www.ngretailus.com • Q4 2010
Riding the recession How the best retailers have profited from the downturn
Survival of the fittest Office Depot’s Steve Odland on tackling tough times
Energy effectiveness Philips Teletrol’s Andy McMillan on improving the shopper experience
Net
returns How the web – through e-commerce, social networks and smartphones – has changed the retail landscape forever
SUSTAINABLE RETAIL • DIGITAL SIGNAGE • WORKFORCE M ANAGEMENT • STORE DESIGN • PAYMENT SOLUTIONS Cover NGRUS1.indd 1
08/10/2010 16:15
PHILIPS DPS.indd 1
01/10/2010 16:11
PHILIPS DPS.indd 2
01/10/2010 16:11
INTEL DPS AD.indd 1
01/10/2010 16:09
INTEL DPS AD.indd 2
01/10/2010 16:09
HARRIS AD.indd 1
01/10/2010 16:03
FROM THE EDITOR 5
Changing the retail landscape – again Why the mobile revolution has fundamentally altered the way we live and shop.
W
ith apologies to Ferris Bueller, technology moves pretty fast – if you don’t stop and look around once in a while, you could miss it. Mobile is just the latest disruptor to revolutionize the way we interact with information. Picture the following scene: a group of friends are sat in a pub, arguing over an obscure fact. In years gone by, the argument would have raged for hours, with neither side willing to give an inch; these days, however, such debates are solved easily at the touch of a button via a simple Google query. Elsewhere, a commuter on the way to an important meeting is stuck in traffic; a real-time travel update means he is able to reroute his journey to get there on time. Meanwhile a tourist is looking for somewhere to eat in a strange city; no problem, the location-aware software on her mobile phone instantly provides her with a range of choices. Mobile phones must be one of the best on-thespot information retrieval resources of all time – which is why they are increasingly becoming the weapon of choice for a new army of consumers constantly in search of lower prices, better deals and greater information on everything from product comparisons to user satisfaction. With consumers relying on handheld devices for everything from phone calls to web surfing, retailers are looking to mobile as the next frontier of the shopping experience. Approximately 1.15 billion mobile handsets shipped in 2009 around the globe, with smartphones accounting for 81 percent of the estimate. eBay’s iPhone app, launched earlier this year, has already been downloaded in excess of 11 million times, and the online auction giant is gunning for a whopping $1.5 billion in mobile sales this year; Amazon’s mobile site traffic is second only to eBay among vendors of realworld stuff, according to figures from Nielsen; while an annual survey from Deloitte last year that found
ED NOTE.indd 5
“While mobile retail is real now, it’s very quickly going to morph into something different from the types of mobile functionality we see today”
that one in five consumers planned to use their mobile phones to shop during the 2009 holiday season. Indeed, the variety of applications for mobile technology are huge. “We believe the true potential for m-commerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction,” says Malcolm Pinkerton, Senior Analyst at Verdict Research, in our cover story. Google, meanwhile, believes that mobile will also bring advantages of location-based marketing and social media marketing to the mix and these, while not necessarily driving direct sales from handsets, will provide the cornerstone of the future shopping experience. The marketing whizz kids at Apple put it best: “This changes everything. Again.” In many ways, Apple’s ad might represent excessive marketing industry hyperbole, but it does hold an essential truism: the mobile revolution has fundamentally altered the way we live. More importantly, it also highlights another truth – that while mobile retail is real now, it’s very quickly going to morph into something different from the types of mobile functionality we see today. We’ve barely scratched the surface of what’s possible. It’s hard to plan for a constantly evolving technology. However, retail execs cannot afford to take a backseat and wait for others to shape the mobile landscape. Ferris had it right: snooze and you’ll almost certainly lose.
Ben Thompson Senior Editor
08/10/2010 16:15
MOTION COMPUTING AD.indd 1
05/10/2010 14:09
CONTENTS 7
28 Survival of the fittest Office Depot CEO Steve Odland on how the company weathered the downturn and is now looking ahead to a brighter future
60
76
The art of celling
Heart and sole How Zappos has leapfrogged traditional stores to become one of America’s favorite shopping destinations
With mobile commerce set to revolutionize the retail environment, Ben Thompson asks whether the country’s businesses are ready for the next wave of change
38 Riding the recession As America recovers from one of the most crippling financial climates in the country’s business history, Lucy Douglas asks what a retailer needs to succeed in a recession?
82 Kindling customer engagement How CTO Werner Vogels transformed Amazon.com into the world’s most customer-centric organization
CONTENTS.indd 7
11/10/2010 11:58
8
CONTENTS
Regulars 12 The brief A look at the forecast for holiday spending
16 Global news A round-up of the latest industry events and trends from around the world
48 Roundtable A panel of experts give their insight into the changing face of retail marketing solutions
12
101 Lifestyle Have we seen the final curtain call for America’s favorite movie rental store?
104 Travel How to spend 36 hours in… Las Vegas
34 Branding for the online avenue Next Generation Retail speaks to Saks Fifth Avenue’s AJ Sutera about taking an exclusive brand on to an accessible online platform
16
44 Blueprint for success Why making the most of your costly retail space can pay dividends in terms of better branding and more active customer engagement
54 Signs of the times The Retail Advertising and Marketing Association’s Mike Gatti reveals how digital signage is going to revolutionize the retail world
68 Taking on the online challenge
101 CONTENTS.indd 8
104
Walgreens’ CTO Abhi Dhar explains how the nation’s favorite bricks-and-mortar drugstore successfully made the transition to online powerhouse
08/10/2010 15:29
CONTENTS 9
70 Token efforts Bob Griffin outlines the landscape of retailers’ tokenization options
72 Engaging the social consumer Steve Madden’s Andrew Kovan speaks about utilizing the growing social media platforms to interact with customers
74 Return of the king According to recent research from IBM, it is consumers rather than stores that are driving the rapidly evolving retail environment
90
86 A rewarding experience Customer loyalty is consistently touted by retailers across the country as a major area of focus. So why do so few have a rewards program that works for both them and their clients?
88 Asset maximization: selling your brand starts with your talent Jamie Minier, President of The Right Thing, explains why a strong employment brand is vital to attract top talent
90 Inside the hit factory What keeps Starbucks’ HR department awake at night? Clue: it’s not just the coffee
54
68
94 Energy effectiveness: getting beyond energy efficiency By Andy McMillan
96 Retail goes green Why a growing number of retailers are putting sustainability at the heart of their business models
106 Less is more Liz Claiborne’s Peter Warner speaks to Next Generation Retail about keeping up with the industry and how stripping a business back to the bare essentials can provide the much needed facelift to succeed in tough times
CONTENTS.indd 9
72 00 08/10/2010 15:29
The NG Retail US Summit 17-19th May 2011 Scottsdale, Arizona The NG Retail Summit is a three-day critical information gathering of the most influential and important executives from the retail industry. The NG Retail Summit is an opportunity to debate, benchmark and learn from other industry leaders.
Legal Information The advertising and articles appearing within this publication reect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is Š2010 NGR.
A Controlled, Professional and Focused Environment Chairman/Publisher Spencer Green Worldwide Sales Director Oliver Smart Finance Director Jamie Cantillon
A Proven Format This inspired and professional format has been used by over 100 executives as a rewarding platform for discussion and learning.
Find Out More, Contact NG Retail +212 796 2000 ext. 456
Editor Ben Thompson Associate Editor Lucy Douglas Contributors Ian Clover, Rebecca Goozee, Nicholas Pryke, Julian Rogers, Stacey Sheppard, Marie Shields Creative Director Andrew Hobson Design Director Sarah Wilmott Associate Designers Tiffany Farrant, Michael Hall, Crystal Mather, Cliff Newman, Catherine Wilson Online Director James West Online Editor Jana Grune Project Director Robert Fishkin Assistant Project Director Matt Rivoir Sales Executives Chris Burke, Mark Segreto, Gabrielle Hess, JP Wolf, Joe DeForca, Ruth Pender Production Director Lauren Heal Production Coordinators Renata Okrajni, Aimee Whitehead VP North America Jason Green Operations Director Ben Kelly IT Director Karen Boparoy Marketing Director John Funnell
Subscription Enquiries: +44 117 9214000, www.ngretailus.com General Enquiries: info@gdsinternational.com (Please put the magazine name in the subject line) Letters to the Editor: letters@gdspublishing.com
GDS International GDS Publishing, Queen Square House 18-21 QueenSquare, Bristol, BS1 4NH Tel: +44 117 9214000 E-mail: info@gdsinternational.com
www.ngrsummit.com CREDITS.indd 10
08/10/2010 15:29
ENQII AD.indd 1
01/10/2010 16:03
12
THE BRIEF
’Tis the season to be spending? By Nick Pryke
W
ith the obligatory Christmas run-up hitting our screens, shops and internet, you could be excused for thinking that we’re already in December. Fortunately that’s not the case, but with the side effects of the global recession hitting last year’s Christmas period with some force, researchers, analysts and retail players are keen to do all they can to predict what the 2010 festive period holds in store – and early signs indicate that it could be another tough season for retailers. A survey recently conducted by America’s Research Group (ARG) has confirmed that more than 42 percent of consumers plan to spend significantly less during the festive season this year, compared with a mere 11.7 percent who said they planned to spend more than they did the year previous. The near four-to-one ratio saying they would spend less is above the two-to-one seen in 2009 – and even higher than the three-to-one seen in the financial downturn that 2008 delivered. In addition, while 55 percent of people said that they were in a better debt position this year than last, it certainly doesn’t mean that the purse strings have been loosened, as credit-card companies have continued to tighten credit limits and increase interest rates. “Pessimism among Americans about the upcoming Christmas season is off the charts,” says Britt
FRONT SECTION.indd 12
“Pessimism among Americans about the upcoming Christmas season is off the charts” Britt Beemer, Founder and CEO of ARG
Beemer, Founder and CEO of ARG. “Never, in the 31 years I’ve been conducting research, have I seen such a pessimism. President Obama has pierced the side of Lady Liberty, reducing the spirit of hope among consumers as they wonder when the recession will ever end. Americans see massive government debt, more home foreclosures in their neighbourhoods and little or no improvement in their local economy – even after $1 trillion spent in government stimulus.” However, in somewhat of a contrast to Beemer’s statement, Deloitte has released its 2010 holiday spending forecast, in which it notes the most modest of increases in consumer spending in comparison to 2009. Regardless, “sustained weakness in the housing and employment markets continue to restrict consumer cash flow,” says Carl Steidmann, Deloitte’s Chief Economist. “Consumers’ discretionary funds have dwindled as households remain focused on reducing debt and increasing their savings. Should consumers receive good tidings later this season in the way of falling energy prices or additional stock market gains, they may be able to lend retailers a bit more holiday cheer. However, given the unsteady pace of economic recovery, retailers should expect only a small uptick in holiday sales this year.”
08/10/2010 15:56
THE BRIEF 13
In addition to the modest two percent increase in spending for 2010, Deloitte’s retail group also expects total holiday sales to reach $852 billion, representing a slight improvement over last year’s one percent gain. But with a change in environment and ever-accelerating advances in technology, non-store selling and ecommerce is set to top the retail charts, with Deloitte highlighting a 15 percent increase in non-store sales, with nearly two-thirds coming from online channels and the remainder from catalogs and interactive TV. “The convenience and functionality that have fuelled e-commerce gains in previous seasons will continue to draw consumers online to do their shopping this year,” confirms Alison Paul, Vice Chairman and Deloitte’s retail sector leader in the US. “Online activity may also influence in-store shopping this holiday season, as social networks and mobile applications are playing a more prominent role in the shopping process. As such, retailers should seek to deliver tightly integrated and consistent merchandise, inventory and promotional messages to customers moving between web-based and physical storefronts.” Paul adds that retailers should be out in front of consumers to get their attention and strike a connection with their brand early and often. Furthermore, according to Paul, by reaching out to their consumers via mobile applications, digital marketing and social networks, retailers should be able to enhance brand awareness and build traffic and sales in time for the Christmas period. And with US retailers posting their largest sales gain in five months in August, with strong receipts at gasoline stations and clothing outlets, the presumption would be that spending is on the up. Unfortunately it’s not as clear-cut as that, with retailers and consumers both explicitly aware of the continuing fragility of their financial situations. Challenger, Gray & Christmas, releasing its annual holiday hiring forecast, confirmed that retailers were more inclined to wait until the last minute before deciding to take on seasonal help in November and December. In addition, the company’s CEO, John Challenger, says that the best opportunities for seasonal job seekers will be at discount stores, which he believes will attract a large majority of costconscious consumers during the period. “There’s still a lot of doubt about the sustainability of this economy,” asserts Challenger. “Retailers do not want to be caught with too many workers. There are still nearly 15 million Americans out of work and many have lost their homes or are struggling to hang on to them. This does not bode well for heavy holiday spending.” But it’s not all doom and gloom for the industry, as Toys R Us Inc. has brought some festive cheer to the table by announcing plans to hire 10,000 workers to staff its new 600 Toys R Us Express temporary stores around the US this coming Christmas. For the remainder of the industry, it’s another case of ‘watch this space’.
FRONT SECTION.indd 13
News in pictures
Gap is among the brands that have joined the President’s “Skills for America’s Future” partnership, which links large companies with community colleges in order to boost the job skills of American workers.
A coffee buyer checks a sample of coffee beans at the coffee growers’ collective in San Gil, Colombia, on September 24. Colombian coffee growers may fall short of a 2010 production forecast after output last year fell to a 33 year low, helping to sustain a 41 percent rally in New York-traded coffee prices this year.
The price of gold reached an all time high, with prices over $1300 an ounce as of the end of September. Pawn shops and cash converters such as this one are proving popular with consumers looking to make some extra cash.
08/10/2010 15:30
14
UPFRONT
Retailers look to the environment Consumers across the globe want companies to be greener, a recent survey shows.
M
ore than 60 percent of consumers want to buy from environmentally responsible companies, but the cost of green products continues to be a hurdle in developed countries, according to a recent international survey. The fifth annual ImagePower Green Brands Survey, conducted by WPP agencies Cohn & Wolfe, Landor Associates and Penn Schoen Berland (PSB), as well as independent strategy consulting firm Esty Environmental Partners, gathered information on the environmental attitudes of 9000 consumers in eight countries. Selection and labelling emerged as the biggest challenges in developing economies. The data also indicate that 70 percent of consumers in China, India and Brazil plan to spend the same or more money on green products in the coming year. Reducing toxic and dangerous substances emerged as the most critical activity a company can do to be green – cited by more than two-thirds of respondents in each country – followed by water conservation or recycling. Consumers also said environmental consciousness is an important corporate priority, ranking it fourth in importance behind good value, trustworthiness and being caring about customers.
TOP 10 GREEN BRANDS 1. BURT’S BEES
2. WHOLE FOODS
3. TOM’S OF MAINE
4. TRADER JOE’S
Good shop, bad shop
5. GOOGLE
T
6. AVEENO
hink buying green makes you a better person? Think again. A research study by Nina Mazar and Chen-Bo Zhong of the University of Toronto suggests that those who make green purchases are subsequently more likely to behave in a selfish manner. Half of the study participants were asked to shop online from a store stocked with mostly green products, while the other half were given a store containing conventional products. Participants were then asked to carry out one of two tasks. One group was told to allocate $6 between themselves and another participant. The green shoppers kept more for themselves than the others did. The other group were given a task with a clear incentive to lie about the results to earn more money. The green shoppers earned on average 36¢ more than they should have, showing that they had lied to boost their income.
FRONT SECTION.indd 14
7. SC JOHNSON
8. PUBLIX
9. MICROSOFT
10. IKEA
08/10/2010 15:30
UPFRONT 15
What Do Countries Think About Green Brands? It would be legitimate to think that with the US coming out of a recession, shoppers would be more pre-occupied with the economic downturn than saving the planet, and according to the fifth annual ImagePower Green Brands Survey that appears to be the case, although there is a growing concern for green practices.
Consumers are more concerned about the economy than the environment *
68% UK
58% 25%
67% Germany
35%
China
57%
32%
79% France
USA
35%
17%
More concerned with the economy
59%
More concerned with the environment
India
72%
37%
51%
Brazil 25% Australia
41%
60% of consumers say it is of some importance to buy brands from green companies *
16%
59%
22%
USA
16%
62%
19%
UK
30%
54% 58% 34% 11%
France
Source: All figures from 2010 ImagePower - Green Brands Survey Graphic created for NG Retail US | www.ngretailus.com | GDS Digital
FRONT SECTION.indd 15
9%
15% 40%
50%
49%
57%
47%
44%
64%
18%
Australia
7%
3%
2%
Germany
Very important Somewhat important Not important
China
India
Brazil
* Not showing ‘Don’t know’
08/10/2010 15:30
16
GLOBAL NEWS
Not everyone shops the same So what’s happening globally in the wonderful world of retail?
Orchard Road shopping district, Singapore
NEW HORIZONS Asian markets in a strong position coming out of the downturn Some 2.6 million square feet of retail space opened to shoppers in Singapore last year. Between the bustling Orchard Road shopping district and several integrated resorts at various popular and luxurious destinations such as Sentosa Island, the new developments will provide an extra boost to the citynation’s economy. In addition, the integrated resort helped bring a rise in tourist numbers in Singapore with over 946,000 visitors welcomed into the country in May, signifying a 30 percent rise year on year. Further north, Malaysia is seeing an estimated 4.4 million square feet of retail space coming on to the market this year.
INTO AFRICA WalMart to enter into the South African market Retail giant WalMart has put in a bid of $4.2 billion for South African wholesaler Massmart. As Africa’s biggest economy, South Africa represents a crucial market for WalMart’s success on the continent. In addition, Massmart operates 288 stores over 14 nations across sub-Saharan Africa, as well as managing some of the country’s largest retail chains, and the successful acquisition of the firm would represent the largest takeover in more than 10 years for the world’s largest retailer. WalMart failed to be the first mover into either the South American or the Asian markets, in both instances being beaten by French rival Carrefour group. It is now hoping to be the first Western super-retailer to establish a presence on the African market and is prepared to take on the risks that such a move brings with it.
FRONT SECTION.indd 16
Venus Fort, Japan
GIVE-AND-TAKE Why swapping is the new shopping in Holland The large number of flea markets and secondhand shops dotted around Amsterdam’s city center have long marked the city out as open to the idea of thrift retail. But now the concept is being taken a step further with the rise in swap-shopping currently being imported from the US. Instead of getting rid of their clothes, locals are encouraged to exchange them in private and public events hosted by enterprising third parties. “Want a whole new wardrobe for a fraction of the price? Exchange your perfectly good items that you never wear for fabulous fashion finds,” exhorts Amsterdam’s leading swap-shop host Swap and the City. Colleen Geske and Tamara Raab, creators of the event, believe that while the idea of a clothing swap is nothing new, the economic climate means it’s a perfect time to re-examine fashion-shopping habits. “I wanted to create a fun afternoon out for women in the Amsterdam area, around the theme of fashion, beauty and charity,” says Geske. And as the event spawns a host of copycat meetings, expect the trend to continue throughout 2010.
LOCATION, LOCATION, LOCATION Themed Hong Kong streets offer bargains If you want the best deal, shop where the locals shop. That’s the lesson from Hong Kong, where consumers in Asia’s retail hotbed have swapped retail directories and the internet in favor of locally clustered retail ‘theme’ streets to help them find the largest selection of goods in town. Kimberley Road is home to dozens of wedding gown shops; sport shoe shops line Fa Yuen Street; while florists (unsurprisingly) pack the units along Flower Market Road.
08/10/2010 15:30
UPFRONT 17
Powerful slate tablet PCs offer enhanced power, performance and integrated features Flower Market Road, Hong Kong
M
otion Computing, a global leader in integrated mobile computing solutions, has enhanced its entire line of rugged slate tablet PCs with enhanced integrated
Hong Kong has many such theme-driven clusters of small businesses that defy the conventional retail wisdom of avoiding direct competition. Economists refer to the phenomenon as the ‘clustering effect’, explaining how it acts as a magnet for like-minded shoppers. In addition, Lam Pun-lee of the department of business studies at Polytechnic University believes grouping similar shops together actually lowers the cost of marketing and creates more choice for consumers. “Hong Kong is a small city,” he says. “The presence of a few shops of similar products can grow into a cluster. That in turn attracts spending crowds.”
features and powerful performance. Now with the Intel Core i7 vPro processors, Motion offers new levels of performance, security and manageability. The J3500 and F5v Tablet PCs from Motion are significantly impacting point-of-sale computing by providing realtime access to customer information, inventory details and more – in the store, in the field or anywhere else it’s needed. By offering the latest in processor technology, Motion is providing retailers with the ability to equip mobile and in-store workers with all of the performance they need to improve productivity at the point-of-service, in a highly mobile device designed for users who
CHIC ON THE CHEAP Outlet malls gain in popularity as Japan cuts costs
stand and compute. Enhanced remote management capabilities,
As the saying (almost) goes, when in Tokyo, do what the Tokyans do. There is a new wind blowing through Japan’s rising retail market: the arrival of city-centre outlet malls is upon us. As the uncertain economic climate forces people to become more budget-conscious, outlet malls have become increasingly popular in the land of the rising sun. But with such shops traditionally located in hard-to-reach, remote suburbs, growth in the sector has, to date, been limited. However, one shopping center in Tokyo has brought outlet shopping to the heart of the city. Although it opened in 1999 with around 160 boutiques and restaurants, Venus Fort, a shopping complex built to resemble medieval Europe, recently renovated its entire third floor to accommodate close to 50 outlet shops – a first for Tokyo. As with other outlet malls, items are heavily discounted, sometimes between 50-70 percent off the retail price. And it is not just the affordability that attracts shoppers, but choice as well.
multiple applications, with the confidence to know that the data, and
increased security and improved multitasking offer the ability to run the device, are protected. Motion’s latest Tablet PC, the J3500, now features capacitive dual touch technology, enabling users to take advantage of the accuracy of stylus input or the convenience of touch for navigating applications. Both the F5v and J3500 offer a host of features that support the mobile worker with a rugged, lightweight design for all-day computing. Extra-durable Corning Gorilla glass offers display breakage protection, and combined with the available 128GB solid state drive, these tablets are built to withstand highly mobile work environments. Finally, from the available integrated digital camera to the optional Gobi2000 mobile broadband with GPS, available web camera, hot-swappable battery solutions and barcode scanner, Motion’s tablet PCs significantly improve how data is used at the point of service. For more information, please visit www.motioncomputing.com.
