capabilities in a similar fashion.
According to the NRF, 2019 holiday season retail sales totaled $730 billion, a 4% increase over 2018. The online share of that haul grew 14%, to $168 billion. Still, while online continues to grow, 90% of retail sales are still conducted in stores, according to Deloitte Consulting’s 2020 Retail Industry Outlook.
Over the past several years, it’s become clear that the best defense against Amazon for retailers with both physical and online presence is a strong offense. And maybe a glass of vino.
Case study: At one new store, Nordstrom co-president Erik Nordstrom says the luxury retailer has added a bar in its main shoe department.
“Many customers are sitting on a couch trying on shoes with a drink their hand, and there's just a different vibe that occurs — people are smiling, strangers are talking to each other,” Nordstrom said. “We think a lot about shoes. I don't know why it took us so long to put drinking and shoes together. But it's a great combination.”
Nordstrom isn’t the only retailer pairing scotch and stilettos. Neiman Marcus, which opened its own new flagship store in the up-and-coming New York City Hudson Yards complex, also added a bar, as well as a Skee-Ball machine in one of the women’s apparel departments, among other amenities.
Increasingly, smaller stores are adapting the same concept.
Custom menswear retailer Alton Lane caters to both men who don’t like to shop and those who have a hard time finding suits that fit. The founders started with a showroom featuring a comfortable couch, a TV and a bar (sensing a trend?) and have worked to maintain a personalized experience as they expand across multiple cities and manage a diverse supply chain. While the showroom vibe has been described as “elegant man cave,” the company uses 3D body scanners to ensure a precise fit.
Customers who enter Untuckit stores are also offered a taste of its bourbon and whiskey collection. “It makes them feel more comfortable,” said Stephanie Tidball, a store manager at Untuckit’s location near New York’s World Trade Center.
Ironically, even as Untuckit started opening stores in 2015, the company operated separate order and customer management systems, resulting in two disparate experiences. Last year, it deployed an omnichannel sales and marketing platform from startup NewStore. The integrated platform was a huge hit over the holidays. Now, every customer has a unified profile with size, preferences and purchase history. A relative or friend won’t have to guess on size or worry about buying an item he already owns.
“We saw a lot of wives coming in the store not knowing what size their husband was, and we were able to say for sure he's going to fit in this size, and we also know what shirts we sell that they already have,” Tidball said. “This made them feel a lot better about purchasing.”
Something Borrowed Blooms is an online company that offers a wide collection of silk floral bouquets, centerpieces and boutonnieres that customers rent for a fraction of the cost of buying real flowers.
“Millennials especially don't want to just consume and dispose of something quickly, so we knew this was something that would really resonate with them,” said co-founder and CEO Lauren Bercier.
Something Borrowed Blooms now ships 200 floral arrangements per month, and Bercier anticipates that will grow to 500 monthly shipments by the end of the year. To get there, the company is developing an algorithm to help customers select themes and match their lighting schemes with their floral arrangements, Bercier said: “It gives them a more custom feel.”
Another company looking to get in on the $72 billion wedding industry, The Groomsman Suit, provides tuxedos. But rather than rent, grooms and their wedding parties configure and order their tuxes online and keep them for about the same cost as a rental. Like Something Borrowed Blooms, The Groomsman Suit offers its catalog online and uses AI to help ensure each suit is fitted properly.
After using the data science skills that she learned in grad school to develop the predictive sizing algorithm with a web developer, co-founder Diana Ganz is now working with Bold Metrics, a SaaS provider that has a virtual tailor solution that uses machine learning to provide accurate measurements.
“It gets smarter with the more orders it processes,” she said. “It takes into consideration exchanges and what people keep and what people send back.”
Our point here is that not only weddings but other niches, from CBD products to sustainable retailing, are now accessible thanks to ecommerce, as-a-service and technology advances.
Six years after Target suffered perhaps the most notorious cybersecurity breach yet, Rich Agnostino, the retailer’s chief information security officer, still fields questions about lessons learned.
Rather than wonder when someone will ask, he leads off with it.
In a cybersecurity panel discussion during NRF, Agnostino opened up about what Target has done to prevent a repeat of the breach, in which an estimated 40 million customer records were potentially compromised. The public backlash resulted in lawsuits and the ouster of Target’s CEO and top IT and cybersecurity executives.
“Target was far from the first data breach,” said Agnostino, who joined the retailer after the fact. “There were a lot before and a lot since. But it was significant. And the reason that the breach was significant is because it was the introduction of a brand-new threat to our industry. The way that we thought about threats before 2013 and after 2013 are very, very different.”
For retail CFOs, what’s most eye-opening is the sheer cost of the attack. In the quarter after the breach became public, Target’s net income dropped 46 percent. Estimated overall costs top $200 million.
Background: The breach’s origin was malware sent in an email from an HVAC contractor. The attack was successful because Target used default passwords in its point-of-sale systems, so the malware was able to spread.
Agnostino warned NRF attendees that persistent, organized teams of criminals with deep technical skills are working hard to access retailers’ data. “They're not sitting in the basement hoping you did something wrong,” he said. “They are actively looking to build new tools and find ways to exploit companies and are willing to invest months at a time on potential victims.”
On joining Target in 2014, he doubled the size of the company’s cybersecurity team and brought all critical functions in-house. But he says one of his most important steps, and one replicable for any-size retailer, is treating cybersecurity as a team sport.
“We are all stronger together,” he said. “And our guests, our customers, combined are safer when we all work together to fight a threat.”
CFOs writing the checks for security are well-aware that there’s an acute shortage of technical talent, to the tune of 2.93 million unfilled positions globally, according to one non-profit security researcher.
One way to address that is by sharing information with others, even competitors. Target does that under the regional Cyber Twin Cities Cybersecurity Coalition, a self-formed group of local companies that exchanges information about talent development and best practices and warns one another of pending threats.
There are open groups nationwide with a focus on retail. If your company isn’t involved in such a consortium, they’re an inexpensive way to force-multiply your security staff. A good place to start is the Retail & Hospitality ISAC, which offers many benefits with costs based on annual revenue. A retailer earning under $250 million will pay $2,500 per year — less than the signing bonus for a junior security analyst and a line item worth funding.
CIOs may worry about what information they can disclose within these groups, another area where CFOs can help.
Panelists said CFOs can also work with the CIO to create an environment that ensures retention of cybersecurity talent — another challenge for companies in all industries. Hiring is always more expensive than identifying and training employees who know your business and your customers.
Dave Estlick, CISO at Chipotle, said retention boils down to three things: Showing how remaining on the team and gaining experience is compelling, structuring the organization in a way that will ensure everyone has challenging opportunities and compensating people fairly. Estlick said his organization has seen only a 2% attrition rate between 2012 and 2018 on an annualized basis among security pros.
Retail CFOs are accustomed to competing in an eat-or-be-eaten, margin-sensitive business where even the most successful players can’t rest on past success. These trends, along with new technologies from drones to smart shelves, will help retailers roll with generational shifts and a constantly changing competitive landscape.
Jeff Schwartz is a Brainyard editor-at-large, covering technology and trends across different industry sectors. He has covered all aspects of technology and its impact on business for three decades as an editor and writer for a wide range of publications. Currently he’s a freelance writer. In addition to Brainyard, he contributes to Channel Futures and SD Times, among other outlets.