Retail executives have no clue about digital
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
I remember attending a conference a couple of years ago, where, at the conclusion, people around me were saying to each other, “I don’t know what the organizers are going to do next year. Omni-channel is done — we’ve figured it out and now we have to do it.”
At the time, I kind of agreed. It felt a lot like the tail end of the Internet Bubble in 2001, when people were holding up mobile as the next big thing. Yet it took until 2007 to get there in any meaningful way.
And at the same time, I look around at the retail shopping experience and think, “Where is the retail equivalent of flying cars?”
Despite at least 10 years of massive investments in brainpower trying to understand and predict what digital means for retail, the shopping experience in 2016 still looks an awful lot like the one you could get in 2007. To be really honest, it looks an awful lot like 1985 (when Doc Brown invented the time machine).
RSR’s latest benchmark report (due later this month) finds the disconnect is at the executive level, and it comes from having no clue what digital really means to the retail business.
I think the reasons are that today’s execs were raised in stores, practicing traditional merchandising and marketing. When faced with uncertainty, it’s easy to fall back on what you know. Two, generationally, these people are not digitally savvy. That’s probably not true in the specifics — my grandmother was teaching herself web page development nearly up to the day she passed away. But even then, using the tools is not the same as understanding how these digital tools change how customers see the world.
This isn’t about fixing the store, or even “creating a more seamless customer experience,” a phrase I often hear thrown about. This is about understanding how technology — consumer-provided, retailer-provided — will continue to change shopping experiences. And, apparently, until retail executives develop a deeper sense of empathy along those lines, traditional retail will continue to fail to meet consumer expectations.
And those flying cars? They’re still nowhere to be seen.
Discussion Questions
Discussion questions: What’s holding back digital’s reinvention of retail? Will retail have to wait for a younger generation to arrive before seeing a meaningful transformation?
Poll
BrainTrust
Ryan Mathews
Founder, CEO, Black Monk Consulting
Peter Fader
Professor of Marketing, The Wharton School of the Univ. of Pennsylvania
First, there’s a large amount of retail that digital cannot reinvent. Second, technology is changing so quickly it’s hard to wrap one’s arms around it, let alone tame it for retail’s benefit. Third, retail management does need a better understanding of digital, but that understanding is not going to be the end-all and be-all to turn ailing retailers around. As an example see Macy’s.
Like retail, lots of the elements of the Titanic was terrific and it could not change course on a dime under full steam. But for retail, the icebergs are in sight and there are signs of damage below the waterline. The band can play as dinner is served but, for captains, to not respond to change and challenges is folly … I believe that the investment community has a stronger legal term than “folly.”
As more and more tech startups move into retail the harder digital is to ignore.
The growing pace of innovation and a complex tech ecosystem already in place are the primary reasons traditional retail doesn’t move further, faster. Every day new technologies, services and companies are announced with new features and functionality. To keep track of, understand and be able to operationalize all the new potential pieces on an ongoing basis is a herculean task. For many it results in paralysis. On top of that, integration with back office, cloud and POS usually requires not just time and money, but more often than not, necessitates multiple companies working together to make something a reality.
Retail certainly has a reputation; however, you can’t ignore the fact that there have been many advances even with those constraints. Target, Home Depot, Lowes Foods and many others have learning labs or future stores to test and try out new technologies — the best of which are usually rolled out. Many now offer online shopping, actively manage their social media and have dedicated mobile experiences. Certainly not everyone is pushing the envelope. There are countless tools to help retailers take advantage of digital. Ultimately though, it does take a proper mindset and skills to take advantage of them.
Kudos to Nikki for calling out the elephant in the room. Real change always starts at the top, and it only sticks if the very senior management make it part of the business rhythms and metrics.
I agree with Nikki that retail change has been painfully slow. But there are old executives that get it. A great case study in top-down omnichannel transformation is John Lewis in the UK. Not only are they a world leader in transforming the customer experience, they have some outstanding growth and profit numbers as a result.
The challenge with most retail executives is that they still think like merchants from a product-centric past. The innovators, aka Amazon, are consumer-centric first. Retailers can’t afford to wait for a younger generation to arrive. They need to try some innovative things like putting some Millennials on boards, or having useful “reverse mentoring” by pairing some young customer with executives for a day a month.
As for the flying cars, they will be coming soon in the form of drones and droids.
Excellent points Chris … and connecting top management needs for knowledge with savvy up-and-comers could perhaps clear the log jam that is retail inertia. By removing the inherent career risks of promoting change in the absence of authority, retail executives can tap into ideas and enthusiasms that are the spark and tinder for improvements.
In-house innovation centers have high value as they can rapidly assess possible new technologies and frame their potential value as executive briefings for stakeholder buy-in and broader investment.