FRONT SECTION.indd 17
08/10/2010 15:30
18
UPFRONT
*11K (*11K (*11
B
etween the increasing popularity of devices such as smartphones and tablets among the US consumer market, and retailers continuing to look for ways to expand their operations in order to keep revenues up in a downturn, a spurge in retail cell phone applications seemed only logical. But how many retailers have fully taken advantage of the new platforms to maximize the experience of the mobile user?
eBay The app from the online auction site not only allows users to buy items from their cellphone, but also lets consumers track the status of their bids, sending automatic updates should a higher bid come in. Apple store customer rating ★★★★
Amazon The Amazon app essentially provides users with the same service as the website, just optimized for the screen size. Customers can browse and purchase products from the emporium that is the Amazon store, as well as manage an existing cart of products and monitor orders. Customer rating ★★★ ½
Macy’s The iShop from Macy’s was undoubtedly well received by avid fans of the brand, but the departments store’s app is basic compared to those offered by other retailers. Still it does allow users to shop from the Macy’s online store wherever they are. Customer ratings ★★★
Target WalMart The superstore’s app, currently available across platforms of various sizes, boasts a variety of features, from facilitating such simple tasks as searching for products or nearby store locations, to more specific functions such as determining the correct TV size for your room. Customer rating ★★★
FRONT SECTION.indd 18
This app does what you would hope, given its name, boasting the ability to provide its users with “the tools to simplify and streamline your shopping experience.” Beyond the basic functions, this app allows users to set their store preference in order to see results specific to their local outlet, has a barcode scanning function and helps users search for gifts by age, gender or even personality. Customer rating ★★★½
11/10/2010 11:58
SAP_AD.indd 1
1/6/10 11:18:50
20
UPFRONT
I
t has been a hot topic among retail industry professionals for a while now. And indeed, the escalating use of social media among cash rich consumers has been so extreme over the last five years that retailers would be foolish not to jump on board. But the latest social media trend has had retailers at the forefront of the movement. Locationbased social media has proved increasingly popular in recent months, with networks such as Gowalla or Loopt and the recent addition of Facebook’s Places application, but most notably with the conception of Foursquare. Some cite it more as a game than a form of virtual socializing, only incorporating a limited amount of a user’s information into the network. However for retailers, it is proving one of the most successful platforms for social media marketing to have emerged out of the recent boom in social technology. Location-based networks provide an experience more closely aligned with reality; while sounding like a cheesy marketing line this statement does highlight the primary appeal for retailers in that it deliberately targets consumers when they are out and provides the potential to draw customers physically into a store. With Foursquare now reporting more than three million users round the world, and an estimated 600,000 more singing up each month, this is the fastest growing social medium; and the increasing developments in smartphone technology look set to boost those numbers further. So which retailers have been riding the wave of the location-based social media movement? And more importantly, how have they used Foursquare to boost revenues?
Starbucks The global coffee shop chain has often been cited as a highly engaging brand thanks to its social media presence, and has been involved in the Foursquare movement a while, after developing the ‘Barista badge’ back in March. Then back in May, Starbucks introduced its temporary Mayor Offer, rewarding frequent visitors of a particular store with discount vouchers. The offer was only available for a limited time, however Starbucks was confident that this was only the beginning for location-based loyalty schemes.
FRONT SECTION.indd 20
On location Location-based social media is the latest craze for the webenabled generation. But how can it benefit today’s retailer? CardStart Taking their cue from the Starbucks initiative, the digital customer loyalty program teamed up with Foursquare to improve customer/retailer relations. CardStart is a digital facility that manages a consumer’s club or loyalty cards, with an iPhone application so users can scan while at a checkout. Now users can check in on Foursquare automatically while using their CardStart for iPhone application. While not offering consumer rewards just yet, this move is another indicator of the integration of location-based social media and loyalty schemes.
Marc Jacobs The designer teamed up with Foursquare during New York Fashion Week back in February to draw consumers into Marc Jacobs stores. Consumers could ‘check-in’ at any store around the country for the chance to
win a pair of tickets to the Marc Jacobs show at Fashion Week.
Ann Taylor The women’s fashion retailer launched a discount incentive for Foursquare users at the end of the summer, offering visitors to any of its eight new stores across New York City 15 percent off a purchase on their fifth ‘check-in’. ‘Mayors’ can expect to receive 25 percent off their purchases.
Tasti D-Lite This program encourages Tasti customers to sync their loyalty cards with their Foursquare accounts. After registering the Tasti D-Lite TreatCard online, users can enable his or her Foursquare account, allowing for automatic ‘check-in’ when the card is used at the counter as well as receiving loyalty points that can later be redeemed as goods.
08/10/2010 15:30
Lithuim AD.indd 1
08/07/2010 13:15
22
UPFRONT
Reality bytes
I
magine a world in which small, cartoonstyle tags pop up within your field of vision, overlaying real-world objects and buildings to describe what you’re looking at, like Arnie in Terminator 2. It might sound like something straight out of Hollywood, but that is essentially what Japan’s two largest cellphone operators are about to offer their millions of customers, using the cameras and screens of smartphones – along with vast online databases – to supplement your worldview with everything from product reviews to directions to price comparison data. It’s called ‘augmented reality’, and it’s the next hot feature to hit smartphones in 2010. Japan’s NTT DoCoMo launched ‘chokkan nabi’ (or intuitive navigation) in September to help people find their way around megacities such as Tokyo and Osaka and other places in Japan. “You just need to focus on a street, a building or a particular spot with your camera-equipped cellphone to see if there is a bank, a restaurant, a supermarket or other location,” a DoCoMo official told AFP. “Labels or signs indicate, for example, the distance to a chosen restaurant, schedules, menus, etc. With a simple gesture, you can switch back to a conventional map in two dimensions.” The service has so far registered some 600,000 points of interest throughout Japan, including restaurants, shops and train stations, which can be searched through userdefined criteria. The technology, developed with mapmaker Zenrin, uses GPS and sophisticated software to place virtual tags on realworld objects and provide directions to places outside the user’s direct view. It also links with micro-blogging site Twitter, which has been wildly successful in Japan, so that its users can spot each other in real time and real space, and tweet comments about where they are. Meanwhile, Japan’s number two mobile operator KDDI has developed a platform that allows users to scan, for example, a CD advertising poster with their camera phone to gain additional material, such as an extract from a song. The service will then offer the user the option to buy a download of the song with just two clicks, or can guide them to the nearest real-world CD shop. The application, which also features virtual characters, is an advanced version of an already popular Japanese application for Apple’s iPhone called Sekai Camera. That program identifies
FRONT SECTION.indd 22
visual landmarks and then displays live and past tweets from others as ‘air tags’ in the same location. Internationally, several operators are harnessing similar technology. Finnish cellphone giant Nokia is offering a free application
called Point & Find, which involves pointing your camera phone at real-world objects to access information and functions. The service also allows users to scan barcodes to compare prices, read reviews or save a product to a wish list.
AR SHOPPING APPS An array of programs that will remake everything from roaming the mall to impulse buying.
Finders, keepers
Virtual dressing room
The most obvious application of augmented reality is location-based services that can tell if a shop you need is close by. Zagat was first to market with NRU, but competitors such as Yelp have released their own AR apps as well. In addition to ratings and wayfinding, apps could also include shopping guides.
Meanwhile for the home shopper, Zugara’s Webcam Social Shopper uses motioncapture technology to create a virtual dressing room. Your movements allow you to navigate among selections, and the software calculates your orientation so that you can adjust the garment to your body.
08/10/2010 15:30
CEO PERSPECTIVE 23
Looking ahead It’s a marketer’s dream – and a philanderer’s nightmare: glasses that track your eyes’ every movement.
T
he ability to see exactly what the customer sees, what displays, ads or items catch their eye and what they skip over without a second glance has long been the Holy Grail for marketing departments everywhere. And now the vision is set to become reality thanks to pioneering technology from Tobii, the global market leader in eye tracking and eye control. According to the firm, Tobii Glasses will help researchers in commercial, scientific and government organizations gain greater levels of insight into the preferences, reactions and personal experiences of people in a natural environment. Sounds a bit sci-fi, right? “We believe the product opens up entirely new possibilities for our customers to conduct research in a way that previously has not been possible,” agrees Tom Englund, Executive Vice President of Analysis Solutions at Tobii Technology AB. “The application of this product to provide insight into human behavior can include anything from understanding buyer preferences, learning about gaze in operating mobile devices, playing sports, driving or operating machinery. In fact, the number of ways you can apply this technology to conduct research is virtually endless.” The new Tobii Glasses look and feel like a regular pair of glasses and allow wearers to walk around freely, making it easy for researchers to create a real-world environment in which to capture user behavior. This can be while they are browsing in shopping environments, using a computer, trying out new products or reading
an advertisement. Comfortable and lightweight, the glasses have no distracting cameras or mirrors in the field of view nor do they require the user to carry bulky equipment. As a result, the user behaves more naturally giving the data a much higher level of validity. You might not win any prizes for style – unless you’re attending an 80s revival – but the potential applications for retail are huge. “Never before has it been possible to cost-effectively conduct quantitative studies in real world environments and automatically see the visual attention a product or display received,” says Gill Aitchison, Global President of Ipsos Shopper and Retail Research, who had access to the glasses at a recent demonstration. Now researchers can measure actual consumer responses during real shopping trips – and this can be achieved at the point of purchase where decisions are made, instead of in unnatural laboratory environments, online questionnaires or over the phone. And the best thing about the technology? It’s available now. Expect marketers, retailers and jealous spouses everywhere to be queuing round the block.
“The product opens up entirely new possibilities for customers to conduct research in a way that previously has not been possible”
Seeing is believing Augmented reality isn’t just limited to smartphones. The coolest in-store information kiosk out there comes from Lego: the toy company is test launching a digital box that, when held up to an in-store camera, will superimpose a rendering of the completed Lego model on top of the product box onscreen.
FRONT SECTION.indd 23
08/10/2010 15:30
24
UPFRONT
Big box solutions IKEA’s journey from Sweden’s best-kept secret to global retail sensation has been founded on slavish devotion to a carefully formulated business plan. Here, CIO Paolo Cinelli explains why he is looking to apply similar discipline to the firm’s technology function. By Ben Thompson
Y
ou can spot the stores from a mile away: huge, hulking warehouses painted in distinctive blue and yellow, dominating the skyline as their parent company does the home furnishings retail landscape. In a little over half-a-century, IKEA has expanded beyond the boundaries of its native Sweden to become one of the most successful multinational retailers of the modern age, with global sales of $30 billion last year. The numbers alone are staggering. Its stores welcomed a total of 590 million shoppers in 2009, its website attracted 561 million visitors, while its cult catalogue was printed in 27 languages and 56 editions to produce a whopping 198 million copies. The IKEA range consists of 9500 home furnishing products; the company employs 123,000 co-workers in 39 countries; suppliers number 1220 in 55 countries. And as of August last year, the firm operated 267 stores with a further 34 owned and run by franchisees outside the IKEA Group. But just as impressive as the financial figures has been the way the company has stamped itself indelibly into the public consciousness. IKEA has become a byword for affordable style and, more importantly, a lifestyle choice for an ever-expanding army of fans who love its clean lines and simple elegance. It has also become a common popular culture touchstone, referenced in everything from The Simpsons to Hollywood movies such as Fight Club. And while some see it as representing the very height of mass-market populism and the enemy of individual style, they are far outnumbered by those who just want their home to look good and not pay too much for the privilege. One way or another, people are passionate about IKEA. And for its own part, the company is just as passionate about its customers. “We have a huge attachment to our customers,” says Group CIO Paolo Cinelli. “We really value them and it’s a really deep principle of the company overall. For us, it’s about fulfilling a contract: the unwritten deal with our customers is that ‘you do your part, we do ours’. That’s in the DNA of the relationship.” Indeed, while the firm’s legendary hands-off policy to in-store service may seem like an abdication of consumer responsibility, scratch beneath the surface and it actually reveals a remarkably grown-up approach to its customers – a “we’re here if you need us but won’t constantly pressure you into buying” style of retail. Customers find it empowering, and it frees IKEA staff up to concentrate on the store visitors that genuinely require help. And IT is key to providing that help. “Whatever you want to do, whether it’s generating new business or opening a new channel or even driving quality improvements, you need IT investment,” says Cinelli. “So if we increase the probability of success of projects with an IT component, we actually increase the probability of success of projects in general. For instance, customer relationship management is a really big focus area for us; we don’t currently make the most of the feedback customers
give us everyday, and we see this as a missed opportunity. We’re not good enough at understanding and capturing feedback in a structured way so that we can listen to it, interpret it and react more appropriately. Take the IKEA family card, as an example. This card is owned by over 30 million people now, and is a potential goldmine of information. But we don’t take advantage of it because of missing links between systems.” It’s a disconnect Cinelli is keen to bridge. After all, IKEA plans its stores meticulously to ensure customers are best able to help themselves. Each one carries products from a centrally developed range and is carefully designed to have the same look and feel so that the customer experience is as consistent as possible – whether you’re in Malmo, Minneapolis or Moscow. But surprisingly for a firm that has put consistency and standardization at the heart of its business model, the same rigor has not always been applied to the evolution of its IT architecture. “That consistency in store layout is the result of orderly planning; of course we have several blueprints we work from, but there are a limited number of versions and everybody sticks to them,” explains Cinelli. “But in contrast, the IT landscape is largely unplanned. It just evolved over the years to become what it is today. What would happen if our stores suffered from the lack of planning that the IT systems suffer from? Imagine what they would look like? Badly planned, disorganized, inconsistent – if, as a customer, you were ever able to get out of that store in the first place, you would never come back again.” In response, Cinelli and his leadership team have drawn up a blueprint for IT transformation they are calling IT4Business that he hopes will provide a reference architecture that can drive decisions going forward. “Part of IT4Business is to change our architecture in the direction of fewer, more integrated systems,” he says. “It’s not a technology priority per se, it is more of an organizational change in terms of IT governance. It’s about bringing the same level of standardization and consistency to the IT architectures that we bring to the rest of the organization. It won’t happen overnight, but what’s important is recognition of the fact that customers now expect there will be no difference between channels of information.” Of course, IKEA is not alone in facing the challenge of how to deal with the sprawl of legacy applications while effectively planning for the future; it’s a common problem given the pace at which the technology landscape has evolved over the past few decades. The difference is that IKEA is committed to changing the status quo to better reflect the needs of the 21st century and enable it to serve its customers more efficiently and effectively. In an environment where the customer is increasingly king – and one where the right strategic uses of technology will become a key competitive advantage – that could mean the difference between success and failure.
“The unwritten deal with our customers is that ‘you do your part, we do ours’. That’s in the DNA of the relationship”
FRONT SECTION.indd 24
08/10/2010 15:30
UPFRONT 25
??????
FRONT SECTION.indd 25
08/10/2010 15:30
26
UPFRONT
Holiday plans
B
est Buy Co. Inc., the Richfield-based consumer electronics retailer, will hire 29,000 seasonal employees for the holiday shopping season this year. CEO Brian Dunn made the announcement in a webcast preview of the Christmas buying season. According to Dunn, smartphones, touchscreen tablet computers, new video gaming platforms (including 3D games) and e-readers will drive sales this year. He said the company is currently in talks with smart phone maker Research in Motion to carry its touchscreen tablet computer. He also said Best Buy would open between 44 and 50 new Mobile Stores before Thanksgiving, and expand the company’s used game business to 1000 stores from its current presence in 600 stores.
Vending Vikings The Minnesota Vikings and Indianapolis-based merchandise company MainGate Inc have launched the first NFL-branded vending machine in Mall of America. “With vending machines becoming more and more commonplace, we thought we would test the concept with our fans via a location at Mall of America,” said Vikings Vice President of Sales and Marketing/Chief Marketing Officer Steve LaCroix. If the machine proves successful, the companies will consider installing more in the Twin Cities area. “Consumers are getting very comfortable with self service from a retail perspective,” said David Moroknek, President and CEO of MainGate Inc. “We believe that this is a viable method of selling licensed products, and an economical way to increase the number of outlets we have to service the core fans. Growing merchandise sales and building the Vikings brand are our goals and we feel this program allows us to do both.”
Juice row
A
tlanta-based soft-drink giant Coca-Cola Co. has launched a lawsuit against Aldi Inc., the German discount grocery store chain. The suit alleges that the packaging of Aldi’s ‘Nature’s Nectar’ line of juices infringes on Coke’s patents for its ‘Simply’ family of juices. Coca-Cola filed the suit on September 24 in the US District Court in Atlanta, seeking punitive damages, profits Aldi gained from the alleged infringement, attorney’s fees and other damages. Coke is pushing for a jury trial. NJ-based food maker Johanna Foods Inc. is also named in the suit. The company sells ‘Nature’s Nectar’ to Aldi along with a product line called ‘Tree Ripe’ that uses similar packaging. Aldi has more than 1100 US stores located in 31 states, and has plans to open 100 new stores across the country in 2010.
FRONT SECTION.indd 26
08/10/2010 15:30
UPFRONT 27
Logo wars
R
etail stalwart Gap recently revealed its new logo – to a barrage of criticism and negative response from fans. The new logo, which uses the typeface more often associated with American Apparel, and a basic small square of color, has encouraged a tremendous backlash on Twitter and other social mediums. Designers and fans of the brand alike have claimed that the logo is cheap and unsophisticated, and suggest that the move is symptomatic of a “serious branding crisis” for the company. In response a number of designers have created their own version of the logo, which in turn has sparked cynical rumours that Gap’s logo was only ever a move by the company to crowd source a new design, cutting the costs and headaches involved with re-branding.
Bigger is better
T
Company Index Q4 2010 Companies in this issue are indexed to the first page of the article in which each is mentioned. Amazon America’s Research Group Anthropologie Apple Stores Best Buy Best Buy BIGresearch Blockbuster Challenger, Gray & Christmas Deloitte Discovery-Based Retail eBay EnQii Environmental Protection Agency Facebook Footlocker Forrester Research Free People Godiva Harris Corp IBM Intel Kohl’s Department Stores Liz Claiborne
FRONT SECTION.indd 27
34, 60 12 60 44 60 74 12 60, 101 12 12, 60 44 34, 60 48, 51 96 72 60 60 60 86 4, 48, 53 74, 96 2,46, 48 96 106
Macy’s Microsoft Motion Computing National Retail Federation Neiman-Marcus Netflix Nielsen Office Depot Ovum Philips Teletrol Redbox RSA Saks Fifth Avenue SMG Starbucks Steve Madden Tesco The Right Thing Twitter Urban Outfitters Verdict Research Virgin Walgreens Walmart Zappos
74 76 6, 17 12, 54, 60 44 101 60 28 60 IFC, 92, 94 101 70 34 44 90 72 96 88, 89, IBC 76 60 60 76 68 96 34, 76
he Bon-Ton Stores, Inc. has announced the signing of an agreement with Casual Male Retail Group, Inc. to provide men’s big and tall apparel to Bon-Ton customers through Bon-Ton’s e-commerce website and, beginning in the spring of 2011, certain Bon-Ton stores. The product offerings will include sportswear, activewear, clothing and accessories. Casual Male Retail Group, based in Canton, Mass., is the largest specialty retailer of big and tall men’s apparel, with op“Casual Male erations throughout Retail Group, the United States, Inc. to provide Canada and Europe. men’s big and tall Bud Bergren, apparel to BonTon customers President and Chief through Bon-Ton’s Executive Officer of eCommerce Bon-Ton, said the website” company is “very excited about our strategic alliance with Casual Male”, and is planning to take advantage of the company’s dominant position in big and tall clothing to allow Bon-Ton to offer its customers hard-tofind sizes in a wide variety of basic casual wear and sportswear.
08/10/2010 15:30
28
THE BIG INTERVIEW
Survivalof
Big Interview Steve Odland.indd 28
08/10/2010 15:48
THE BIG INTERVIEW 29
At one point, the economic crisis of the last two years pushed Office Depot stock down to penny-stock levels and while 2010 has seen the company rally, a full recovery is far from assured. CEO Steve Odland explains how the company weathered the downturn, and looks ahead to a brighter future.
ffice Depot’s Steve Odland has endured a tough two years. The financial crisis and subsequent global recession has not been kind to the firm or its CEO: key markets such as Florida and California got hammered in the downturn, it lost customers to rival Staples and it was further embarrassed by a series of accounting scandals. Since trading at $38 in early 2007, shares have fallen 89 percent to penny-stock levels. But under Odland’s leadership, the office supplier is staging something of a recovery, continuing a multi-year turnaround strategy that began before the economic maelstrom hit. In 2009 it cut $680 million of operating expenses, mostly by closing 120 stores. It reduced distribution centers from 33 to 12. And now it’s meeting with vendors to review every product it sells. Indeed, just last month Office Depot posted a better-than-expected quarterly loss (driven by cost cuts and profits in its North American stores), while analysts believe remodeled stores and a solid balance sheet put the office supplies retailer in a good position to benefit from an eventual economic recovery when it arrves. So how do you instill confidence in your staff when times are tough? How do you motivate them and keep them believing in the brand? In short, how do you survive a global recession? “Leadership requires followership, and so it requires that you invest time in the people around you and that you make sure that you’re listening and working as a team,” says Odland. Next Generation Retail’s Jonathan Spragg caught up with him to find out more.
Big Interview Steve Odland.indd 29
08/10/2010 15:48
30
THE BIG INTERVIEW
The economy has been tough over the last 18 months, with an obvious impact on both the workforce and customers as well. What have been the biggest challenges for Office Depot during that time? Steve Odland. Office Depot provides office products, and so when employment goes down, office product purchases go down as a result. We also sell to a lot of small and medium sized businesses that have been disproportionately hurt during this period of time, so we have been working very carefully with our small and medium size business customers to make sure our offering reflects their needs – we’re changing pack sizes so that they’re smaller, and we’re working on private brand products that are lower priced. We’ve approached this period with the idea of ‘value’ uppermost in
nimble in the services that we offer. And we have to take care of business. That’s our slogan, of course, but it really means being able to adapt to the needs of these small and medium sized businesses.
our minds; with the idea that we want to take care of these customers, and that if we do, they will remember us during this period and when they can afford to buy more they will. And I think that’s been a very successful strategy.
meetings where we would bring people in and we were explaining to them everything we knew about the economy, what was going on in Washington and other world capitals, what was happening with the legislative actions in various countries, and then what we were doing to take care of it. And equally as important, we told them what we didn’t know – that we didn’t know what the future was going to hold, that we didn’t know when it was going end, but that we were being proactive about getting through it. So we talked to them about cash flow, we talked to them about controlling what we could control in terms of how we interact with our customers, and we said, “If we do all of this, we will get through this just fine – and then when the economy recovers, we will recover with it”. And I think it was a very successful strategy.
How important is it for you to be flexible and able to adapt to the changing environment? SO. In order to succeed now, every company has to be able to adapt because the environment changes so rapidly. The economy was terrific through the first part of the decade, and we were rapidly expanding in terms of sales – we could hardly keep up with the sales growth all the way through the first half of 2007. But then came the dramatic changes in the economy that affected our small business customers. So we have to be nimble in the products that we offer. We have to be
Big Interview Steve Odland.indd 30
At one point during the economic crisis, the share price dropped to just 60 cents. How difficult is it to lead within that environment and instill confidence in employees that things will get better? SO. Well, it was an extremely challenging period for everybody, and we just determined that we were going to communicate, communicate, communicate with our people and make sure that we shared everything that was going on. At one point we were having weekly open forums, all-employee
08/10/2010 15:48
THE BIG INTERVIEW 31
According to recent surveys for the happiness index, the size of your pay slip is no guarantee of happiness and fulfillment at work. What would you say are your key motivators? SO. We have 41,000 people in 51 countries, and I’m just so proud of this team. There are a lot of people who would have given up during the challenges that we’ve had in the last couple of years, but this team didn’t. This team stayed in there. They fought hard. Our service levels actually increased in our stores and in our supply chain, and we are at the highest performing levels that we ever have been as a company as a result of people focusing on what they can control. That is very motivating for me, and it’s been a terrific period of time for our people. Communication is obviously key to any successful business. Can you give us an example of the way that you communicate to your 41,000 employees that are around the globe? SO. We do everything we can think of. So, we certainly have all the forms of electronic communication and we email constantly. We have e-newsletters that go out. But I think the most valuable form is the shared leadership notion that we’ve created, which is that we meet with our leadership team at least once a month, and we ask that everybody meet with all their teams in that same timeframe. And we share all of our key message points, and we ask everybody to be open and honest, take any question, address everything. If we don’t know the answers, we promise to get back to them with the answers. And I just think that this openness and honesty and directness is appreciated by everyone. You came to Office Depot in 2005, and I believe you said it was a dream come true. Have the last five years lived up to your expectations? SO. Well, there are all sorts of dreams, but I think so. This was a company with challenges, and I was looking for a challenge. I was looking for a company that had a great brand name and wonderful people. I was looking for a company that had great geographic reach and lots of different channel opportunities, and Office Depot has been all of that. We were two or three years into a fabulous turnaround when the economic crisis hit, and I think all of us have earned another advanced degree in the last two years as we’ve had to learn how to deal with something that nobody alive today has managed through before. It was a learning experience and a challenge for all of us, but we were equal to it, we got through it, and now we’re turning our sights to how we can develop a growing business again with our small and medium size business customers. You’ve been regarded as a champion of ethical business practices; Office Depot has a reputation for being a cost cutter. Have your own personal business beliefs affected and changed the culture here at Office Depot? SO. Well, the way that you ask the question it sounds like there’s ethics and then there’s cost cutting and they aren’t the same, when in fact they are. I remember my responsibilities
Big Interview Steve Odland.indd 31
Tough times for SMBs Higher healthcare costs, higher taxes, lack of available credit and continued economic uncertainty are some of the reasons small-business owners will not be adding to their payrolls any time soon, according to a newly released survey conducted by Office Depot. “Small business owners are being extremely cautious due to the uncertainty of what might happen in the future,” Office Depot Chairman and CEO Steve Odland says. “While we are seeing that small businesses are somewhat optimistic about their sales prospects, they are still not feeling comfortable enough to begin spending and hiring at previous levels.” The Boca Raton, Florida-based company surveyed 1000 small business customers, 56 percent of whom said they are expecting increased profits in the next six months and 59 percent of whom expect an increase in their total business sales. However, 81 percent said they have no plans to hire within the next six months, citing reasons such as higher healthcare costs (18 percent), fear of higher taxes in 2011 (15 percent), lack of available credit (14 percent) and continued economic uncertainty (14 percent).
by my job title of CEO – customers, employees and owners. And the challenge that I have as a leader is to make sure that we do the right thing for each of them, and balance those needs. So we could do great things for the customer, and give it all away for free, right? That’s great customer service, but at the same time it’s not good for the owners. Similarly, if you just charge the highest prices in order to realize the most money for the owners, well, that’s not going to work in the long run either. So it’s finding that delicate balance between customers, employees and owners. Office Depot had come together over time through 30 different mergers and acquisitions. Not all of those had been integrated that well and we had a high cost structure, and at the end of the day that was risky for the employees because it wasn’t going to lead to long-term success, it was bad for the owners, and I’m not sure it was great for the customers either. So we had to finish the restructuring process of integrating all those different businesses. We had to develop a single go-to-market strategy, and I think all of that has led to change. And as human beings, we don’t like change very much, but it’s really important because we always want dif-
08/10/2010 15:48
32
THE BIG INTERVIEW
ferent results. The definition of insanity is doing the same thing over and over again and expecting different results. If we want the business results to change, we have to change the strategies as well. I wanted to focus a little bit more on the environmental sustainability, because I know Office Depot are leaders in that field. Why is it so important for you and the company? SO. I’m very proud of our sustainability efforts at Office Depot. We were a little lonely when we began this effort seven or eight years ago, but sustainability is very much on the agenda for all firms now. If you look at the kind of products we buy and sell, there are a lot of paper products and ink products and so forth, and so we recognized we needed to put a lot of effort into it. Our customers now have become very engaged in this process and have recognized the importance of green products and sustainability, and so I think it’s great for them. Our employees are very proud of it, and ultimately it’s something that’s very good for our profitability as well. I guess any sustainability effort has to have a focus on educating the customers. How do you go about doing that? SO. We started our efforts with our largest customers, who don’t need a lot of education but do have a lot of requirements – they’ve made commitments externally on their environmental efforts and their sustainability efforts, and we provide a unique set of solutions that allow them to be able to track their usage of consumable materials and postconsumer content, so that’s a service and a solution that is unique for them. For our smaller customers who may be less engaged in that kind of approach, we provide products that work well and are high value, but also green. What could be better? I think our employees and our customers at Office Depot are proud that we take this effort seriously. We have paper that is 30 percent post-consumer content. We also sell paper that’s 100 percent. We have recycling programs for our tech products where we work with other companies to take them apart and recycle the parts. We have ink and toner products that are refilled and certified. We have trade-in events where you bring in your old shredder or printer or whatever and we’ll trade it for a more energy efficient version. So all these efforts are something that we’re proud of; they also really benefit our customers as well. What are the business advantages of integrating environmental sustainability into your business practices and commitments? SO. First of all, there’s the pride in doing the right thing for our environment. Then there are the solutions that we provide for our customers, which differentiate us in the marketplace from our competitors who don’t have these kinds of products. And then the third thing is the cost. It’s great to be able to offer recycled products to our customers at a much lower cost. And we can do that as a direct result of our green
Big Interview Steve Odland.indd 32
practices. In all the stores we’ve changed the lighting to very low wattage sustainable lighting, and we’re saving millions of dollars a year in our energy bills and reducing our carbon footprint. We’re using reusable totes in our supply chain rather than cardboard boxes that end up in landfill. These items and these efforts cost a little bit more upfront, but they pay out over the long term. So all of those things come together, and I think it’s a win-win situation for the company and for the environment.
Above: Odland attributes Office Depot’s resilience to loyal employees
Office Depot is built on five key values: integrity, innovation, inclusion, customer focus and accountability. How do these values shape the company? SO. Well, these values came from countless discussions with our employees, and they are important because they shape a values-based approach to our customers and to engaging in the world. We simply can’t write enough rules to govern the millions of interactions that we have with our customers every week; there are so many different people, so many different countries, and so a values-based approach is the only way that we think that we can engage with our customers and still keep it very simple. So it’s important to me for all of us to operate consistently within those values, and I think we work at it every single day. I think all of us start with integrity, with a desire to do the right thing. It’s got to be good for the customer and good for Office Depot, and that’s the right thing. And do you know what? We’re not perfect. As long as we’re employing 41,000 people we’re going to make mistakes, but our commitment is that if we make a mistake we’re going to fi x it, make it right as soon as possible, apologize and move on. That’s all you can do, and that’s a great value. So what’s next for you? Where do your priorities lie in terms of the next 12-18 months? SO. I came to Office Depot to inspire this team: to get us through a restructuring, make sure that we get all of our various channels and divisions working together and that we develop a path for growth for the future, and I think we only got partway through that when this economic crisis hit. And so my goals are to get us through this economic crisis, to finish the restructuring, then position ourselves well and make sure that we’re taking care of our customers, our employees and our owners. This interview originally appeared on MeetTheBoss.tv, Next Generation Retail’s partner channel.
08/10/2010 15:48
Siemens_AD.indd 1
14/09/2010 16:30
34
LUXURY FOCUS
Branding for the online avenue With a new era dawning on the retail industry, how can the traditional businesses keep up? Next Generation Retail speaks to AJ Sutera, VP of Technology at Saks Fifth Avenue, to find out how one of the country’s best-known luxury stores is adapting to the changing retail landscape.
A
distinctive brand on the New York retail scene, Saks Fift h Avenue is up there with the major players as one of the icons of American shopping. And as a house of high-end apparel, accessories and jewellery, the appeal of the store lies just as much in the luxury shopping experience as it does in the exclusive products purchased. But the escalating popularity of internet shopping, the success of the e-commerce competition and the economic maelstrom that slashed consumer spending have taken their toll, and Saks’ Csuite is now looking to move the beloved brand into the new retail environment. “Some of the challenges that we deal with are how do we evolve our model to cater to the new shopping paradigms that our customers are asking us for,” explains Saks’ VP of Technology AJ Sutera. “How we preserve the brand experience across the different touch points and channels, and how we work in that new way, is a big thing that we’re wrestling with and talking about right now. How do we take advantage of these new marketing channels in a way that is congruent with our brand?” That is all easier said than done. A wide spread reluctance among the luxury industry – from retailers such as Saks or Barneys, to the high fashion houses themselves – to embrace the e-commerce platform stemmed from the feeling that the exclusivity of a high-end brand or shopping experience could not be translated online. However, the resilience of internet retailers throughout the down-
AJSutera Saks new.indd 34
turn was difficult to ignore, and high-end e-commerce brands, most notably net-a-porter.com, proved that it was perfectly possible to bring that privileged experience to an internet platform. Now the traditional bricks-and-mortar retailers that did not develop an e-commerce strategy are beginning to fi nd themselves left behind. “A lot of the dialogue that we’re having is how do we leverage the different channels effectively,” explains Sutera. Indeed, making the jump to new retail platforms bring a host of challenges, the majority of which will fall on the desks of Sutera and his team. He highlights that currently Saks is struggling with an outdated infrastructure, disparate systems created over the course of the company’s history to support the different needs of the different divisions, which need an overhaul. However, at the other end of system he must make sure that the new platforms are accommodating and user-friendly. “So how do we put enabling technologies in place that will facilitate the way that the customer wants to interact with us?” Sutera asks. “They want to buy through the channel that’s most convenient to them and at the time that they wish to transact with us. So we’ve got to give them that flexibility because I think that their expec-
08/10/2010 15:04
LUXURY FOCUS 35
think that the way that they’ve been able to exploit other technology channels to communicate and interact with their customers has been informative to our strategy as well. So those are some of the things that we pay attention to, that we admire about these companies.” Indeed, competition from the Amazons, eBays and Zapposes of the market has helped to bring about a new way of thinking to the 108 year-old retailer, encouraging a re-think of the business model to incorporate more agility across technology platforms. The unfamiliarity of the processes were a tough hurdle to cross, but Sutera concedes that it has paid dividends to Saks’ online operations. “We’ve learned a lot more about our customers by following some of the methods that we’ve seen some of these other guys do. “The customer’s expectations from Saks online is informed by these guys. Even if you look at them and you think they might not be such an obvious competitor, the fact is that they are. The same person that buys at Saks is buying on Amazon. They are buying at Zappos. They are looking for that same pair of shoes that I sell and if they’re there at Zappos, they’re quite possibly going to get them there. It’s got free shipping and wonderful customer service, lightening fast delivery. So that’s the expectation.”
Challenges ahead
tations are not being informed by the experience, which is high-end, luxury retailers. Their expectations are informed with every touch point that they have with retail, and the Zapposes and the eBays and some of the others guys who are here have set a different expectation with that.”
Learning from the competition
“We need to broaden that horizon and that’s been a little difficult because it’s just not the cadence of our organization”
AJSutera Saks new.indd 35
Sutera’s point highlights one of the greatest changes that the internet era has brought to the retail industry. No longer are brands just having to compete against their direct rivals in the market, they must now keep up with the retailers that are dominating the e-commerce paradigm. But like all the best business minds, he remains pragmatic, pointing out that there is much to be learnt from the major players in this sector. “Traditionally,” he explains, “things that you would think people would want to touch and feel and try on – they’re comfortable doing that online and they want to work with you that way. “They’ve established through technology that there’s a lot we can do to provide a tremendous amount of information to the customer about the product and the way they see it. Just some of these technologies have been, I think, very interesting and caused us to raise our game. I
While taking inspiration from the best-in-class online retailers is pivotal to the success of Saks as it moves into the new decade, a transformation of the online business model and IT infrastructure is throwing up a host of challenges. Sutera explains that whereas the traditional retail planning cycle is around six months, using a modern system requires significantly more foresight in terms of planning. “You need to set up and start planning for them 12, 18 months out so that the capabilities are there even if you can’t necessarily envision the use right now,” says Sutera. “That’s not traditionally the way that Saks has thought about IT investment. So the challenge has been changing the investment culture if you would, the portfolio mix, sort of changing it to facilitate more of these long-range planning projects that might not have a 12 to 18 month return. We need to broaden that horizon and that’s been a little difficult because it’s just not the cadence of our organization.” And then there’s the issue of the Saks brand. In a sector where brand identity is as important as the product, jeopardizing the reputation could be potentially crippling. “That is the reason we’re moving so slowly to be honest with you,” explains Sutera. “We’re looking to maintain a highly personalized experience that would be congruent with a Saks shopper’s experience in a store. So some of the things that we focus on, we do so to make sure that we don’t forget the person in that experience. That’s a key priority for us as we think through these things. But I think that’s why we have not moved as aggressively in there yet is because we’re trying to make sure that organizationally we’re comfortable and that there is still exclusivity in that channel with the relationship with the customer.”
08/10/2010 15:04
CISCO AD.indd 2
12/3/10 14:29:55
CISCO AD.indd 3
12/3/10 14:29:57
38
RECESSION RETAIL
g n i d i R
e h t n o i s s e c
re
Recession Retail Ed.indd 38
08/10/2010 15:31
RECESSION RETAIL 39
It has been cited as the worst financial climate since the Great Depression, and one of the most hostile business environments many retailers have had to face. But still some businesses have flourished, enjoying record sales growth and international expansion. Lucy Douglas asks how these retailers have managed to arm themselves against the economic maelstrom that brought America to its knees?
I
t needs little introduction. The effects of the infaremained evident and those retailers not willing to accept mous fi nancial crisis of 2007 to 2009 are still being the fate of bankruptcy have taken the change in economic felt the world over. The worst recession the country climate as an opportunity rather than a threat. The same has seen since the Great Depression brought mass report indicated that sales at the world’s largest retailers unemployment, widespread fi nancial uncertainty had increased by 5.5 percent in fiscal 2008 and total retail and one of the most challenging business climates sales reached the equivalent of $3.8 trillion. While conknown. In October 2009 unemployment levels sumers have undoubtedly tightened their belts in the last reached 10.1 percent, more than double the rates two years, the spending had shifted rather than completely of the summer 2007 and the highest they had been dried up. Following a bad patch in the fall of 2008, last year for over 25 years. consumer spending surged in the third quarter to bring According to the Bureau of Labor Statistics, the nation out of recession, accounting for two the crisis claimed around 4.3 million busithirds of America’s economic activity. Cash nesses with less than 20 employees bespent on fi ne dining, new automobiles or Household tween Q4 2007 and Q4 2008. Moreover, luxury products slowed, however spendwealth dropped a recent study from the Pew Research ing on groceries and other household on average Centre has indicated that in the 30 necessities, as well as discount prodmonths leading up to May 2010, as ucts flourished. And according to a many as 55 percent of the adult workstudy by the International Council between ing population had reported a spell of of Shopping Centers (ICSC) of over 2007 and 2009 unemployment, a pay cut or an invol2500 consumers back in 2009, shoppers untary reduction in working hours. In more commonly attributed a change in the same report, almost a third (62 percent) shopping habits to precautionary measures of the 2967 adults surveyed stated that they had and general concerns than to tangible economic cut back on their spending since the recession took hold in reasons, such as a job loss. For every store that had closed December 2007, and 48 percent say that their households its doors for good, another right around the corner was are in worse shape than now than they were three years booming with business. ago. Government data indicated that household wealth When asked the question, “what are the key things dropped on average 20 percent between 2007 and 2009. retailers must do in order to protect themselves in a reIndeed, the economy as it is presents a less than enticcession?” almost every industry player seemed to be full ing environment for any industry, least of all an industry of ideas, ready and willing to give their two cents on the that relies upon the spending of the increasingly frugal situation. “Focus on staff,” claimed many experts; “ensure consumer. A study by Deloitte named 2010 Global Powers customer loyalty,” said others; “improve marketing stratof Retailing indicated that two thirds of the retailers suregies,”; “cut overheads,”; “offer deals.” Advice from the veyed had reported a decline in net profit margin during frontline of the industry was plentiful, though not exactly 2008, with 30 of the 184 retailers operating at a loss. The revolutionary, and seemed to reiterate the tips ordinarily profitability of the largest 250 retailers in the world fell given to retailers going into business in any economic clifrom 3.7 percent in fiscal 2007 (including years ending June mate. But that may be the point. “Bad economic times tend 2008) to 2.4 in fiscal 2008. But while the figures are there to spotlight issues that have been looming in a business for to back up the bleak predictions made for the retail sector a long time,” says Robin Enright, a Visual Merchandising following the crash of Lehman Brothers, signs of hope have Consultant. “Use the opportunity – and I do believe this
20%
Recession Retail Ed.indd 39
08/10/2010 15:31
40
RECESSION RETAIL
slow economy presents us with an opportunity – to reevaluate your business.”