The Customer Experience (CX) practice can also be the fulcrum to lever change. Many such groups, in being handed the Big Data challenge, hold the awareness of required change and opportunities. CX managers typically know the organization well and should be expected to be catalysts for change. Otherwise the investment in this CX asset offers poor return.
Innovation center and CX executives could each benefit from looser reins, adequate resourcing, supportive sponsorship and higher expectations on their defining and presenting improvements. These and others are instruments of organizational improvement.
Totally agree with the article. The findings, unfortunately, are not surprising. Darwin is often misquoted. We have shortened his survival quote to “only the strong survive.” However, what he really said was “In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.” Until retail really figures out digital, their numbers will continue to diminish in size and shopper influence. Digital is reality and has disrupted retail as we knew it.
Perhaps the answer will be found when the digital natives, namely the Millennials, reach positions of influence. However, by then it may be too late. It is not that history repeats itself. It is that the failure to learn from history repeats itself.
The time for talk is past. The time for action and investment is now!
It isn’t necessarily the age, it’s the attitude … oh, and yes, the org chart. Let’s start with the attitude. Nikki is one-thousand percent right about retail being resistant not just to keeping pace with technology, but at points actively fighting it. But I think that has to do with the tragically ironic fact that many retail organizations are still more focused on areas like logistics, category management, price elasticity and — of course — financials than they are on customers.
The fact is, Nikki’s observation that, “To be really honest, it looks an awful lot like 1985 …,” may, in fact, be off by at least two decades. There has been a social and cultural revolution going on in America since the 1960s and the artifacts of that revolution — non-traditional households, changing work patterns, altered attitudes toward food and dining, and, of course, the use of technology — have been largely overlooked by most retailers. You’ll never catch up to the technology if you continue to lose sight of the people who employ it. And then there is the org chart.
The org chart — in too many cases — has IT off in some support role as though technology is, at best, an enabler of non-tech strategies. In the same way that we saw CFOs move into positions of control, I believe we ought to be seeing CIOs and CTOs taking full leadership positions. Maybe then, retail could begin paying catchup in its race to join the 21st century. But as long as technologists remain organizational — and cultural — stepchildren in retail companies not much is going to change.
There’s a really scary reality about IT, though. And I say this because I came out of IT as a professional but have fully transformed into consumer marketing.
IT departments are dominated by people who have few skills for the subtlety of consumer marketing. IT work is linear, top down, and engineering oriented. Consumer marketing is non-linear, subtle, and incredibly irritating to those who, in my experience, are the strongest players in IT.
So I end up disagreeing with your suggestion about CIOs and CTOs. The question is, rather, how should retail pay attention to digital — to stay away from shiny bauble syndrome (which dominates when CTOs are in charge) and focuses on those areas where it delivers significant retail advantages?
I think Nikki’s assessment is spot on. One thing that I believe is required is to simplify the messaging about digital technology to these leaders who are trying to catch up. That’s why, for instance, focusing on using phrases like “big data predictive analytics to drive omnichannel 1:1 personalization” likely leaves many executives confused.
I’ve found that if we say something like the following, they better understand what digital really means for the future: “We are moving beyond personalization, which tries to guess what the consumer wants based on the past, to individualization, where we are giving consumers the digital tools to simply tell us what they are interested in buying in the future. And then we can engage and have a two-way conversation with each person to help them save time and make smarter decisions. New digital tools like opt-in triggered alerting on criteria set by each person are emerging to do this.”
The impact that the digitally-empowered shopper has had on the entire retail ecosystem has been seismic and transformative. Retailers have been simply digitizing traditional analog processes and workflows. “Being digital” requires a complete reinvention of the status quo. Until retail executives stop chasing PR stunts and listening to their big name agencies who are only interested maintaining their large retainers they’ll never transform to meet the shopper’s expectations. The new retailers will eat their lunch and by that time it’ll most likely be too late for those brands (e.g., Sears, J.C. Penney, RadioShack).
It’s tough to lead on technology when the retail industry spends less on technology than almost any other. It’s going to take some outside-the-box thinking — of the kind that produced the revolutionary Pizza Hut app — to enable retailers to reinvent themselves in the digital age. They might start by talking to customers to see where the gaps are.
Here’s a big source of the problem: retailers are looking in the wrong places to find best-practice examples to follow. Specifically, they’re often looking at big-name CPG firms and other manufacturers that have no direct contact with their consumers. So they end up focusing on “one size fits all” branding activities and other tactics that do not leverage their ability to have direct relationships with consumers. Instead, they should be looking to direct marketing to figure out how to move ahead. That’s not a sexy industry and the brands may not seem to be as powerful as some of the aforementioned manufacturers. But who cares about the “sexiness” of a brand when you can form direct and profitable relationships with different customers? This is what led to the great (but fleeting) success of Tesco, and underlies much of the Amazon story as well.