Man management A popular recommendation among the retail industry is to improve relations with the employees, echoing the mantras that HR executives have been hailing for decades. Paul Cronin, Director of Retail Strategy at Hughes Decorr, explains that the value of an employee can extend beyond having an extra pair of hands on the shop floor, as they have the potential to improve connections with customers and provide insight into what is relevant to the locality. Bonnie Salzman, a volunteer at an outlet in the not-forprofit sector, agrees. “Your employees are now more than ever your frontline soldiers. Not only should continual coaching be happening but constant communication to include the entire team on the plan.” Indeed, investing in your staff has proved a strong tactic to improving your bottom line, not least because a motivated and engaged workforce will directly impact your customers’ perceptions of the business. Charles Ponzio, a Broker at Conduit Realty Services, says, “the moment a person enters your retail establishment, whether that potential customer realizes it or not, they instantly pick up on how engaged your employees are, and whether your establishment has gone out of its way to make them want to return.” Customer retention has proved a key concern with retailers during the downturn; with profits lower despite increased sales, keeping customers coming through the doors and encouraging them to buy is more crucial to business success than ever before. In addition, the increasing popularity of social networking sites has provided the next generation of word-of-mouth marketing. According to Nielsen research, some 78 percent of consumers would more readily follow a customer recommendation than brand advertising. And with e-commerce sales steadily on the up, a positive reputation within the online consumer community is likely to improve revenues across the board. “As the right hand to a small business owner that is defi nitely feeling the pinch right now, keeping our customers happy, shopping and ordering online is my most important task,” explains Catherine Rezabeck, a retail worker from Chicago. Grant Hunermund an Account Executive with Artisan Complete advertising agency, agrees. “Offering a really great retail experience for the consumer will keep them coming back and they will tell others,” he says and highlights the potential damage a bad customer experience can have upon a retailer’s reputation. Many retailers felt that improving the customer experience could be achieved by returning to retail practices often forgotten among the multinational corporations, hailing back to days when customers could walk into a local store and the retailer would know their names and exactly what they were looking to purchase. Customer loyalty incentives have frequently been cited as an effective method of ensuring customer retention. The 2009 report from the ICSC found that more than half of the consumers
Recession Retail Ed.indd 40
CASE STUDY: Urban Outfitters The young women’s apparel sector is not exactly short of competition, however Urban Outfitters Inc, which includes the retailer of the same name, Anthropologie and Free People, has appealed to the masses with quirky and original designs, naming themselves “specialty lifestyle retailer”.
NET SALES FOR Q4 2006: $360.8 million 2007: $465.4 million 2008: $508.1 million 2009: $588.5 million
surveyed were part of a loyalty scheme at some retailer or shopping center; moreover the main reason cited for belonging to a loyalty scheme is the extra discounts offered to members, or the rewards that could be earned on purchases. Free gifts, special access for members or advanced notice of sales were far less important to consumers. Similarly, with customers looking to spend less and maximize their value for money retailers, are frequently using discount coupons to encourage sales. A survey carried out by Harris Interactive on behalf of retailmenot. com, an online discount coupon service, back in 2008 found that 63 percent of consumers would not make a purchase if a deal was not available and 37 percent would increase their use of coupons. Retail professional Michael Welsh highlights that retailers need to understand that consumers are also trying to save money and will demand even more value than ever before, however knowing where to increase the value is the key to maximizing success for retailers. “I am seeing my sharper retail clients becoming more promotion-oriented, rather than price-oriented,” says Robert Piller, an Incentive Marketing Executive. “My 25 years of experience has proven to me that it makes more economic sense to give away something you don’t sell,
63% of consumers would not make a purchase if a deal was not available
08/10/2010 15:31
RECESSION RETAIL 41
rather than offer one of your existing items as the free gift on the loyalty program.”
Quality not just quantity
CASE STUDY: Walmart Walmart has been well positioned to take advantage of the downturn. With consumers concentrating their spending on necessities and the emerging market opportunities flourishing the world’s largest retailer has continued to enjoy impressive growth in tough times.
Just as the consumer is becoming increasingly demanding with regard to discount offers on products, he or she is ever more discerning about the quality of the purchase, a fact that retailers must bear in mind if they are to successfully ride the wave of the recession. Fred Stern, a Retail Financial and Operational Consultant, explains that retailers need to “fully grasp and understand that customers will give up non-essential product purchasing first and look to reduce costs on basic necessities through discounters, warehouses or online opportunities. You must limit and reduce such [non-essential] product lines and be very careful to not increase price points.” Varun Sharma, a retail specialist operating in the Indian market, backs up Stern’s point. “I think product mix and assortments are the key areas that need to be given due emphasis. A well-thought and managed product mix can help retailers to keep customers coming in to pick the offerings. Recession definitely impacts the customers’ buying behavior so a retailer needs to understand and come up with better deals for the customer.” Indeed, the nature of goods sold by a retailer has had a significant effect upon revenues throughout the recession, and non-essential goods have taken the biggest hit. Leisure goods retailers saw their profit margin fall by more than half to 3.1 percent in 2008 from 6.9 percent in 2007. Sales growth for fashion retailers fell into negative territory and profits were halved to 4.1 percent in 2008. Food retailers suffered the smallest shrink, the profits falling from three to 2.2 percent and sales increasing by 8.6 percent. Discount
CASE STUDY: Hautelook Imagine waking up in the morning to an email letting you know that there is a sale on your favourite brands, lasting only 48 hours but offering a whopping discount on products you’ve had you eye on. Alternatively, as a retailer, imagine being able to get rid of all that excess stock at the end of the season and still make a return on it. Well, that is where flash sale company Hautelook can help. By promoting flash sales on products from retail brands to their membership base via a daily email, Hautelook has established a business model ideal to flourish in the recession. “It definitely helped,” admits CIO Stuart Richman, “because at one point the retailers were suffering, they didn’t have an exhaust form for some of their inventory except some of the rack shops like TJ Maxx. So this was another avenue where we had a good value proposition as far as the revenue share model for them to get rid of all that excess of inventory. Probably three years back when the recession started getting tighter on retail, where brands would be buying up a lot of stock in anticipation of retail outlets, and then the demands of the retail outlets starting diminishing a little so all of a sudden, where they thought they were going to move 500,000 units, the retailers were saying ‘well, we’ll only take 200,000 units’ so they were stuck with extra units. So this was another platform to help them liquidate their excess.”
retailer Target, who had enjoyed a notably larger profit growth rate than rival Wal-Mart throughout the decade, lost out to the grocery giant when the recession set in, as consumers focused more on essential grocery purchases and less on clothes or home furnishings – even if they were low cost.
Spend money to make money
NET SALES FOR Q4 2006: $ 98.090 billion 2007: $ 106.269 billion 2008: $ 107.966 billion 2009: $ 112.8 billion
Recession Retail Ed.indd 41
“Don’t panic and discount the whole store and destroy your margins,” warns Jonathon Lee Berke, a retail professional from Denmark. “If you are running a solid business, you need to fi nd different activities to drive traffic and demonstrate value to your customers. There are many competitive advantages other than price.” Berke’s assertion marks a common error made by retail professionals in tough times, and one that is often potentially crippling to the business. Rob Alexander, National Director of Marketing at Pharmasave Drugs Ltd., agrees, highlighting that struggling retailers have a tendency to clutch at straws, taking on new product lines, cut costs across the board and demand more from their staff with any clear direction. Cutting unnecessary expenditure is an ideal way to save some cash; many retailers suggest carrying out an
08/10/2010 15:31
42
RECESSION RETAIL
energy audit in order to cut back on utilities bills. “We’re doing everything we can to cut down on our overhead costs,” offers Catherine Rezabeck. “Whether it’s sacrificing air conditioning on cooler days, putting window lights on a timer, creating iPod playlists instead of paying for monthly music channel subscription fees, however I can save cutting a check without sacrificing the customer’s shopping efforts.” Similarly, developing a strong in-store security system and loss prevention strategy is helpful towards reducing unnecessary expenditure. “There are a lot of cases of employees misusing the trust of an organization,” warns Erik Jerker Engstrand, Head of Group Security at Scandinavian female fashion retailer AB Lindex. Indeed, according to employee-screening firm TruDiligence, some 30 percent of small businesses fail as a direct result of employee theft. “I do believe that a good security and risk awareness culture and values will help retailers keep a good profit during a recession,” Jerker adds. As Jerker highlights, the benefits of a comprehensive security program are certainly something to think about; however, implementing such a program can be costly. And in tough times, financial investment in the business is not a luxury many retailers can afford. “In addition to keeping our regular customers engaged, we have to find new, creative and almost free ways to market,” Rezabeck says, highlighting the idea on every retailer’s mind. With consumers ever more selective about where they choose to spend their dollars, making sure you are first choice is imperative; as Kimberly Zehlke of Norwex points out, “a company must stand out from the competition.” But how can retailers stand out from the crowd without significant investment in marketing campaigns? “Maximizing the new social media marketing opportunities is an inexpensive way to keep in touch with customers and give them a reason to shop,” suggests Jamie Brooks, VP and President of Sears Outlet Stores, highlighting a growing trend among retailers to reach out directly to their consumers through the increasingly popular online social networks. Yadira Kellerman, a Web Development professional from New York suggests retailers should develop a high business exposure online, then build relationships with customers through tools and features of the website. Indeed, while it may be tempting for retailers to view marketing spend as a non-essential outgoing, cutting the budget can have a potentially crippling effect. Retail professional David Holdsworth warns against the risks of cutting a marketing budget altogether, pointing out that retailers who don’t market cannot effectively communicate with their consumers about new product lines, special offers and price reductions. “Cost cutting should be a focus,” says Holdsworth, “but I believe it’s better to look at retaining and increasing customer loyalty, boosting sales and holding profits first, than going straight to cost cutting, otherwise it is a downward spiral from there.” Ultimately, it seems the most effective way to deal with the recession has been to take stock of the business and carefully devise the best strategy for going forward, which for some retailers may involve a different business plan than
Recession Retail Ed.indd 42
the one they had been operating with before the downturn set in. “Companies must reinvent themselves, as a recession is a shift to a new equilibrium that has nothing to do with the past,” explains John Charokopos, a financial controller. Indeed, this seems to be the salient point for companies in any industry looking to move forward. Rob Reichstein at Ramm Technologies elaborates. “First understand that this is not just a recession. It is the end of a free spending era and the dawn of new opportunities. Customers are looking for value. Adjust your offering to your target customer’s needs and wants. Be honest with yourself; evaluate your business.” The recovering economy has brought a new and altered landscape that all businesses, from nationwide corporations to independent stores, must adapt to in order to regenerate. And doing this may require any or all of the measures outlined by retail professionals; as independent retail consultant Deb Lohrer says, “the answer is all of the above. The business must be ready to change, expand, contract, diversify and find partnerships that can keep them fluid enough to stay successful.” ■
“Companies must reinvent themselves, as a recession is a shift to a new equilibrium that has nothing to do with the past”
CASE STUDY: Groupon Set up in 2008 to unite the classic coupon with the dotcom generation, Groupon has flourished on the back of consumers looking to spend less and retailers looking increase to foot traffic in stores. It works by promoting special offers from retailers, restaurants or entertainment venues to its consumer subscribers – of which there are currently more than 6 million – who can then sign up to a particular offer they are interested in. The vendor states how many consumers will need to sign up for the offer in order to make it commercially viable; once the prescribed number have signed up the consumers can receive their coupon, and retailers can enjoy an easy sales boost. Groupon had grown from 400 users to over six million in less than two years and it is present in over 70 North American markets, including Chicago, New York, Boston, Los Angeles, Washington DC, Atlanta, San Francisco and Toronto. In it’s most popular offer Groupon sold 19,894 tickets priced at $12 for a 75 minute Chicago Architectural Boat Tour .
08/10/2010 15:31
ATG AD.indd 1
24/5/10 15:02:20
44
STORE DESIGN
Blueprint for success Why making the most of your costly retail space can pay dividends in terms of better branding and more active customer engagement.
T
he thing about retail is that nothing can ever really stay the same for long: the fickle nature of today’s shopper means they just won’t put up with it. Just because something worked last year, it doesn’t mean it will appeal to the customers of today and tomorrow, and this is especially true of store design – in fact, it’s a golden rule of retail that you should never underestimate the impact of great store design on customer behavior. How many customers walk into a retail store only to leave without buying anything? And how many stroll past a drab store entrance with barely a glance in its direction? Good store design can reduce walkouts, encourage existing customers to visit more often and attract new customers. Physical space is important, and the fi rst step is to assess how much you’ve got. Philip Mitchell is a founding partner of retail consulting company Discovery-Based Retail, which works with retailers both large and small to help enhance profitability by improving their customer interfaces. He believes that in terms of store design, bigger – or at least the perception of being bigger – is almost always better. “Make a store appear larger and people will perceive that its selection is better,” he says. “You can make a store appear larger by opening up the longest vistas that you can create.” His company often uses cascading aisles to create the illusion of space, he says. “Cascading aisles are ones that terminate at staggered intervals. By doing this we can expose more merchandise to the store’s customers plus create pseudo angles to add interest to the layout. A couple of other ways of maximizing the appearance of your store’s sales space is by moving the taller things to the outside walls and widening aisles slightly to give customers more breathing room.” Ignaz Gorischek, VP for Store Development at luxury retailer Neiman-Marcus, feels that creating a journey for the customer is also an important part of store design. He believes the possibilities offered by this in terms of customer engagement are huge. “There are a lot of different things we do in our environment to create a way into our world,” he explains. “You want to lead people through an
Store design.indd 44
environment without them having to think about it. So we create what we call visual hotspots: about every 35-50 feet there’s something that’s attracting you. You may or may not decide to engage in it but your brain and your eyes will subconsciously take you there. And when you get to that Y in the road, you’ll make a decision. So we navigate you through the store.” For Neiman-Marcus, good store design is also about creating a unique experience. In the US, the retailer is wellknown for its slavish devotion to displaying art in its stores in an effort to constantly engage visitors to its locations. “Art is there not just as an enhancement to the space, it is there as a cultural experience,” explains Gorischek. “We have an art collection that’s over 4000 works strong. We’ve had it since 1951. And all the CEOs of the company over the years have supported it because it’s a true differentiator for our brand. So when you come to our store, we would love for you to purchase something, obviously, but if you’re coming to enjoy the space and possibly get educated on possible purchases further down the road then that’s okay too. The point is that we want you to leave more fulfi lled than when you came in.” The idea of building and sustaining a brand – and using elements of the store layout to reinforce those strengths and core values – is also critical. “The brand has to be created through three-dimensional objects we bring into it,” says Gorischek. “For instance, we are one of the only retailers who consistently uses live flowers. I’ve had people ask me why we would do that when we could just use synthetic ones. And my typical response is that we want to be a world-renowned brand that stands for luxury; someplace you wouldn’t think of as synthetic or fake. It also sends a subliminal message that you’re caring for the space on a daily basis. How many times have you walked into a store that’s dirty or dusty or something like that? By using live flowers, someone has to tend to that on a daily basis. So all of those little nuances go into sustaining the brand on a daily basis. Keeping it fresh, keeping it beautiful, keeping it entertaining and keeping it educational keeps us ahead of the curve.”
“As long as the customer is leaving with a smile on their face and a bag, I call that successful”
08/10/2010 15:33
STORE DESIGN 45
“Make a store appear larger and people will perceive that its selection is better”
Store design.indd 45
Gorischek says his stores use a similar principle when thinking about the display. “You have to continually refresh and change the space – not only for the customer who walks in, but also for the sales associates working there,” he explains. “It’s important for them to feel excited about what’s happening in their area or department so that they can then share that excitement with the customers that come in. So moving the environment around is critical, but you don’t want to fl ip the environment to the point that people get frustrated. In other words, you don’t want to take Menswear and move it from the first floor to the third floor, and then next month bring it down to the second floor. That causes confusion and people are turned-off by that. But subtle movement within departments is defi nitely encouraged.” As far as store planners and designers are concerned, it’s all about creating connection points with the customer. Jeremy Michael is Managing Director of Kansas Cityheadquartered customer insight analysis firm SMG, which has worked with retailers such as Foot Locker, JC Penney, Dunkin’ Donuts and Burger King on improving the instore customer experience. He believes that the store layout needs to cater for all types of customers, from fi rst-time visitors to regular shoppers. “The store layout says a lot about the brand and it is important that the brand messaging is reflected in the store,” he says. “The store design sets customer expectations. However, no matter how enhanced the store design is, the customer service absolutely has to reflect it. For instance, Apple stores look cool, and the customer service from the staff on the shop floor reflects the relaxed and appealing image of the store.” He feels that the main factors that need to be addressed are cleanliness, speed at cashier and ease of locating items. “Don’t underestimate the influence of a queuing system on customers and the impact it can have on store sales,” he advises. “For instance, when standing at the back of the queue, customers can get frustrated with a lack of movement and decide to walk out and abandon their possible purchases.” He suggests a so-called ‘snake queue’ – where the line doubles back on itself – can have numerous benefits in this regard. “For customers, it gives the perception that it is moving fast and is absolutely fair. And as customers fi nd it harder to walk out of a queue when they have to pass several other customers, it allows retailers to offer additional ‘impulse purchases’, which has an impact on increasing average transaction value.” At the end of the day, measuring the success (or otherwise) of your store design is tough. “The metrics are hard,” concedes Gorischek. “There has to be money in the cash register, and I guess that’s your fi nal metric, and you either meet the metric for the day or not. And if you don’t then you have to go back and figure out what went wrong. Was it the product? Was it the hours? Was it my sales help? Was it the presentation? Maybe it was because the lights weren’t on or the technology wasn’t working properly. So it’s hard, but success is defi ned in many different ways. As long as the customer is leaving with a smile on their face and a bag, I call that successful.” ■
08/10/2010 15:33
INTEL DPS AD.indd 1
01/10/2010 16:09
INTEL DPS AD.indd 2
01/10/2010 16:09
48
ROUNDTABLE
DIGITAL SIGN RT.indd 48
08/10/2010 15:28
ROUNDTABLE 49
SIGN LANGUAGE Next Generation Retail speaks to a panel of experts for some insight into the changing face of retailers’ in-store marketing solutions.
Jose Avalos is the Director of Retail and Digital Signage at Intel Corporation. He leads Intel’s worldwide Retail and Digital Signage businesses and his organization is responsible for delivering Intel’s Intelligent Retail and Digital Signage Platforms, as well as initiatives to fuel the growth of the Industry.
Digital signage is becoming increasingly popular with retailers. What are the greatest challenges facing retailers in terms of implementing a successful in-store marketing/digital signage strategy? Jose Avalos. There are several key challenges for retailers today. Some are purely operational and cost-oriented: the price of implementation, cost of monitors and other equipment, installation and ongoing maintenance. A second is scalability: for retailers with many locations, the ability to tie multiple locations into one system and perhaps create an advertising-supported network to offset these costs. The last is lack of familiarity with the medium and how to best plan. Many seasoned and national brands use digital and traditional advertising agencies to help them execute DOOH (digital out of home) campaigns, but secondary and tertiary brands that may not have these agency relationships are often overwhelmed with the options and logistics of pulling off a campaign on their own. Ajay Chowdhury. Two areas, context and speed. In-store digital signage can be a simple communications medium designed to enhance the shopping experience, deliver targeted promotions and even support staff development; however, the strategic impact goes well beyond that. To be an effective business driver and deliver sustainable competitive advantages, in-store digital signage needs to be part of the retailer’s multi-channel merchandizing strategy alongside loyalty programs, mobile marketing and social networking initiatives. When fully exercised it is a powerful medium to engage the shopper in ways that lead to sticky connections between the retail brand and the shopper. Secondly, retailers need to accelerate their rate of adoption; in speaking with some of the more progressive retailers they admit to programs taking 18–24 months to go from internal proposal to the fi rst stage of execution. Shoppers are changing behavior much faster than that, therefore retailers have to be more nimble and get new ideas to market faster or they will always be “throwing the ball behind the receiver.” Denise MacDonell. One of the main challenges for retailers utilizing digital in-store marketing technology is to make sure it is deployed as a part of their overall marketing campaign and not just as a standalone venture. Thought must be put into defi ning and measuring the success of the solution and using that data to rectify targeting as needed.
DIGITAL SIGN RT.indd 49
Lack of scale across digital out-of-home networks has also been a factor in slowing adoption rates for advertising purchases. For an advertiser to seek out a network, it must be measurable and have enough scale to provide significant reach and reliability of delivery. Understanding the core differences between static and dynamic signage is also key – and a core part of the success of such a deployment. Planning the content so it stays fresh and relevant or planning the location of digital signs are all part of the challenge. There is a significant difference between static content (the historic store signage we are all used to) and digital signage – which allows endless possibilities when it comes to taking advantage of video content to maximize the value of the signage. Finally, understanding and implementing the technology correctly is also key to success. Th is allows the retailer to ensure they are selecting the right tools and making the most out of the capabilities of the infrastructure whilst investing wisely with future growth in mind.
“We all know shopper options have never been greater. Retailers that align their in-store shopping experiences with the expectations of their customers will attract the most shoppers” Jose Avalos How are digital signage solutions evolving to meet retailers’ marketing demands in a changing retail environment? JA. There are two parts to this answer. Firstly, from a purely fiscal and ROI perspective, retailers are increasingly tying their DS to their POS systems so that product sales “lift” can be attributable to various digital signage solutions/advertising to validate their DS investments. The accountability of the medium is excellent, if retailers make the investment in creating the right environment with these right metrics built in, such as AVA-anonymous video analytics. From a consumer perspective, building brand loyalty is key for future growth as retailers’ margin pressure continues to grow. Creating a compelling, relevant and enjoyable “shopping experience” is a key competitive differentiator. We all know shopper options have never been
08/10/2010 15:28
50
ROUNDTABLE
greater. Retailers that align their in-store shopping experiences with the expectations of their customers will attract the most shoppers. Digital signage technology enhances the retailer’s ability to do this. DM. The digital signage market is maturing and becoming more flexible with solutions such as fi nancing, managed services and other alternatives to capital expenditures. The technology is becoming increasingly integrated with existing systems such as point-of-sale (POS) technology. There is also a far greater understanding of all points of ROI within the business nowadays, and a growing focus on advertising and campaign management. Tools such as Harris Punctuate can help understand and maximize the return on investment gained from running a dynamic marketing campaign. AC. In many ways it is changing dramatically. Internet e-commerce, smartphones and social networks all are having huge effects on changing shopping and buying routines. However, in another important way technology is enabling retailers to get back to their roots, when the general corner store owner knew every customer along with their needs, wants and desires. “Mrs. Jones, since you’ve been buying items for your daughter’s upcoming wedding I thought you’d like this lovely Italian lace fabric we just got in.” At EnQii we are developing the technology linkages to inventory data, ePOS, social networks and loyalty programs to engage shoppers when they enter the store and deliver shopper-specific recommendations that will drive additional sales and loyalty to the retail brand in and out of store.
“Technology is enabling retailers to get back to their roots, when the general corner store owner knew every customer along with their needs, wants and desires” Ajay Chowdhury Digital signage today can be found in a number of different forms, from basic digital display to interactive digital kiosks. What in your opinion are the best strategies for utilizing these tools and how can they improve a retailer’s revenue? AC. In-store digital signage is more than a communications overlay to the store. When integrated into the retailer’s data flows, cloud-based data streams and operations, it will deliver huge returns. Supply chain and ePOS data can automatically trigger what gets promoted where and at what time, thus driving inventory efficiencies and lifting sales. Weather, news, local events and social networking data (as your retail ‘friends’ opt in to your brand), can drive more effective, targeted promotions, greater adoption to loyalty programs, and shopping frequency. Operations
DIGITAL SIGN RT.indd 50
and human resources can leverage the medium to deliver corporate communications and staff training to improve customer satisfaction and lower employee turnover. JA. These tools have to add value to the retailers’ operations and to the shopper’s experience. We refer to it as having “Intelligent DS”. What that means is: use the tool in a way that makes the shopper’s experience more meaningful, pleasant, memorable, relevant – or all of the above. It isn’t enough to have signs flashing content at a consumer when it is completely off target for who they are and why they are there. DM. We have seen great demand for digital signage solutions from sub-segments such as quick-serve restaurants (QSR) in the US; in Europe from shopping centers, convenience stores, mass merchandizers and increasingly from specialist stores (sports retailers, for example). An excellent example of this is our recent installation at Stadium, the largest sports retailer in Scandinavia. Over 60 million visitors a year visit Stadium sports retail stores and they are using Harris InfoCaster digital signage across their 110 stores to enable dynamic communication on the shop f loor. In conclusion, retailers who experience national footprint, high audience count and visit frequency are seen as the ideal candidates for digital signage; advertisers can maximize reach and frequency at the point of purchase, so direct sales impact can actually be tracked. What further developments can we hope to see in the future in the world of digital signage? How do you think the industry will evolve over the next five years? DM. Apart from an increasing ability to measure the effect of digital signage content on the behavior of viewers, I expect to see digital signage become an important component of marketing campaigns, with inventory being sold as part of multi-medium campaigns. IPTV streaming will become more commonplace and take on an important role as a source of content for digital signage displays and smartphone interactivity will expand and extend the engagement factor. Finally, as digital out-of-home networks mature, additional automation in the production, management and delivery of content will be essential. As with other media platforms, automation tools for digital signage will enhance network ROI not only through the operational efficiency provided but also by enriching the customer experience through improved quality, reliability and automated targeting of content. JA. First, greater point-of-sale integration; a number of retailers are already doing this and I think this trend will continue to be more the norm than the exception. Second, merchandizing decisions will be made as a result of DS: retailers will increasingly redesign their digital signage configurations and retail floor plans to better meet the needs of their customers and suppliers. Th ird, lower cost
Ajay Chowdhury is the CEO of EnQii. He was partner at IDG Ventures, a global VC fund. Before that, Chowdhury was European CEO of NBCi and CEO of LineOne, one of the UK’s largest portals and ISP’s. In 10 years with United News and Media he ran its new media division. Before that, he was a manager at Bain & Company. He has an MBA from Wharton.
As Director and General Manager of the Digital Out-Of-Home (DOOH) business for Harris Broadcast Communications, Denise MacDonell oversees global strategy and business direction, product development, partnerships and client service/ support. MacDonell directs the growing Harris DOOH enterprise in the development of tools to help businesses leverage compelling content to operate profitable digital out-of-home networks.
08/10/2010 15:28
ENQII AD.indd 1
01/10/2010 16:03
52
ROUNDTABLE
of ownership, operations and maintenance; with remote manageability technologies such as Intel AMT(R), retailers are able to remotely diagnose and troubleshoot technical issues, as well as reduce overall power consumption. Then there’s mobile/social interaction. Smartphones, the social web and digital signs are proving a potent combination for building brands, driving sales and capturing the opt-in data from interested buyers.
“Retailers who experience national footprint, high audience count and visit frequency are seen as the ideal candidates for digital signage” Denise MacDonell Also, one-on-one interactive signs or kiosks can provide the customer with a range of opportunities. Finally, equipping digital signs with anonymous video analytics sensors (compliant with emerging digital signage industry standards) makes it possible to provide actual audience measurement data, such as how many watched, for how long, gender, age, time of day, etc. Th is data enables adver-
DIGITAL SIGN RT.indd 52
tisers to evaluate their purchases in digital signage against other mediums. In terms of how the industry will evolve, I think several things will happen in this time period. You will see massive consolidation in the network operator space. The vast majority of current network operators are small, Mom-andPop sized operations; larger, more fiscally sound players will acquire the smaller companies. Then, the scalability issue will begin to resolve itself. It will become far easier to deploy a DS campaign across a city, region or country once that occurs. Also, companies will create turn-key DS solutions that smaller retailers and brands will be able to buy and leverage, thus bringing down the cost of deployment as well as operations and maintenance. Fourthly, intelligent DS solutions enabled with technologies such as Intel AMT can reduce ongoing cost of ownership, service, maintenance and energy consumption for retailers globally. AC. We call it Smart Signage. Retailers will be utilizing instore digital signage to enhance the shopping experience all the way to delivering staff training. They will integrate their retail technologies with an emphasis on customerfacing applications to support transactions in-store and out of store, what is commonly referred to as the “endless aisle.”
08/10/2010 15:28
HARRIS AD.indd 1
01/10/2010 16:03
54
RETAIL FOCUS
SIGNS OF THE TIMES
Digital Signage ed.indd 54
Once the familiar back-drop to sporting events and skylines of major retail cities, digital signage systems are changing. Bringing quick, direct marketing campaigns right into the store itself, digital signage is paving the way for the stores of the future. Next Generation Retail spoke to the Retail Advertising and Marketing Association’s Mike Gatti to ďŹ nd out.
08/10/2010 15:29
RETAIL FOCUS 55
W
ith its dazzling array of arresting illuminated displays, a vibrant mixture of neon and fluorescent billboards, Times Square has become an iconic beacon of the New York cityscape. Reaching many storeys up the skyscrapers that line the streets, the boldly colored digital advertisements for award-winning musicals or globally recognized commercial brands have come to represent Broadway. As with most advertising tools, digital display systems are nothing new. Consumers have grown used to seeing them at landmark sites, along high streets or at sports games, and in some cases have even come to identify a place with its digital advertising signs. But the notion of retail in-store screen marketing is today revolutionizing the retail world, providing a whole new dimension to the consumer’s shopping experience. “We’ve been seeing an increase in the use of digital display,” says Mike Gatti, the Executive Director of the Retail Advertising and Marketing Association. Indeed, interest in this marketing tool from retailers is beginning to spike after several years of misuse. “It wasn’t really any specific type of retailer [using digital signage],” Gatti explains. “I think it was more retailers who felt that this was something very important to their strategy. But what happened in the first few years was a lot of lessons were learned, and I don’t really think anybody was using digital displays correctly.” Gatti goes on to explain how early in-store digital display marketing was poorly implemented. Some retailers had screens that were hanging from ceilings, out of any customer’s line of sight; others used their screens to play a reel, or a constant repeat of an advertisement that could run as long as two minutes, much longer than any customer would be standing still to watch it. Conversely, research conducted back in 2007 indicated that around 75 percent of retail purchasing decisions are made in store, meaning that this is a largely under-utilized marketing opportunity for retailers. Digital advertising company Digicom then carried out a survey in early 2009, fi nding that 64 percent of the consumers asked believed that digital advertising screens could improve a shopping experience and 78 percent felt that digital advertising screens can make a brand or product seem more attractive. Only 54 percent, on the other hand, had seen digital signage in stores in the previous twelve months. All evidence stood to suggest that digital signage could be the solution to provide that much needed boost to struggling retailers, providing direct and relevant campaigns direct to their own customers. “They learned a lot of lessons,” says Gatti. “Now what we’re seeing is that retailers are bringing their screens down to shelf level, they’re embedding them with a lot of products, and they’ve really tailored the messages a lot more so they are able to deliver the message quickly and a lot more effectively to the customer.” Th is point is, according to Gatti, imperative to a successful digital display marketing campaign. “They have to be really relevant to the product that’s around,” he explains, “whether it’s a sale, or
Digital Signage ed.indd 55
08/10/2010 15:29
ADP AD.indd 1
28/06/2010 16:53
RETAIL FOCUS 57
The digital signage market is predicted to reach
$2.59bn by 2011
Digital Signage ed.indd 57
whether it’s something that really differentiates the prodhad grown by 56 percent between 2004 and 2006 to become uct such as product information, which really takes having worth $1.1 billion, and was projected to reach $2.59 billion a good understanding of the customer that is shopping in by 2011. In addition, the current success of e-commerce your store.” Perhaps that product information might be platforms suggests that this sort of real-time self-service its sustainability, or maybe a special offer or another comretail experience is not far off. “There are going to be many petitive advantage, Gatti outlines. Either way, the direct, more options for shopping and immediate ordering,” extargeted and timely nature of digital signage marketing is plains Gatti, and suggests that soon customers will be able beginning to provide very real results for today’s retailers. to say, “Well, I don’t have to go shopping. I don’t have to Gatti goes on to outline the many ways that digital run around to three or four different stores to try to fi nd signage can be implemented to enhance the shopping exthe item I want. I can order it on the kiosk right now, and I perience for the customer, highlighting the vast potential know all about the product that I am buying.” that digital signage has as a marketing tool and just how far it has come from the shiny Coco Cola or MacDonDigital disputes alds digitalized bill boards at sports games. “Depending Perhaps most pressingly, Gatti points out that retailers on your demographic,” he says, “you might even want to who have digital signage systems already in place are speakhave some games available on them, if say you have kids ing positively about the effects they have upon the business, shopping. But retailers are making [their digital display saying that they now consider it part of the brand presentacontent] more experiential, where you are able to interact tion they make to the customer. “At the same time, the rewith customers, or they can learn about products.” tailers are really learning a lot,” he adds, “and as they apply Th is new, interactive level of digital signage is a major more of this technology into their stores, they’re learning development in the world of retail, and one that retaila lot more about how the customer shops. Th is will evolve ers still have yet to fully utilize. In addition to product into a more mobile presence, so it’s possible that digital marketing, retailers are now beginning to use interactive signage could peak a little bit, and then you could start to digital signage systems to take over some see a decline as mobile picks up and people basic customer service responsibilities, start to use their phones to learn more about “Product therefore allowing customers a faster, more products that they’re buying.” knowledge and empowered shopping experience, as well as Th is last point raises the salient issue for comparison freeing up staff to deal with more serious both the marketing industry and the retail issues. “Maybe a retailer has a certain line sector. With the increasing popularity of shopping has of products,” says Gatti by way of an exphones and the vast amounts of techcome from behind smart ample, “say a certain type of furniture, and nology development going into both Apple the scenes to the retailer doesn’t have every product on and Android operating systems, all evidisplay in the store. [The customer] can go dence points to the fact that mobile technolthe forefront to the kiosk, or the digital monitor, and look when you go into ogy is set to revolutionize these industries, at what else is available. Product knowledge just as the internet did before it. “There are a store now” and comparison shopping has come from companies now who are saying that they are behind the scenes to the forefront when you monitoring tweets in their stores, so they go into a store now. Where you used to ask a customercan fi nd out what customers are saying, such as ‘is the cash service representative to ‘tell me about these two different register line too long?’” products’, now there is a digital screen that you can go to Using social media in this way provides a glimpse of do the comparison yourself.” the future of retailer-consumer interaction. Such tools will These developments in the function of digital signage take responsibility away from in-store personnel, in theory marketing tools in a retail environment are increasing the placing it under the control of a single person with a cominterest in digital solutions among businesses. “I think we puter, who need not be any where near the store. Gatti sugwill see an increase in its use,” explains Gatti. “It is becomgests that soon, customers will be able to tweet questions. ing a much more essential tool.” He goes on to predict the “‘Where are the light bulbs?’” “‘What aisle is the butter kind of shopping experience that consumers can expect in?’” Customers will be able to ask such straightforward to have in the future. “In addition to trying out a game or questions with their cell phone, and get a swift response learning some in-depth product knowledge, I think you’ll without having to track down a store attendent. “It’s going literally be able to walk into a store and say, “well they don’t to expand the capabilities of the one-to-one relationship,” have my size or color”, and you’ll be able to pop it up on a he says, pointing out that one day, customers will not even kiosk and order it right there and then and have it shipped need to be in a store to interact with retailers in this way. directly to your home.” However, Gatti explains, these developments still While Gatti’s assertion might be a little way off at the could be as far off as five to 10 years. The imminent progress moment, the speed at which the digital signage sector has of digital display technology systems looks set to signifiescalated over the last few years suggests that such a system cantly shake up the retail sector, from the fundamentals of is only just around the corner. A report carried out by Inbrand advertising to providing next generation platforms frotrends found that in the US, the digital signage market for customer engagement and in-store interaction. ■
08/10/2010 15:29
GOOD TECHNO AD.indd 2
08/07/2010 13:11
GOOD TECHNO AD.indd 3
08/07/2010 13:11
60
MOBILE RETAIL
-* &79 4+ (*11.3, With mobile commerce set to revolutionize the retail environment in the next few years, both traditional bricks-and-mortar stores and pure-play etailers are scrambling to develop effective mobile strategies. But are they ready for the next wave of change? By Ben Thompson
I
t’s a common sight: customers in stores on their cell phones. But today, those shoppers are just as likely to be using those devices to search for price comparisons, product reviews or in-store inventory levels as they are to be making calls; they might be sharing photos of items taken with their camera phones on social networking sites rather than texting; or they might be utilizing geo-location software to fi nd out where your nearest competitor is before making a purchasing decision. The way consumers are using mobile technology is changing – and as a result, so is the way they expect to be able to interact with retailers. Indeed, a trio of new reports released this summer confi rm the growing strategic importance of mobility to both consumers and retailers alike. The fi rst, from Pew Internet, suggests that 40 percent of mobile subscribers go online on their cell phones, with 55 percent going online at least once a day and 43 percent accessing the mobile internet several times a day. The next, from research firm Compete, shows that one in three smartphone owners has called or stopped into a local business after fi nding it using a local search application. In Q1 alone, close to a third of Android and iPhone owners discovered at least two new businesses that they were not previously aware of as a result of using local search applications. Meanwhile, the survey also found that 76 percent of Android owners and 63 percent of iPhone owners have downloaded at least one type of retail-related application, with the most popular types being retailer-specific apps, barcode scanning apps and coupon apps. Finally, Insight Express published data showing that consumers are increasingly using their phones while shopping, with 82 percent using their phones for product/price research in stores.
CHANGE FACE RETAIL.indd 60
08/10/2010 15:11
MOBILE RETAIL 61
CHANGE FACE RETAIL.indd 61
08/10/2010 15:11
62
MOBILE RETAIL
The overwhelming trend running through all three reports is that while most retailers are still experimenting with how to make mobile commerce work for them, a huge number of consumers are getting there already. Without doubt, m-commerce is here to stay. What is less certain, though, is how exactly the emerging channel will shape the industry.
Etail therapy Most retailers predict that the advent of m-commerce will only serve to accelerate the growth of online retailing – a view many experts agree with. After all, even in the current tough economic climate, online retailing is one of the fastest growing market segments. Earlier this year, Forrester forecast US online retail sales to total $173 billion in 2010, and while mobile currently makes up a somewhat modest chunk of that figure – retailers reported that their mobile browsers at this juncture are generating a little less than three percent of overall site traffic and just two percent of revenue – there’s no doubt that the channel is very much on the radar for retailers everywhere: 74 percent of online retailers either already have or are developing a mobile strategy, while one-in-five boasts having a fully implemented mobile strategy in place already. “It’s imperative for online retailers to stay on top of what their customers want, and these days it’s all mobile all the time,” says Scott Silverman, Executive Director of the NRF’s Shop.org industry group. “Mobile commerce has tremendous potential and will no doubt grow to become a significant part of overall sales volume in years to come.
Whether to increase customer satisfaction, grow their brand, or drive traffic and sales, online retailers are in this game to stay.” Patti Freeman Evans, Vice President at Forrester, believes that online commerce will remain resilient during the coming quarters as retail e-business and channel strategy executives focus on retaining customers and increasing efficiency in 2010. “In this environment, we expect that e-business and channel strategy professionals will promote online self-service to decrease costs, improve the multichannel customer experience, and keep their customers engaged,” she explains. “Retailers will primarily focus on keeping costs under control and will continue to track and test emerging technologies like mobile devices and social media.” Like e-commerce, mobile retail is a fairly broad church and includes everything from buying and downloading apps and content (a wildly successful space thanks to the emergence of the iPhone) to the concept of using your phone as a payment option at the retail counter (a segment that has yet to grow legs despite plenty of investment). Then, of course, there is selling physical goods to consumers over the mobile web – a potentially huge industry. Auction giant eBay is gunning for a whopping $1.5 billion in mobile sales this year, and Amazon’s mobile site traffic is second only to eBay among vendors of real-world stuff, according to figures from Nielsen; the retailer notched up $1 billion in mobile sales in the 12 months to June this year. Meanwhile, a survey from Deloitte last year found that one in five consumers planned to use their mobile phones to
74% of online retailers either already have or are developing a mobile strategy
MOBILE SHOPPING: A SCENARIO How mobile technology might transform the retail experience.
A
shopper enters the store and launches a mobile phone application provided by that retailer. The application automatically logs on, retrieves customer information (including loyalty program information) and, based on their preferences and loyalty program tier (or customer segment), may alert store employees to the customer’s presence in the store. The customer can check the application for any messages, alerts or offers of importance. It may tell them that their favorite salesperson is on duty (or not), that they have a $20 rewards certificate available and/or that purchases in a particular department are earning double rewards points today. If the customer has been browsing online, it would enable them to retrieve products they were interested in, and direct them to where in the store to find them. When the customer is looking at a particular category or product, they are able to use the phone’s camera to scan barcode information and retrieve product details, ratings and reviews, check compatibility with other items they’ve purchased in the past, or get more detailed product information than is available on the shelf tag.