It’s all about customer equity — not necessarily brand equity, but retailers are looking in the wrong direction to really understand and embrace this distinction.
Now THAT will be a fascinating benchmark report, Nikki! The core proposition of technology is its enabling effect. To reduce or defer costs, to do more with less, to empower change into improved approaches and to offer new paradigms of operations.
When technology is the context and contributor to change, the technology becomes secondary to the change management itself … and change management is the organizational pinch point for retail advancement.
The buck stops at the C-suite door when it comes to change, including exploiting the enabling capabilities of technology.
Nikki’s right! The difference to us is the difference between digital natives/digital native thinking and digital immigrants, leaders of most retailers being from the latter group. First indicator: Amazon does over 50 percent of e-commerce in the Spring, and the closest competitor in that arena is Best Buy at 8 percent. Eight percent! Target and Walmart rang in at around 6 percent. Those stats, to me, prove her point: despite all the investment in time and money, the digital immigrants are being out-foxed by people who at the very least think and act like digital natives. In a major way!
If I have an Echo in my house, a Dash and I’m a Prime member with 24-hour free delivery, who am I going to buy from? That kind of thinking needs to invade the offices of the digital immigrants running today’s retailers ASAP, especially the ones with thousands of stores. It’s NOT just about the stores anymore, it’s about the homes AND the stores!
The generation gap at the executive level has always been an issue. It’s nothing new. A lot of the younger generation are making almost the same salaries as we made just coming out of college 30 years ago plus we got a company car, a pension and free health insurance. This means many of them are living in mom’s basement, still on their parents health insurance, while we were buying nice homes in the burbs when we were 27. The older generation seems to have lost respect for a younger generation that can’t seem to figure out how to make as much money as we older people did when we were younger and become independent. Naturally we just assume because they have all those tats and piercings, they have nothing meaningful to offer. Now the older generation refuses to retire so it could be a long wait for the younger generation to take over. The older generation now works from their deck chairs by their pools in Florida using their iPads. As long as the younger generation is still standing behind the counter at Starbucks, it will be a long time before they catch up.
In a word, legacy! Yes, that old legacy software that is still hanging around always seems to be at the bottom of things. Even the most forward-thinking retailers struggle to move forward with the flying cars because they still need to feed the beasts in the back room.
Also, it does take a completely rethought enterprise to meet the always-on demands and pace of today’s consumer. How many executives can spell microservices architecture or in-memory processing? Yet that is what this new age calls for. And what about fog computing? Just when we thought cloud was the answer.
But, hey, just just my 2 cents.
The must-have operational technologies that consume most of the $125 billion (per RIS report released at NRF16) in annual retail technology spending are the iceberg below the surface. The customer-facing technology investment in marketing technologies (MarTech) should leverage operational applications for better inventory visibility, merchandising, up-selling, cross-selling, in-store promotions and associate support.
There was clearly a great deal of wishful thinking, and not only on the parts of executives. Many assumed that if catalogue companies did not kill physical commerce in the ’60s and ’70s and stationary Internet did not kill physical commerce in the ’90s, then surely mobile commerce would not kill physical commerce in the 2010s.
As recently as 2013 IBM predicted that physical retail chains would be just fine. After all, “webrooming is much bigger than showrooming.” Executives hate risks in all industries. In our case they were also misinformed. It is not too late to innovate.
Tech is NOT the solution. The reality is that the industry at large has incredibly superficial views of what retailing really is — movement across the product/shopper boundary. The root cause of that ignorance is that EVERYONE naturally thinks that they understand shopping/shoppers to a fair extent. After all, aren’t we all shoppers ourselves, and have been in stores thousands of times? “There is no mystery!” And THAT is the mystery.
The explanation of this mystery is that the vast majority of behavior, shopping and otherwise, is driven at the subconscious level. So what YOU think is NOT what your mind thinks and acts on. And the solution of this problem, for retailing, is to not become a bunch of geniuses of the mind, but to MEASURE in minute detail the actual behavior of shoppers in stores. Who cares what the shopper thinks. Not me! I just want to know exactly what they do.
And that is not studying the transaction logs in minute detail (which I do) but studying the BEHAVIOR of the shoppers in the store in minute detail, in order to gain insight into how and why their habitual/subconscious minds drive them to the behavior they exhibit — including the finale, the purchase. But we live in a Rhett Butler industry that, frankly, doesn’t give a d*** about all that behavior. Too complicated. So just keep driving a high-powered vehicle staring out the rear window. Not everyone is going to do that …
When the movie Sully is released on September 9th about the 2009 miracle on the Hudson related to the US Airways flight, I suspect that many senior executives will relate to the highly experienced captain Sully and applaud his quick action in taking control. Dual engine failure just after take off may not totally reflect retail, but the birds are real.