CHANGE FACE RETAIL.indd 62
The application might allow them to assemble a bundle of items – for instance, an HDTV and its accessories, or a set of skis, boots and bindings – alerting them to product compatibility factors and bundle pricing that’s available. At any time, the customer could use a function on the application to call for a sales support agent in the store, or call a call center. Many other features might be available, such as product return rates and information from product review services (to augment customer ratings and reviews), or the most popular accessories sold with a particular item, or the amount the customer must spend to get to the next tier or rewards level in the loyalty program. Because mobile devices store our contacts, this application could take advantage of social networking behaviors. Shopping is a social activity. What if the application allowed the customer to share with selected friends what they’re browsing, or what’s in their wish list? What if a customer could text or chat with a friend from within the application, sharing images and other product info, to ask which color or style or brand they like? And, of course, this becomes a powerful real-time platform for presenting relevant offers and on-the-spot pricing deals to
08/10/2010 15:11
MOBILE RETAIL 63
shop during the 2009 holiday season, 25 percent of whom said they intended to make purchases on their phones. But performing mobile transactions – the physical act of buying goods via a smartphone – is just the tip of the iceberg for m-commerce. Instead, rather than shop, it is clear that consumers are increasingly using their mobiles to enhance the shopping experience by comparing prices, researching products and interacting with retailers. “Consumers are not spending significant amounts via mobiles and, for now, we believe the true potential for m-commerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction,” confirms Malcolm Pinkerton, Senior Analyst at Verdict Research. He believes that though m-commerce will still take some years to become a significant channel in its own right, its effectiveness as a marketing tool and way of interacting with customers will increase substantially over the shortterm – providing a massive boost to sales growth across the multichannel environment. “If correctly implemented, m-commerce will not only ensure the needs of tomorrow’s shoppers are met today, but also that growth is maximized across all channels.” Christine Bardwell, retail analyst at Ovum, thinks that retailers are at a crossroads similar to that presented by the emergence of e-commerce in the 1990s. “As consumer affi liation with m-commerce increases, retailers will need to decide if they’re going to be pioneers in the market and meet consumer expectations, or wait and risk being behind the curve,” she says. Already, a significant portion of consumers are leveraging the power of mobile technology to
customers. Backend real-time analytics can utilize factors such as customer lifetime value, customer segment tendencies, inventory stock levels, available manufacturer promotions, prior purchase behaviors, sales labor availability, the customer’s self-reported preferences and interests, and even social media information, to formulate highly relevant offers in real-time. Further, these messages and offers can be woven into a user-experience design in which they are relevant and timely in a way that traditional media and direct marketing – even banner ads and paid search – can never be. As the customer completes their decision-making process, the mobile application can save their selected purchases under their mobile account or loyalty program account. At point-of-sale, all of the purchase details and customer offers are retrieved electronically and applied to the purchase. There is no need to present offers during the checkout process – which is too late and often annoying to customers. In addition, this type of application could create an expedited checkout, in which the customer has already scanned everything they’re buying and approved the credit card transaction. The cashier only verifies that all items are correct, bags their purchases, removes or deactivates any security tagging, and the customer is ready to go. This type of application could help employees and employers as well. Every customer using the application will be known to the retailer’s systems and could be used to alert store employees – they
CHANGE FACE RETAIL.indd 63
would see who the customer is, what they’re browsing, and a basic ‘dossier’ summarizing the customer’s past activity, preferences and loyalty program status. Furthermore, retail organizations are under constant pressure to reduce labor costs. The availability of sales labor is shrinking as retailers cut costs. These mobile applications would enable customers to self-serve much more effectively, and to request service exactly where and when they need it (or for the retailer to anticipate when it is most needed). Further, utilization of call center personnel is enabled, providing retailers with a more efficient labor model. Access to call center employees may also provide customers with a better experience, as these agents can be more specialized, be more consistently trained, and have more tools at their disposal to answer questions and assist customers. Finally, not only will these mobile shopping applications leverage customer data much more effectively than current marketing systems and tools, they will generate massive amounts of rich customer data as well. Imagine having both web browsing detail data and store browsing detail data, an order of magnitude increase in the number of offers presented and responses observed, and permission from the customer to join (appropriately and responsibly) their social networks? Extracted from “Transforming Retail Customer Shopping Experiences Using Mobile Devices, Open Architectures and Operational Business Intelligence,” an HP Laboratories paper by Chuck Densinger, Mohamed Dekhil, Riddhiman Ghosh, Jhilmil Jain and Meichun Hsu.
08/10/2010 15:11
64
MOBILE RETAIL
inform their shopping habits, with many using smartphones to do research before making a purchase as well as using them to research, engage and interact with retailers while out shopping; clearly, the race is already on. “The opportunities are there for the most proficient multichannel retailers to claim a share of the growing cross-channel expenditure by exploiting the possibilities provided by mobiles to seamlessly link the online and in-store environments,” adds Bardwell.
Embracing change And there are signs that a growing number of retailers are embracing the enabling power of mobile technologies as they look to build better relationships with their customers. At the recent Mobile Marketing Forum in Los Angeles, Tiffany Gerhard, Senior Manager of Marketing and Emerging Capabilities at Best Buy, suggested that mobile enables the shopping experience to be more social than ever before. “The right information at the point of impulse increases desired consumer behavior, sales, profits and customer satisfaction,” she said. “We view mobile as less of a tactic and more of an integrated effort to build a relationship and drive consumers into our retail locations.” Glen Senk, CEO of Philadelphia-based URBN – a $2.5 billion company incorporating brands such as Urban Outfitters, Anthropologie and Free People – sees great potential for mobile technologies to play a key role in transforming traditional bricks-and-mortar retailing into a radically different experience for the consumer. “As we study the mobile opportunity, we believe these devices might impact the in-store experience more than they impact the online experience,” an immaculately turned-out Senk told attendees at the National Retail Foundation’s annual Shop. org Summit in Dallas last month. “We think we’re just a few short years away from customers walking into a store, scanning a product to learn about it and locate a size or color, perhaps sharing the product with a friend or read reviews, and if desired, walking out of the store with the product in-hand, with it being automatically charged to the account that’s linked with the mobile device. The cash registers will be gone. It’s amazing.” Senk believes mobile offers traditional retailers an opportunity to make up much of the ground conceded to e-commerce in recent years, and streamline the in-store purchasing experience. “Just yesterday we were asking ourselves how to make our websites as good as our stores; now we’re working hard to get parts of our stores as good as our websites,” he said. “I absolutely believe that mobile technology will impact the e-commerce business in a very meaningful way, but I think it’s going to revolutionize the retail business. A lot of pure-play etailers have written the bricks-and-mortar business off, but I believe there is a tremendous synergy between the two. Ultimately, you have to think about the brand and the customer. The checkout process in stores today is so miserable relative to what it is online that we have to catch up in the bricks-and-mortar environment, and I think that’s where the real payback with mobile will be.”
CHANGE FACE RETAIL.indd 64
Indeed, any way in which a retailer can reduce the friction of transactions, the better sales will be for that retailer. Senk believes that once NFC/RFID technology becomes more commonplace in handsets and at the point of sale, the mobile channel will offer fantastic opportunities to close the loop between marketing and CRM and reduce the friction of closing the sale. “If someone can check out in a nanosecond online, why shouldn’t they be able to check out in store using their handset in a nanosecond?” he said. “Our motto is to give customers access to our brands however and wherever they want it.” In the current retail environment, it is imperative for multichannel retailers to manage all aspects of their business well and become more channel-agnostic, balancing in-store, online, social and mobile. Urban Outfitters, for instance, was using SMS for its brands long before the iPhone existed, currently has smartphone applications for its brands and envisions increasingly integrating mobile into its in-store experience. “We’re testing mobile technology in Free People and Anthropologie, and I think we’ll have some form of mobile technology in-store by the end of the year, maybe Q1 next year,” Senk says, “and a really neat mobile technology within 18 months or so.” Forrester fi nds that retailers have adopted mobile commerce strategy by three main routes: developing smartphone apps, optimizing their website for mobile traffic and using mobile as an in-store tool. Such a wide range of differing approaches to mobile adoption suggests that the majority of retailers are still very much in an exploratory phase with regards to strategy development right now, but
Field of vision Near field communication (NFC) is a short-range high frequency wireless communication technology that enables the exchange of data between devices over a 10-centimetre distance. In other words, if you have an NFC enabled phone and opt-in, your mobile phone will be able to communicate with another proximate electronic device automatically. And with NFC chip shipments predicted to reach 785 million units in 2015, according to a new report from IMS Research, the types of applications for NFC on cell phones are numerous: • Electronic payments: swipe your phone and make a payment without a credit card; NFC technology is already being used in Japan in more than 30,000 stores • Mobile ticketing: swipe your phone on readers placed in buses, airlines, trains, stadiums and other entry points • Electronic keys: swipe your phone and open hotel doors or your house door • Smart posters: use your phone to read RFID tags on billboards and other signs to receive additional information and to let the billboard know you are there
08/10/2010 15:11
MOBILE RETAIL 65
“The opportunities are there for the most proficient multichannel retailers to claim a share of the growing cross-channel expenditure by exploiting the possibilities provided by mobiles”
CHANGE FACE RETAIL.indd 65
commentators insist that the fact they are doing so at all is encouraging, as it shows a willingness to get onboard at an early stage and that progress is being made. “Mobile is definitely a big deal,” confi rms Sri Shivananda, Senior Director of Platform Development at eBay. “We have to look at what consumer behavior is – where and when people are spending their time and money – and make sure that we leverage consumer behavior in building the right retail experiences. Mobile and social networks can certainly help, and are defi nitely here to stay.”
The next generation consumer And here is where the biggest driver for the further adoption of mobile technologies within the retail environment comes into play: it is being driven not by the retailers themselves, but by consumers. As more consumers switch to smartphone technology and the increased features and functionality such devices offer, expectations will rise as to what retailers need to offer – and those that fail to adapt will quickly be left behind. “Mobile commerce is beginning to change the mobile retail landscape,” says Dr. Peter Johnson, VP of Market Intelligence for the Mobile Marketing Association. “Rapid adoption of smartphones and use of app stores has provided fertile ground for mobile commerce growth to date and this will only accelerate in the coming years. Our research provides a clear indication of how the convenience of mobile commerce is gaining traction. As consumers become increasingly comfortable and confident with paying for goods and services through their mobile it is possible to see m-commerce becoming mainstream or perhaps even the dominant form of transactions.”
“It’s early days but it’s changing fast,” says Mark Mason, founder of leading app development agency Mubaloo, adding that apps for smartphones and iPads are in exactly the same place as websites were 10 years ago. “You couldn’t imagine a company functioning without a website today; it will be the same for apps within a year. They’ll be everywhere: in phones, TVs, cars – even fridges, to tell you when to buy more milk.” Mason believes the app revolution will be sudden, explosive and everywhere‚ rather than following a slower growth curve like the web. “Smart companies have immediately stuck their toe in the water and are making their presence well and truly felt at this land-grab time,” he says. “Companies have already started to provide smartphones to all of their employees, across the enterprise, with apps that will do everything from improving employee collaboration, extending their brands and simplifying business processes. Apps are the exciting new channel to market, and companies that understand this have the opportunity to forge ahead of their competitors.” Much of the initial attention has been focused on retailers embracing new digital marketing techniques aimed at mobile users, such as sending text messages, using digital money-off coupons and on steps to make their existing websites function on mobile browsers. But retailers are also facing a world that is more profoundly altered by the fact that shoppers will now increasingly be online, via their phones, even as they visit a physical store. They will expect a unified shopping experience. “Mobile has great promise for bringing major, positive changes to the shopping experience, payments, marketing and other aspects of retail,” says National Retail Federation President Tracy Mullin. Her colleague Silverman agrees. “People are going to be making decisions on what to buy in the store with their mobile phones,” he says. “What’s going on will aff ect the mothership – the store – and all of a sudden the store experience is going to completely change.” The mobile device is changing the way consumers pay for content, goods and services, and m-commerce essentially provides retailers a wealth of opportunities to motivate and enable their customers to purchase goods and services whenever and wherever. “We have to be able to know where the customer is, be able to predict where the customer is going and respond to that proactively and quickly,” suggests Mike Hazell, VP of IT at Footlocker. “Anybody can create a website that sells somebody something, but I think customers are looking for more of an engagement point. That’s the bottom line: the customer rules.” And this is perhaps the most pertinent point about mobile: that it is merely the latest development in the movement towards greater personalization of the retail experience. The best retailers are already well on their way to embracing the mobile revolution – whether it be through shopping apps, marketing messages, location-based promotions, mobile-optimized websites or other modes of interaction – as a means of delivering a more targeted and relevant shopping experience. And this, after all, is surely the aim of retailers everywhere.
08/10/2010 15:11
Research motion ADs.indd 2
24/5/10 15:15:32
Research motion ADs.indd 3
24/5/10 15:15:35
68
E-COMMERCE FOCUS
Taking on the online challenge Walgreens’ CTO Abhi Dhar explains how the nation’s favorite bricks-andmortar drugstore successfully made the transition to online powerhouse.
I
t’s an American institution. With more than 7500 stores across all 50 states, Walgreens is the nation’s favorite drugstore, a popularity that helped the Deerfield, Illinois, headquartered fi rm to $63 billion in sales last year. And if you’re talking main street ubiquity, then how about this: 58 million US households visit a Walgreens each year, the fi rm has 63 million retail pharmacy patients annually, while over 75 percent of Americans live within five minutes of a Walgreens store. Starbucks eat your heart out. But what is less well known is that the fi rm was also one of the fi rst bricks-and-mortar retailers to go online back in 1995. Indeed, Walgreens has a long history of pharmacy technology innovation. In the early 1980s, the company was the first retail pharmacy chain to computerize all of its pharmacies nationwide and link them via satellite. In 1992, Walgreens invented the electronic prescription, which is seen today as one of the leading ways to enhance pharmacy safety and lower prescription costs. More recently, Walgreens was the fi rst pharmacy to fully integrate its online pharmacy with its retail pharmacies. For Abhi Dhar, Chief Technology Officer within the company’s e-commerce division, ensuring that the brand
presence is consistent both online and in-store has been a major challenge – as has identifying the unique selling points of the two channels. “Our business is based on the premise that people want to go to the store,” he says. “I see more than five million of them walk through our stores every day. And so the understanding that we really want to get at this point is this: what it is that they want to do outside of the store with us? That’s the challenge. Stores are not going anywhere. So the challenge, really, is how do we take that store experience and make it more sticky? “Online retailing is growing at a disproportionate rate relative to traditional retailing,” he continues. “That share of wallet is moving and our business challenge is how to capture more of that wallet and continue to have that engagement with our brand in any channel that the customer wishes to engage.” Given his responsibility for end-to-end delivery, development and innovation of the online platform, it is unsurprising that Dhar is passionate about building up the chain’s digital presence. However, he explains that a key part of Walgreens’ strategy is to develop the multichannel element of the business in a coherent, synergistic way. “We want to know what merchandise people are looking for, so
Expanding online With 20 percent of Walgreens 7500-plus pharmacies open 24 hours daily, Walgreens patients nationwide rely on the round-the-clock convenience and accessibility of Walgreens pharmacy. Now, Walgreens is making its trusted pharmacy staff even more accessible – available any time online – with Walgreens Pharmacy Chat, a service offering a live, one-on-one, online chat with a pharmacy staff member available 24/7 through the Walgreens website. “Pharmacists are among the most trusted healthcare professionals, and Pharmacy Chat gives our patients and customers another way to reach out to Walgreens pharmacy when it’s most convenient for them,” says Kermit R. Crawford, Walgreens Executive Vice President of Pharmacy. “Our pharmacy staff is always here to help, and we continue to introduce innovative technologies that bring our pharmacy services to our patients wherever they are, whenever they need us.” Pharmacy Chat is available to registered users on Walgreens.com. Registration is free. The service makes Walgreens pharmacists and pharmacy technicians available 24 hours daily to answer questions regarding prescription medications, over-the-counter medications, pricing inquiries, prescription status and more, and provides another way for patients to readily get in touch with Walgreens pharmacy staff. Pharmacy Chat is the latest extension of Walgreens online pharmacy, and one of many ways in which Walgreens is connecting the web to its neighborhood stores and pharmacies throughout the US. The company recently introduced prescription text alerts, which notify cell phone users via SMS when their prescriptions are ready, or if there are any status changes. In addition, Walgreens.com offers Express Refills, which enable customers to enter a prescription number online for in-store pickup at their preferred Walgreens location, as well as refill reminders, e-mail alerts, the ability to look up health records online and more. Many of Walgreens other pharmacy, photo and product services are also available through Walgreens mobile application for iPhone, Blackberry and Android users.
WALGREENS.indd 68
08/10/2010 15:26
E-COMMERCE FOCUS 69
we have good metrics around search. We look at customer engagement in terms of the navigation. We look at the results of the surveys that we do on the website. But then we look at all that data, internalize that and reflect those fi ndings either back into the store experience or into the online experience accordingly.” Such an approach reflects the retailer’s desire to synergize across its various channels. “For us, the store is both a pickup point and also a fulfillment point,” explains Dhar. “The pharmacist is a licensed healthcare professional, and there is a significant amount of value that the pharmacist brings to the health and wellness experience for our consumers. So the interaction with the pharmacist is a significant part of the store experience. But a significant part of that transaction – whether it’s research, comparison, whatever – is already happening on mobile devices, it’s already happening online, either before they walk into the store or even while they’re in the store itself. And we’re trying to make sure that a lot of that interaction is happening in our brand context, thus extending the experience from one channel to the other.”
“Online retailing is growing at a disproportionate rate relative to traditional retailing, that share of wallet is moving and our business challenge is how to capture more of that wallet” In response to these changing user expectations and habits, Walgreens also recently launched a new mobile site and iPhone application that lets consumers order prescriptions and photos while on the go. The mobile site and application feature Walgreens’ inventory broken down by category; each product has user ratings, a brief overview, a full description, listed price and images, as well as warnings and ingredients where applicable. “The iPhone has really been a shot in the arm regarding what mobile devices can do,” Dhar says. “It really changed the game. And with Android and the other developments in that space, it’s been a paradigm shift in what we can do. We need to develop offerings for our best customers that are richer in the mobile context, and the app and the mobile website really speak to that.” In fact, mobile will be taking up a good deal of Dhar’s attention over the next 12-18 months as Walgreens looks to extend its offerings and provide a richer, more personalized experience for its customers. “Our focus will be based around the three pillars of more mobile, more multichannel initiatives and looking at our experience in certain core categories and making that best in class. It’s really a circle. How do we get more folks engaging with us when they’re not in the store? How do we get them back in the store? And how do we get those folks engaging with us on a much more intimate level when they are in the store itself? So that goes back and forth, online and in the store, and a big part of our focus will be looking at what mobile does to support both of those conversations.”
WALGREENS.indd 69
08/10/2010 15:26
70
ASK THE EXPERT
Token efforts In order to address PCI compliance requirements, many businesses are considering tokenization to protect cardholder data. But what should they consider before deciding on whether to select a hosted versus on-premise solution? By Bob Griffin
T
okenization has recently emerged as one of the hottest data security technologies for merchants and payment processors. With tokenization, a random string of characters, or token values, is generated to substitute the data to be protected. The nonmathematical, non-cryptographic nature of tokenization makes it uniquely suited for securing data such as credit card numbers and social security numbers. Many organizations are trying to understand what they need to consider between selecting a hosted and onpremise solution. One of the biggest advantages of a hosted solution is that it can drastically reduce PCI scope, as the databases and systems that store the card data reside outside the merchant’s environment. Therefore, the service provider bears the burden of compliance and proving adequate security for those systems. In a recent case study, one organization reduced its compliance requirements from addressing the full set of 226 questions laid out in PCI DSS to just 11 questions. Th is can generate huge cost savings, as according to the National Retail Federation, businesses have spent more than $1 billion on PCI DSS compliance to date. Another advantage of a hosted solution is that it allows organizations to allocate IT resources more efficiently. Beyond the time and cost expended to prove compliance on an annual basis, there is the day-to-day management of the infrastructure. For example, by eliminating the need to encrypt data and rotate and manage keys, internal IT resources can be redirected from compliance tasks to more strategic activities that align with the business. By selecting an on-premise solution, organizations can protect multiple types of data with tokenization, beyond just credit card data, through a single system (most hosted solutions are designed for specific use cases). Th is can reduce the time and cost spent on compliance as merchants can address the requirements of multiple regulations that call for securing various types of data simultaneously. In addition, by maintaining control over cardholder data, merchants can reap the benefits derived by using it in tandem with CRM systems to gain insight into their customer base. For example, when a merchant wants to understand the buying patterns of their customers, they can move transaction data into a data warehouse for analysis. There are defi nitely many factors to consider in making a selection, and while both have their advantages,
RSA.indd 70
merchants need to weigh what they would be giving up in favor of selecting one over the other. However, for those that have already decided that a hosted solution meets their needs, there are some questions that merchants should consider asking when evaluating prospective service providers. For instance, does the solution provider have a track record you can trust? Because tokenization is so new, many service providers probably only have a few implementations to speak of, but merchants should still question the ability of the service provider to protect against data breaches, system failures and other quality lapses. What steps has the solution provider taken to ensure reliability and high availability? A good service provider will specify a guaranteed level of service availability and offer relief to merchants if they fail to meet those performance requirements. Is the technology used to secure the payment service reliable? Because of the high value of the information at stake, merchants should trust the security technology being used to by the service provider to safeguard the data and ensure that all commercial solutions have been subjected to an external security review. And fi nally, does the service provider’s approach help ease my PCI compliance burden? Reducing PCI scope is an important consideration and will also help in justifying whether the cost makes sense. The value equation will vary for each merchant and will depend on unique factors, such as the merchant’s POS infrastructure and transaction volume.
Bob Griffin is Director of Technical Marketing at RSA, The Security Division of EMC. He has been involved with the PCI DSS scoping committee on tokenization, has served as the lead architect on numerous tokenization and encryption projects and currently serves as co-chair of the OASIS Key Management Interoperability Protocol Technical Committee.
08/10/2010 15:27
MTB AD_B2B_2010_14june 28/09/2010 14:15 Page 1
Where future leaders learn MeetTheBoss TV is incredible access to the world’s business leaders – so you can learn their winning strategies and attitudes first hand JOIN NOW
Find out more at www.MeetTheBoss.tv
72
HEADING SOCIAL MEDIA FOCUS
Engaging the social consumer
Steve Madden’s Andrew Kovan speaks to Next Generation Retail about utilizing the growing social media platforms to interact with customers and boost the bottom line. Social media is bringing a wealth of marketing opportunities for retailers. Next Generation Retail speaks to Andrew Kovan at footwear company Steve Madden to find out how an effective social media strategy can boost revenues and improve customer relations.
A
ccording to recent statistics, seven percent of online retail sales are driven directly from social networking sites in the UK. It accounts only for sales generated from a customer clicking through to a brand’s online store from their social media page, but considering that social media marketing is a relatively modern concept in the history of retail advertising strategy, that seven percent is a difficult figure to ignore. Factor in the evidence that in the US Facebook generates more traffic than any other site including Google, and it’s clear that social media is a potential marketing gold mine. With e-commerce proving resilient to the effects of the economic downturn that devastated so many other retailers and social media sites attracting escalating numbers of users across America and worldwide, this platform presents a logical outlet for marketing. The widespread use of smartphone technology, with consumers now accessing Facebook or Twitter accounts from wherever they are, has brought yet another dimension, and one that has been proven to significantly improve a retailer’s bottom line.
Steve Madden ed.indd 72
“The key priorities for retail and for technology innovation are understanding how to properly prioritize where we should be spending time and money,” explains Andrew Kovan, CIO and Head of Customer Engagement at Steve Madden. “Mobile is a tremendous game changer for us. So we’ve built a mobile website, and now we’re trying to figure out how we can develop that to drive more store traffic and how we can utilize that to help our wholesale partners be more effective and develop the best business practice.” The ‘best business practices’ for Kovan include using the social networking paradigm to communicate directly and effectively with his customers, so as to fully understand what it is they want and be able to give it to them. “So we can maintain a more significant relationship or a more personal relationship,” he explains, “which has been proposed as a Holy Grail of any business for a very long time. I think the challenge now is that consumers are more piped in to what can be done and they have access to a lot more information, which is raising the bar.” Kovan reveals that he is currently involved in gaining a better understanding of how Steve Madden’s online
More people now visit Facebook than Google
08/10/2010 15:33
SOCIAL MEDIA FOCUS 73
brand is marketed out to consumers, and the speed and complexity with which this social media marketing sector is evolving means he constantly needs to keep abreast of the innovations in this field. “We’re really taking a longer range perspective,” he explains, “because the speed of the game has changed so much and the challenge will be for us to keep up with the changing nature of the business. It’s the consumer that’s driving it. I mean we’ve got to face that fact. The balance of power has shifted dramatically over the last couple of years, where the retailer or the brand or the service provider or whoever it may be has to respond to the demands of the customer, the consumer of your media, whatever it may be.” By way of a warning, Kovan cites the publications industry as an example, pointing out that the recent, huge shift in the magazine trade caught many businesses that had not moved with the times “sleeping at the wheel”. In order to prevent this from happening in his organization, and to encourage a collaborative culture, he explains how he stays in contact with the whole staff base, emailing updates of his fi ndings every couple of days and engaging in meetings so as “to encourage others to take the opportunities as they see fit.”
One to group “We’re doing a lot of testing right now with Facebook,” Kovan reveals when discussing Steve Madden’s social media strategy. “We’re trying out a whole variety of different strategies with Twitter, marketing and promotional messages versus informational. One thing that we’re fi nding, especially with social media, is there’s a lot of byproduct that’s incredibly valuable, more so than how many followers you have.” Indeed, Kovan seems to be embracing the dual powers of a social media following: a way of gleaning information about your consumers, as well as a direct marketing line to them. He is in a position to utilize the high levels of data that can be gained about his consumers and then begin to create a marketing strategy accordingly, as well as distributing the information around the organization. But he hastens to add that it is a gradual process, and Steve Madden still has a way to go. “I call it crawl, walk, run, and I think we are between crawling and walking right now. “I think there’s tremendous potential moving down the road for much better segmentation and much better utilization of data to more effectively create direct one to group, not one-to-one marketing. I’ve heard for 15 years and it still hasn’t come to pass, even with billions of dollars of investment. But I think one to segment is achievable today. I think some of us are already doing it, and I think one-to-segment is probably something that will be the standard within the next 24 or 36 months for marketing communications.” He goes on to explain that engaging with your followers is the most effective way of utilizing the social media paradigm to market your products, and to that end is testing polls and questions and contests to interact with consumers. “Our hope is that in talking with the consumer,” he
Steve Madden ed.indd 73
says, “a lot of product development ideas, a lot of marketing strategy ideas will come out of it. Maybe things that were not originally discussed – probably contemplated but not as aggressively discussed.” Asking questions such as “What do you think of this?”; “Would you choose this shoe or this shoe?”; “If you could have a gift with purchase what would it be?,” and “What’s your favorite color of nail polish?” allows Kovan and his team to glean some insight into how the customers are behaving and how they could create more compelling marketing campaigns to drive consumers into the store. “I think that my perspective has evolved as I’ve started to recognize the engagement factor. I look at brands like Sephora and Starbucks and I see how tapped in and how engaged their followers are with their brands. I think our brand historically was more talking at consumers on Facebook, telling them what we thought empathetically, not as much asking them to tell us and that’s the shift. We’ll start the conversation.”
“The balance of power has shifted dramatically over the last couple of years where the retailer has to respond to the demands of the consumer of your media, whatever it may be” Loyalty “I think for us, we see social media and everything we do in that space as being a continuum to gather information to get closer to who our customers are and what it is that they want,” Kovan continues. Th is mentality is beginning to pay dividends with the company’s loyalty schemes. Using the information gathered through social media interaction, notably the Facebook polls, also helped Kovan’s teams to roll out the most appropriate loyalty rewards. “It started out by asking some questions, “What would you like as a gift for purchase?”” he explains. “That was one of the questions and ironically the number one answer was, “Something to store my shoes in,” like a shoe rack or a canvas shoe bag you can put over your door. So we’re defi nitely going to run promotions, promote it via social media.” The numbers are encouraging. Kovan explains that generally the loyalty schemes invite customers to make a purchase with Steve Madden, and any customer that makes a purchase within a certain week will be eligible to win a prize for their loyalty; typically around 25 customers will receive a prize each week. Kovan says that in just over a week following the initial promotion, Steve Madden’s Facebook fan base increased 24 percent. Growing from 16,900 user to 21,000 users, he believes 100,000 can be reached without much difficulty. “I’ve mandated that we’ll get to 100,000 followers in an engaging way within 12 months, and I made that announcement two weeks ago. So I’ve got 50 weeks left to get there.” ■
08/10/2010 15:33
74
SMART CONSUMERS
According to recent research from IBM, it is consumers rather than stores that are driving the rapidly evolving retail environment.
C
onsumers are transforming the retail environment by leveraging the latest technologies to receive instant access to product details and price information. That’s the view of Melissa Schaefer, Global Retail Research and Strategy Leader at IBM’s Institute of Business Value, who recently conducted a global survey into shopping trends with over 30,000 global consumers. According to her fi ndings, consumers are spending their money on merchandise and services they value most and stipulating how they want to interact with retailers; increasingly, they know which retailers have the best prices and products, what matters most to them as they decide where to shop, where retailers need to improve and how they want to spend their money. It all points to the advent of what IBM is calling ‘smarter consumers’ – shoppers whose expectations of the shopping experience are being informed by greater access to information and new technology developments, as well as exposure to multiple retail channels. “We know that they are smarter,” says Schaefer. “They’re more informed and enabled, and it’s really about them. They want personalized discounts and promotions, and it’s also about per-
Smart Consumers 74
“The customer wants to see retailers addressing the following question: ‘People like me buy other things in this store; what do they buy”
sonalized awareness – the feeling that the retailer knows who they are, and is working to show them new products or improved ways of shopping. As much as promotions, the customer wants to see retailers addressing the following question: ‘People like me buy other things in this store; what do they buy?’” The key to responding to this need lies in the emergence of a number of new technology tools – what IBM is calling the greater ‘instrumentation’ of the shopping experience. “In the mature markets we surveyed, only very few people – approximately a quarter of a percent – have no wish to use technology to help them shop,” says Schaefer. “The proliferation of smart devices – and the interaction between them – is really driving the revolution we are seeing in shopping right now.” For Schaefer, it’s all about enabling a better understanding of who we are as consumers. “It’s having a single view of the customer,” she says. “By having a single view, retailers can understand who the customer is and how they are using that technology – when they cross different channels, if they’re online or if they’re using mobiles or kiosks, what type of media are they using to do their research. By
08/10/2010 15:26
SMART CONSUMERS 75
having that single view of the customer, retailers are able to take the art out of the interaction and make it more of a science through the use of analytics.” She cites Macy’s and its ‘My Macy’s’ strategy as a good example of a retailer that is using analytics to its advantage. Launched about 18 months ago, the pilot program allows the company to better respond to customer demand by allowing buyers to spot trends in different parts of the country and customize the merchandise assortment accordingly. Schaefer’s home city of Salt Lake City is one of the markets in which the program is being trialled. “Salt Lake City is a predominantly Latter-Day Saint religion population, and because of those religious beliefs there are certain clothing types that they cannot wear; they’re very conservative,” she explains. “Th rough the use of analytics, they were able to provide feedback on customer preferences and localized offerings to the stores, and as a result those stores began outperforming their peers. The My Macy’s stores have become the highest performers by delivering the right mix of products and being very relevant to the local communities.” According to recent IBM research, retailers lose a staggering $93 billion in missed sales every year, simply because they don’t have the right products in stock to meet customer demand. And that demand is greater and immediate than ever before: in the US, over 92 percent of adults conduct research online and seek the opinions of others before they ever purchase a product from a store. Such findings indicate retailers will need to get closer to their customers than ever before in order to successfully identify the right opportunities. For instance, Schaefer believes current demographic developments mean that traditional ideas about what products appeal to which age group may no longer be relevant. She explains how many people in their 40s and 50s are increasingly taking care of parents
Retailers lose $93 billion in missed sales every year, simply because they don’t have the right products in stock
“Consumers say the number one thing they want is personalization. So if you can understand and add value to them by communicating that you know them, it’s no longer invasive because you’re responding to their need”
or adult children, which changes their shopping habits.” For example, if you don’t know who your customer is, you’re not going to know that they have a mother in Ohio that they buy electronics for. You’re not going to know that they pay someone to go and install it for her because she’d fi nd going into a Best Buy too overwhelming. You’re also not going to know that they have adult children living with them, or that they’re buying for their grandchildren on a regular basis. So I believe there is a whole market out there that is being missed.” For Schaefer and IBM, such an approach is part and parcel of creating greater engagement between the store and the consumer – what many have termed an ‘immersive’ experience. The immersive retail experience is more about involving the customer than it is about merchandise and merchandising. But while for some this means athletics stores that provide simulated tracks and trails for testing equipment, or appliance stores with test kitchens where customers can feel what it’s like to actually use products, the Macy’s example proves that a simple focus on delivering an experience that is tightly mapped to customer needs can be just as effective. Indeed, there is a fi ne line between an immersive experience and an invasive one, so how do retailers successfully strike that balance? “The best retailers are balancing it by listening to what consumers want,” explains Schaefer. “Consumers say the number one thing they want is personalization. So if you can understand and add value to them by communicating that you know them, it’s no longer invasive because you’re responding to their needs. Retailers follow their processes but consumers change them, so it’s about meeting those changing needs. “Those retailers that understand that the consumer has to be an even more integral part of their whole organization are outperforming their peers,” she concludes. “And they’ll continue to do so long into the future.”
The changing face of retail According to new IBM research, the advent of smarter consumers reveals three fundamental realities of the new marketplace. Get up close and personal: Consumers want personalized discounts and want to engage with retailers to develop products catered to their preferences and needs. In fact, 78 percent of consumers say they are likely to co-create – helping retailers develop new products and services that they prefer. Generation Y will change the retail world: Gen Yers are eager to forge ahead with new channels – and they most likely use two or more technologies to shop. They feel that retailers can improve most by building technologies into the overall
Smart Consumers 75
shopping experience. For example, this generation of consumers are interested in using their remote controls to buy items advertised on television. It’s not just about price: It’s about the right offer at the right time. And that requires intelligence. Using analytics to spot trends early and proactively structure planning and inventory efforts will allow retailers to shape demand, rather than react to demand. Retailers have to narrow down the assortment to map tightly to consumer preferences and make sure the product is available.
08/10/2010 15:26
76
GAME CHANGER
sole sole
Heart and
In the 11 years since its launch, online shoe seller Zappos has leapfrogged traditional stores to become one of America’s favorite shopping destinations. How? By focusing relentlessly on customer service and building a company culture based on fun.
I
n 1999, entrepreneur Nick Swinmurn was walking around a mall in San Francisco looking for a pair of shoes – some Airwalk desert boots, to be precise. It was a trying experience. One store had the right style, but not the right color; another had the right color, but not the right size. Swinmurn spent the next hour in the mall, walking from store to store, and finally went home both empty-handed and frustrated. Things were no better when he turned to the internet for help back in the comfort of his living room; although there were lots of stores selling shoes online, there was no major online retailer that specialized in footwear. So, in the spirit of the age, he decided to quit his day job and start a dotcom business catering to the needs of the disillusioned shoe shopper. To hardened shoe industry veterans, the idea seemed crazy; accepted wisdom said customers only bought shoes once they’d tried them on. But Swinmurn was nothing if not persistent, and with the support of friends and family – along with longtime industry buyer Fred Mossler, formerly of Nordstrom – he pushed ahead with his plans. The original idea was to create a website that offered the absolute best selection in shoes in terms of brands, styles, colors, sizes and widths, and over the past decade the Zappos.com brand has expanded to include other products like handbags, apparel and sunglasses; aspirations have also evolved, and in addition to offering the best selection, the company now wants to provide the absolute best service online – not just in shoes, but in any category. The catalyst for this escalation in ambition was the addition of Tony Hsieh to the role of CEO. In 1999, fresh out of college and aged just 24, Hsieh had recently sold his first business – the ad company LinkExchange, formed with friends – to Microsoft for $265 million. Swinmurn approached Hsieh to invest in an idea nobody else would touch. “I got involved around
ZAPPOS.indd 76
two months after the company started,” recalls Hsieh. “I started off as an investor and part-time advisor, and was actually involved in 20 or so different internet companies at the time. Over time it became clear that Zappos was both the most fun and the most interesting, so within a year I ended up joining full time.”
Experience is everything Since becoming CEO in 2000, the entrepreneur has taken the company from just $1.6 million in annual turnover in 1999 to over $1 billion in less than a decade, as well as leading the firm into a lucrative acquisition by Amazon.com in an all-stock deal worth nearly $1.2 billion. And the secret to the firm’s successful transformation from dotcom also-ran to retail phenomenon in just 11 years is a relentless focus on great customer experience. For one thing, Hsieh only hires people who are passionate about what Zappos is passionate about – namely, great service. Anyone who comes into the company – be it an accountant, lawyer or call center rep – is put through two sets of interviews. The first is with the hiring manager to make sure that the individual fits within the team, has the correct technical ability and the relevant experience. Then the HR department does a separate set of interviews, purely for culture fit, which consist of some wacky interview techniques (sample questions include, ‘On a scale of 1 to 10, how weird are you?’ and ‘What’s your theme song?’) in order to fi lter out egomaniacs as well as wallflowers. The individual has to pass both in order to be hired. “We’ve actually passed on a lot of experienced and talented people that we know could make an immediate impact on our bottom line; if they’re not a culture fit, then we won’t hire them. One of the things we’re looking for is people who are actually passionate about the company’s vision, which is to be about the very best customer service,” says Hsieh.
08/10/2010 15:25
GAME CHANGER 77
“We are of the philosophy that you can do a lot more if you get the culture right; most of the other stuff will then take care of itself”
ZAPPOS.indd 77
08/10/2010 15:25
78
GAME CHANGER
Indeed, Zappos employees (or Zapponians as they are called by those in the know) are required to be just a little bit crazy; but they also need to be open-minded and creative when dealing with customers. Rather than using a script, they treat each consumer as an individual case, and will be encouraged to order multiple pairs of shoes to ensure they find the right pair as well as take advantage of the free shipping in both directions. And, if Zappos runs out of a particular style, call center reps will actively point out competitors who have the style in stock. There are many stories about service reps going beyond what would normally be expected from them: for example, a recently widowed woman called to see if it would be possible to return some shoes that had been ordered for her husband, who died a short time after receiving them; the rep accepted the shoes and also sent the customer some flowers. In fact, a large part of Zappos’ appeal is the hassle-free returns policy, free shipping both ways and the fact that 90 percent of orders arrive the following business day. In order to accommodate the high volume return rate it was imperative that warehouse and customer service operations were able to handle it. “Our return rate can be anywhere from 20 to 40 percent depending on the brand, so we had to ensure that we would expect this level of return, and also encourage it,” says Hsieh. Having a warehouse with around four million pairs of shoes is just part of the business for Hsieh, but while there are costs associated with that and extra steps around making sure they haven’t been worn and so on, it is all part of the service. “While there is more labor involved, it’s what makes people keep coming back to us – because it’s so easy to return items to us.”
Raising the bar It’s a policy that is winning the company a devoted following. Indeed, such attention to detail is raising customer expectations of what other retailers should be able to offer across the board. After all, reason shoppers, if Zappos can do it why can’t everyone else?
ZAPPOS.indd 78
Clockwise from left: The Zappos headquarters; a customer takes a tour of the offices in Henderson, Nevada; Hsieh and Jen Lin at the Delivering Happiness Bus Tour 2010 Kick-Off in Las Vegas, NV.
The reason Hsieh and his team succeed where others struggle is part cultural mindset, part technological invention. “Anytime we look at anything from the technology perspective, we do that with the customer in mind,” explains Zappos’ Chief Technology Officer Arun Rajan. “For us, it’s all about the end-user experience in terms of being able to fi nd things quickly on the website, being able to return stuff easily, and being able to easily locate tools for customer service. So for example, if you ordered something but change your mind you can cancel it right up until the time it actually drops into the truck. The customer service agents have that capability.” Such a customer-driven focus guides every decision made at the company, including technology deployment. “Our processes are very integrated,” says Rajan. “From merchandising, to customer service, to fulfi llment, they’re all linked and very transparent. They’re not different systems. Often what will happen is that companies will implement point solutions for different things and not really integrate them; or the connectivity, the data exchange between those systems, is not done in real-time. For us, however,
08/10/2010 15:25
GAME CHANGER 79
everything is real-time, all the time, so our customer service agents know exactly where the product is at any given moment. It creates transparency for everyone across the organization.”
Empowering employees “Our perspective is that customer service is number one,” continues Rajan. “It means everyone in the company – not just customer service associates, but the whole company – goes through customer service training. I go through a month of training; Tony goes through a month of training; everybody in the company goes through a month of training. It means all our employees are very aware of the importance of the customer. And it’s a completely different approach to service, really. For instance, many companies will have an IVR system designed to prevent callers from getting through to a customer service rep; but we have metrics where we try to get 98 percent of customer calls to a customer service agent in less than seven seconds on average. And once they answer, the customer service agent is then empowered to make the customer happy, whatever that takes. They’re empowered to use their judgment.” In order to manage touch-points and the behavior of his employees, Hsieh uses a net promoter score, but on the whole he prefers to inspire them rather than try to manage them. “We are of the philosophy that you can
Zappos’ 10 core commandments
1.
Deliver WOW through service – do something beyond what’s expected
2.
Embrace and drive change – in order to stay ahead of your competition
3. Create fun and a little weirdness – one of the
do a lot more if you get the culture right; most of the other stuff will then take care of itself in terms of great customer service,” he explains. “We’re extreme in trying to inspire people through the larger vision and living the core values.” He goes on to explain that he is very much aware of the importance of letting your employees hear the applause of the consumers. “A lot of it for us is instant,” says Hsieh. “The customer will be on the phone and when you wow them you can hear the feedback instantly from the customer themselves.” A weekly newsletter also goes out to the whole company letting employees know whenever someone emails or calls to tell the company about a great experience. “At Zappos we believe in the importance of forming a personal and emotional connection with as many customers as possible. That’s why we put our 1-800 number on the top of every page of our website, because we actually want to talk to our customers,” explains Hsieh.
Marketing the brand But for Hsieh, offering great customer service is about much more than just keeping clients happy; it’s about marketing the brand. With 75 percent of sales from repeat customers, he knows that good customer experience not only generates repeat sales but also encourages customers themselves to become promoters, recommending the brand to others. “We’ve grown from no sales in 1999 to a little over $1 billion in gross merchandise sales in 2009,” he says. “The number one driver of that is repeat customers and word of mouth – promoters have become an extremely important thing for us.”
“We have metrics where we try to get 98 percent of customer calls to a customer service agent in less than seven seconds on average”
side effects is innovation
4. Be adventurous, creative and open-minded – develop and improve decision-making skills
5. Pursue growth and learning – stretch yourself 6. Build open and honest relationships –
10
communication is key
7. Build a positive team and family spirit – go beyond the typical ‘co-worker’ relationship
8. Do more with less – constantly raise the bar 9. Be passionate and determined – have a positive but realistic attitude
10.
Be humble – treat others how you wish to be treated yourself
ZAPPOS.indd 79
Indeed, the use of customers-as-promoters has meant that Zappos spends less on paid advertising, and in turn that money is plowed back in to improving the customer experience. Free shipping both ways, a 365-day return policy and a 24-hour call center are all huge expenses for the company, but by viewing these as marketing outgoings Zappos is able to justify the costs and more easily see the returns. “Any costs that we’ve put into investing in the customer experience end up driving that repeat customer behavior and word of mouth, so it is very much an indirect marketing cost,” explains Hsieh. The Zappos story is one of seamlessly integrating customer service and marketing programs, and the reason for its success is that it has successfully taken much of the money other companies spend on ads – the commercials, the billboards, the truck wrapping, the sponsorships – and poured it into creating a company that customers love and want to do business with over and over again. On developing innovative ways to delight the customer at each and every touchpoint. On building the right infrastructure to support that. And on fi nding the right people to help deliver that great service. The bottom line is, treat your customers to exceptional service and they will brag about you to everyone within earshot. They will Twitter about you, blog about you, and laugh your competition to derision. They will become the best marketing tool you’ve ever had.