Waiting for a younger generation is not the answer. The younger generation knows the digital media they use for their own purposes. That has nothing to do with understanding how to use digital for business. Leadership needs to come from those who understand specific customers and can create online and in-store experiences in which customers want to participate. That takes specific knowledge, understanding, insight, creativity and leadership.
Executives, on a one to one basis, aren’t as disconnected as any collective survey may reflect. The din to do this or do that is overwhelming. A CEO has to make decisions on what is effective, and the best investments moving forward. Just because it can be done doesn’t mean it should be done.
For example, social media may be free, but it’s the most expensive investment if it reaches the wrong target or mis-communicates the brand DNA.
For clarification, I’m referencing the luxury and home furnishings/design segments. I’d probably be praising social media if I owned a food truck. Maybe next year….
I think there is a big part of retail that stays the same regardless of channel, digital doesn’t “reinvent” as much as change the channels which information and products are exchanged. Availability, assortment, promotion, pricing, supply chain, and profit — those things still matter. I think we need the digital natives to get to leadership positions in retail to truly deploy omnichannel retailing, and it will still be hard because the e-commerce-first retailers would have a learning curve on brick and mortar.
I think Herb Sorensen’s answer is the best: Study what customers DO in a store, not just (or not only) their buying history. Then provide in-store experiences that match what the customer is DOING or wanting to do. And pay attention to the psychology — be very aware of examining or studying what the customer SAYS he/she wants or does — vs what they really want or do.
Quite a question. But let’s turn it on its head. The reason there’s all this confusion is that after all the effort and investment dumped into digital by retailers, no one has found tremendous strategic strength to be gained by focusing massive investment into 7% of revenue. It simply can’t return a huge profit.
Yes, retailers need to sort out how they want to leverage some of the digital opportunities to their advantage (like BOPIS or paid search or…).
Retailers need to finally get honest about digital: (1) There’s not huge power there. (2) But it shouldn’t be ignored. (3) But CTOs and CIOs are NOT marketers and any retailer who shifts their efforts that direction will suffer badly.
The answer to this question requires much more than finger pointing — the answer is a process and that process is the process of innovation.
Perhaps this survey will light the fire but in the end, the resolution will come when our industry adopts the ways of thinking that are emerging as a result of the disruption being created by new technology. At the end of the day, we as retailers have a particularly difficult challenge given our industry is where the rubber meets the road. It’s where customers touch business. But we’ve always had the great advantage of being there — in that place — where people engage.
Technology is the tool, design thinking is a method, and ushering in these changes is our challenge.
Digital and traditional retail are different businesses. Sure they both buy goods a some cost, and endeavor to sell at a higher price; how that happens is fundamentally different. Low/Lower margin and high volume are key, but this won’t sustain the large number of undifferentiated retailers that exist today. I wrote a piece called “Is Omnichannel Even Possible?” Long story short, I believe that the majority of retailers today simply will not make it. They will continue mapping digital to their traditional business, and fail to realize the new way they need to think about how their digital operation must execute.
While generational gap may play into retail’s slow digital adoption, I see the primary issue at the executive level as fear. It’s simply easier to do what you’ve always done than to embrace change, especially big change such as digital transformation.
As a cofounder of a digital solution for retail, I find the main challenge with execs is getting them to be emotionally comfortable with embracing change. To their credit, execs are consistently acknowledging that today’s consumers want digital solutions. Once those same execs start to dig in to what is involved in embracing digital solutions — developing or buying technology, retraining retail staff, understanding all new data sets, and more — the fear kicks in.
Change is coming, but Digital Evolution may be more realistic than the hyped Digital Revolution.
Bottom line, digital is what retailers make it. Plenty of capability is available today in virtually any marketplace around the globe for the smallest mom-and-pop to the largest merchants to leverage their reach to their audience. It has everything to do with the defined strategy the retail employs … or the absence of that strategy at the retailer to begin with.
The greatest barrier for retail executives today is the perception that digital, while important, still represents about 1 store’s amount of retail dollars. The low amount of total dollars has led retailers to discount the importance of retail and specifically mobile, in consumer purchase activity.
The greatest priority, given the uncertain patterns of retail sales, have been on developing the strongest combination of discounts and products to drive enough sales to meet expectations. Long-term vision and planning has been difficult to do in such an environment. However, that is no excuse. Without the short-term there is no long-term; but the converse is also true. Lack of long range planning will lead to more of the same — commoditization and price discounts.