08/10/2010 15:25
Infor DPS AD.indd 1
16/08/2010 13:02
Infor DPS AD.indd 2
16/08/2010 13:02
82
TECHNOLOGY MATTERS
to find ways in which your customers
can be more efficient at what they
Kindling customer engagement
Amazon ed.indd 82
08/10/2010 15:06
TECHNOLOGY MATTERS 83
Amazon’s Chief Technology Officer Werner Vogels is focused on transforming the internet behemoth into the world’s most customer-centric organization – and is using innovation to help him get there. By Ben Thompson
T
he Amazon rainforest contains the largest collection of living market decide what’s hot and what’s not has played a key role in helping plant and animal species on the planet – and like its jungle to make the company such a trusted seller – even non-customers admit namesake, the world’s largest ecommerce platform holds a to checking out the user reviews before eventually buying elsewhere. But similar wealth of weird and wonderful specimens just waitas other retailers jumped on the user review bandwagon, Vogels and his ing to be discovered. As well as everyday items such as clothteam decided to take the concept a stage further. By adding a simple button ing, music and consumer electronics, the internet explorer asking ‘Was this review helpful to you?’, Amazon prioritized the most can also find a huge range of rarer treasures. Want to reduce your carbon relevant reviews – those that had helped customers make a decision over footprint? How about a 400W self-assembly wind turbine to help get you whether or not to buy a particular product, both positive and negative – started. Looking for that unusual gift? Check out the original Andy Warhol and provided a simple way for customers themselves to regulate the quality screenprints in the ‘Everything Else’ department. Fancy getting married? of the reviews. A recent article in Business Insider suggests the move has Try the 10x18-foot wooden wedding chapel, complete with front porch and had significant business benefits. In 2008, Amazon brought in $19 billion, steeple (sorry, bride not included). Shopping has never been this easy. of which 70 percent came from media products such as books, movies and Yet while some may still think of Amazon as music – products that also make the best use of simply an online retailer, the reality is very differthe reviews feature. The study suggests that proAmazon.com fast facts ent. From its bookseller origins, the company has moting the most helpful reviews has increased grown to become one of the world’s biggest techsales in these categories by 20 percent (one out FOUNDED: 1994 nology organizations, a platform that attracted of every five customers decides to complete the HEADQUARTERS: Seattle, Washington over 615 million visitors last year and on which purchase because of the strength of the reviews) AREA SERVED: Worldwide more than one million active retail partners do – adding a projected $2.7 billion to Amazon’s business worldwide. An increasing number of top line. CEO/CHAIRMAN: Jeffrey Bezos diverse businesses are built on the Amazon.com It is often said that the best innovations REVENUE: US$19.16 billion platform – including the online operations for are the ones that seem so obvious. And while OPERATING INCOME: US$842 million Target, Lacoste, Marks & Spencer and Timex Vogels is at pains to stress that such developNET INCOME: US$645 million Corporation – and the company’s relentless focus ments don’t just happen without a considerable on innovation helps Amazon maintain its status degree of effort, he does concede that all AmaEMPLOYEES: 20,500 as a high-tech pioneer. From new hardware develzon’s technology improvements start from a very WEBSITE: Amazon.com opment to the definition of new business models, uncomplicated concept. “You have to fi nd ways from building ultra-reliable storage services to a in which your customers can be more efficient at massively scalable computing cloud, from pervasive monitoring and perforwhat they want to do,” he explains. “We have a number of high-level goals mance control to revolutionary efficient soft ware architectures, Amazon is around how quickly customers can fi nd items, how easily they can browse, recognized as being on the bleeding edge of technology development. how they can check out and how they can purchase things, and making “We have three different businesses,” explains the company’s CTO that as efficient as possible for our customers is key for us.” Werner Vogels. “One is the retail business, and that’s the one that people If you focus on the customer, continues Vogel, you take the long-term are most familiar with. Then there’s the seller business, which consists of view. “You’re not looking at the next quarterly success; you’re looking at three major streams – the seller-only Amazon website, the enterprise serhow you can make sure that Amazon is the world’s most customer-centric vices business where companies launch ecommerce operations on top of our company over the long-term, and how you can innovate on behalf of the platform, and services such as Fulfillment by Amazon that enable businesses customer to make sure that the things you do really matter. In this sense, to take advantage of one of the most advanced fulfillment networks in the everything from reviews to web services can be thought of as supporting world. And then there’s the developer business. For all of those, we take the tools for doing the right thing for the customer. In terms of technology, it same approach: we want to be the world’s most customer-centric company.” means seeing whether we can take a more cost-effective approach or have For Vogels, this means focusing on continuous interaction with the better scalability and better reliability, or whether can we help our customcustomer-base – generating what he calls a ‘feedback loop’ – to ensure that ers make sure they make the right purchasing decisions.” the services Amazon provides are the right fit for its customers. “We have a Of course, efficiency is one measurement of success, but there is also a process that we call ‘working from the customer backwards’ to develop new more intangible quality that must be achieved for such a platform to be loved technologies, where we start with what the customer needs and then work by its user-base: ultimately, it must also provide an enjoyable experience. backwards from that point to make sure that the technology we implement “Customers are very vocal with what they appreciate and what they don’t,” really does what we want it to from a customer standpoint,” he explains. he continues. “So while our customer service is known for being excellent, customers also have the power and the tools to actually give feedback directly Plotting a path to the technology teams. In terms of innovation, we make sure that all these Take Amazon’s popular and much-copied product review system, for small experiments that are going on all the time with new technologies, with example. The site had reviews from the outset, and the idea of letting the new customer-facing functionality, can be continuously measured.”
Amazon ed.indd 83
08/10/2010 15:06
84
TECHNOLOGY MATTERS
Measuring value Amazon has taken a number of steps to ensure any improvements to the platform add real, measurable customer value, and has built a large infrastructure to ensure it can monitor and assess the impact of changes to the site. For instance, all Vogel’s teams have been given the instruction to innovate continuously on behalf of the customer, constantly looking at where improvements can be made. What makes a particular service a best seller? Is it better information, better presentation or different sources? “Our goal for customers is that they can fi nd what they are looking for as fast as possible, in the most efficient way, in the minimum number of steps,” he explains.
“In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks” Vogels maintains that this is only possible via constant monitoring of the customer experience. Consider the following example. A customer wishes to download a movie to watch on the long Seattle-NYC fl ight, and sends Amazon an email with a question about its video-on-demand service. Not only does the service team answer within the hour, they also include a link to indicate whether the answer solves the question or not. Choosing ‘yes’ takes the customer to a ‘Th anks for your feedback’ message, which not coincidently puts them back onto the Amazon site and
contains a further link to provide additional feedback. If you respond ‘no’ to the original question, you are taken to a similar page to rephrase the question. Th is simple feedback mechanism provides a number of important benefits. First, it demonstrates Amazon actually cares whether the user’s problem is resolved satisfactorily; it allows the customer to easily submit another question if not satisfactorily resolved; it allows Amazon to quantify the performance of the service department; it identifies areas where better answers are needed; and fi nally it helps identify tricky problems that can be corrected. Such attention to the minutiae of customer service interactions helps the company refi ne its offerings and continuously improve. And while conceding that the management team makes most of the long-term big technology bets, Vogels insists that many of the ideas actually come up through the organization. “Amazon is very flat in terms of its organizational structure and we have a tremendous focus on innovation, so we’ve got all sorts of paths in which key information and ideas can travel to those who actually make the decisions,” he says. “I think most of the technologies as you see them in Amazon – whether it is reviews, whether it is Listmania, whether it is Gold Box – have come out of the grassroots.” Such a meritocratic hierarchy, where the best ideas rise to the top, is essential to the company’s reputation as an innovator. Encouraging ideas that add value is a philosophy that is nurtured right through the company culture, from the C-suite down to the recruitment of new hires, as Vogel elaborates. “In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks,” he says. “It’s very important to have a culture where everybody understands what the core values of the company are. New starters are often surprised at how important focusing on the customer is to us and how good Amazon is
Amazon’s logotype is an arrow leading from A to Z, representing customer satisfaction (it forms a smile) and the goal is to have every product in the alphabet. “If your catalogue becomes larger, more customers will come to your site, which makes it more interesting for sellers,” explains Vogels. “That means more sellers come to your site, which means your catalogue grows. It’s what we call a flywheel, and the more energy you put into innovation in the flywheel, the better you’re actually able to execute.”
Amazon ed.indd 84
08/10/2010 15:06
TECHNOLOGY MATTERS 85
at doing that. So having a core value throughout the company that everybody signs up to is essential.”
It is a challenge Vogels relishes. “I think you can have brilliant ideas, but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated The importance of teamwork when I was still in academia,” he continues. “I did some start-up work The other essential trait that Amazon tries to instil in all staff is the alongside my academic work, but even so the path going from idea to actual ability to collaborate effectively – something that is particularly imporimplementation is a long journey, and when you have to operate at the scale tant in the technology function, which by its nature involves small teams of Amazon that’s a whole different story again. Suddenly, issues like relifocused on specific projects. “Our development teams talk to each other ability, performance, availability and cost-effectiveness play a major role in all the time,” says Vogels. “Even though we work in very small teams, all of the decisions you make along the way.” Amazon itself is a very large technology operation and it is essenAnd in contrast to Google, which famously encourages tial that everyone cooperates and collaborates all the time.” developers to spend 20 percent of their time on individual According to Vogels, teamwork is key to delivering projects outside their day-to-day responsibilities, the team Target, fully rounded ideas that really work for the customer – ethos rules at Amazon. The motivation comes out of the Marks and Spencer whether that customer is internal or external. Coming idea that the things that you do have a direct impact on and Lacoste use from a background in academia (prior to joining the customer. “Doing things that matter to people is the Amazon.com Amazon in 2004, he spent a decade as a research scientist tremendously motivating, and so most of our engineers platform in the Computer Science Department at Cornell Univerand program managers – and indeed everyone else that sity looking at scalable reliable enterprise systems), Vogels is working on our products – fi nd tremendous reward in admits to being energised by the way business organizations making sure that our customers have a better experience. We approach the issue of R&D. “In academia there’s a real focus on often have meetings where we start off with a ‘customer voice’ – a individual achievement,” he says. “Although there is some collaboration success story, even sometimes a negative story, of a customer’s experiamong faculty and there are student teams working together, the work ence of buying on Amazon – and use those stories to drive our services to is still rather individual, as is the reward structure. In industry, however, become better.” building real technology is a multi-disciplinary activity. First of all, you Once again, it all comes back to the customer. “We don’t just want need good engineers and program managers to build something that to be the most customer-centric company on the web; we want to be the really works. But there are also legal implications, there’s an impact on most customer-centric company on the planet, period,” concludes Vogels. tax, there’s impact on PR, on marketing – all of those functions make up “I think that if you look 10 years from now, you’ll see that many of the a team, and you can only build and deliver a product to your customers innovations Amazon has implemented have had a tremendous impact on as a team.” how customer-centricity is viewed.” ■
Amazon ed.indd 85
08/10/2010 15:06
86
CUSTOMER LOYALTY
A REWARDING EXPERIENCE
Customer loyalty is consistently touted by retailers across the country as a major area of focus. So why do so few have a rewards program that works for both them and their clients?
Customer Loyalty.indd 86
I
n uncertain times, customers increasingly turn to the retailer they know and believe they can count on – for a quality product, dependable service and an experience they will want to repeat. In theory it’s a win-win for all concerned: the customer gets a retail experience they are comfortable with and trust, while customer loyalty provides a major revenue boost to retailers, especially in an industry where statistics suggest it costs between four and six times more to attract new customers than it does to retain existing ones. Indeed, encouraging loyalty “in good times and bad” has long been a major challenge for retailers of all creeds. Yet despite the obvious benefits repeat business and (to take it a stage further) brand evangelism can bring to both store and consumer, many companies still struggle with how to get their loyalty programs right. According to recent research from the CMO Council, even as more marketers adopt loyalty and rewards programs to improve sales, many are failing to fully engage their customers, with over half of the consumers surveyed believing that
the barrage of irrelevant messages, low-value rewards and impersonal engagement don’t particularly engender loyalty. The bottom line, according to the report Leaders in Loyalty: Feeling the Love from the Loyalty Club, is that deeper engagement and personalized contact drive loyalty, not mass blast communications and gimmicks. One company to have embraced the concept of giving the customer what they want in order to retain their business is luxury chocolatier Godiva. The company had been trying to implement a loyalty scheme for a number of years, but had struggled to fully engage its customer base. For years, it had offered one-off perks to customers via e-mail blasts and postcard mailings, through contact details collected in-store. But tracking the results of such promotions proved challenging, and although the company gathered a lot of information, much of it was not usable or useful. It was time for a new strategy. “Two years ago we put together a cross-functional team, and IT was well represented within that, to discuss what our program should be,” explains Don Gould,
08/10/2010 15:29
CUSTOMER LOYALTY 87
Director of IT at Godiva. “We worked with a couple of companies to fi nd out what our options were, and just as importantly we polled our consumer base through a group called CommuniSpace, which is an online community of Godiva loyalists. We asked them about a points program, we asked them about a percentage program, but what we found they actually wanted was really quite simple: it was free chocolate.” As such, the program team resolved to come up with a way to give loyal customers what they wanted – free chocolate – that would at the same time drive people back into the store. “Our aim was that when they came in to pick up their chocolate, maybe they would buy something else too. And that’s exactly what we saw happen,” says Gould. The end product was the Godiva Chocolate Rewards Club, a voluntary sign-up scheme that offers consumers perks including free chocolate – customers get a free piece each month and an extra gift (worth at least $2.95) when they spend $10 or more in the previous month – free shipping and a monthly e-newsletter featuring special offers and new product announcements. Godiva worked with loyalty program consultants Brieley & Partners, as well as web design and consulting fi rm Fry Inc. and marketing technology company Acxiom Inc., to shape the program, which consumers can sign up for in-store at any one of Godiva’s 270 North American boutiques, as well as at the company’s website. The program certainly boasts some impressive stats. Over two million shoppers have signed up for the program since May 2009, and more than half of the company’s sales are tied to the Godiva Chocolate Rewards Club; even more impressive is that on average, sales associated with the club bring in 20 percent more revenue. “The acceptance rate by consumers is everything that we could’ve hoped for; it’s just been awesome,” says Gould. “In fact, the number of people that we’ve gotten involved in the program has far exceeded what we planned for. The other thing we are seeing is that those that come in to redeem their free piece of chocolate are also buying something else, which is what we wanted to happen.” Beyond the figures, Godiva has also focused on training employees to execute the program successfully. One of the most important keys to a successful loyalty program is having employees who not only know how the program works, but also see the benefits and can help customers get excited about signing up. For Gould, such thinking is all part of building a successful program. “You have to have engagement,” he says. “From the customers, of course, but from your workforce too.” Indeed, Godiva is already looking ahead to the next phase of its program and how it can be improved. “We know it has to change,” says Gould. “The free chocolate is nice, but to keep customers engaged there’s going to have to be something new there. We’re also thinking about a premium program for our most dedicated shoppers, and are looking at how to leverage social and mobile technologies too.” He is also aware of the current limitations of the scheme. “One of the downsides is that it requires an email
Customer Loyalty.indd 87
Joining the social club
U
S companies that use social media primarily to deepen customer loyalty spend almost twice as much on this emerging channel as competitors who use it for brand awareness, customer acquisition and other core marketing purposes, according to national survey results jointly released by Colloquy and the Direct Marketing Association (DMA). Specifically, the survey results show the average social media spend for marketers whose primary objective is to obtain customer loyalty was $88,000 last year, compared to $53,000 for brand awareness and $30,000 for customer acquisition, the objectives that attracted the next highest spending levels. Additionally, the survey shows that the amount of social media budget marketers allocated to loyalty objectives increased by 293 percent over the past 12 months, easily surpassing allocation increases for all other social media-related marketing objectives. “Social media budgets for loyalty objectives experienced the most growth last year and, in fact, the last three years,” says Colloquy Managing Partner Kelly Hlavinka. “Savvy social media marketers recognize they must turn first to their best customers and apply the same principles inherent to loyalty, which are combining economic incentives with social capital.” The survey results suggest that the use of social media as a marketing tool is still in the early experimental stage. “Marketers across all sectors are involved in social media,” says DMA Research Manager Yoram Wurmser. “However, after five or six years in the space, and growing social media budgets, marketers are still testing the waters to figure out what works, with the incentive to accelerate their efforts being driven by consumers’ rapid adoption of this trend.” In fact, research from Nielsen released this week shows that consumers are spending 43 percent more time on social media than a year ago, making social networking and blogs the top online activity, followed by online games and email.
“The acceptance rate by consumers is everything that we could’ve hoped for, it’s just been awesome”
address, so there are folks out there who don’t have them who are just not a part of our program.” But nonetheless, overall the scheme has been a huge success, and recently resulted in the fi rm being named amongst the winners of the inaugural Colloquy Loyalty Awards, a contest that salutes the most transformative, customer-focused loyalty initiatives in North America. The panel praised Godiva for “creating a sensible loyalty initiative that is integrated and highly data driven, yet simple and straightforward”. For Gould, that represents the essence of a good rewards scheme. “The key is to keep it simple,” he concludes.
08/10/2010 15:29
88
ASK THE EXPERT
Asset maximization: selling your brand starts with your talent Jamie Minier, President of The RightThing, explains why a strong employment brand is vital to attract top talent.
I
n an environment characterized by intense competition, retailers wrote the book on how to sell. With an abundance of outlets vying to win customer loyalty, marketing and performance is everything. Yet many retail organizations have failed to maximize their greatest asset when it comes to recruiting. Historically, basic hiring practices for retailers have not kept pace with actual performance environments. Plagued by inefficient processes and inconsistent selection techniques, many have missed the mark in attracting the highest achievers into their organization, which has led to high turnover and a nick in the bottom line. As an industry largely focused on the latest data points, retailers should consider the following: • According to the US Bureau of Labor Statistics, growth of the US workforce has continuously slowed over the past four decades and is only predicted to expand by four percent in the next 10 years. • Over the next decade, over a quarter of US employees will exit the workforce due to baby boomer retirements. • Research shows one bad hire can cost a company up to $300,000 in lost time, productivity and money. With workforce competition growing and supply and demand in jeopardy, the ability for retailers to successfully attract the best and brightest over a competitor will ultimately impact the future success of their business. In the past, many organizations equated employment branding to winning awards such as a great place to work, securing mentions in the media, building a robust website and attending industry events. While these are effective corporate branding tools, they’re minimally effective at grabbing the attention of potential active and passive talent. Utilizing their greatest asset, retailers should view candidates not only as potential talent but as savvy consumers. Using sales techniques parallel to corporate strategy, a strong employment brand begins with a closer look at the target audience. Who are we trying to attract? What environments do they interact in? Once established, employment branding and recruitment strategy should align accordingly and could include the use of mobile technology, social media, e-marketing and other online channels. Similar to market research, hiring managers engaged in retail hiring can also tremendously benefit by going beyond
THE RIGHT THING.indd 88
the job description and fully immersing themselves in the day-to-day duties of specific jobs for hire. As a growing trend, this dedicated research helps retailers gain a better understanding of the true day-to-day responsibilities and culture of the position, which in turn helps to fi nd the right candidate. Studies show employers who boast a strong employment brand experience a higher quality talent pool, lower rates of rejection, lower turnover, a greater number of employee referrals, decreased time-to-fi ll, decreased costper-hire ratios, and higher levels of employee engagement. Given the benefits, the case for a strong employment brand becomes clear. To maximize employment brand and align it with successful talent acquisition solutions, today’s best-in-class retailers are turning to recruitment process outsourcing (RPO) fi rms as a viable way to build and maintain a cutting-edge solution. For instance, when one of the world’s largest beverage companies wanted to maximize recruit-
Jamie Minier is President of The RightThing, the industry-leading RPO provider. Recently named ‘Best Executive’ in the Sixth Annual Stevie Awards for Women in Business and ‘HRO Superstar’ by HRO Today magazine, she is regularly featured at industry conferences and seminars.
“Retailers should view candidates not only as potential talent but as savvy consumers” ment effectiveness, they partnered with The RightTh ing to evaluate their current process and assist in developing a robust employment branding solution. One key component to that included a number of streaming videos embedded throughout the application process to help the jobseeker truly understand the job at hand. One illustrated a ‘day-in-the-life’ of the specific position; another introduced the candidate to the current team and supervisors. With 12 videos throughout the process, the client saw a significant increase in quality and candidate satisfaction, which in turn enabled them to successfully staff their peak seasons – historically a major pain point. As the talent market grows increasingly competitive, it is vital for today’s leading retail execs to revisit their recruiting initiatives and ensure their candidate sales strategy is utilized to its fullest potential. Regardless of execution, retailers who maximize their employment brand will significantly benefit when it comes to attracting high quality, long lasting talent.
08/10/2010 15:26
THE RIGHT THING AD.indd 1
01/10/2010 16:11
90
RETAIL WORKFORCE
Inside the hit factory What keeps Starbucks’ HR department awake at night? Clue: it’s not just the coffee.
B
y any measure of success, Starbucks is a retail phenomenon. Over 17,000 stores in 49 countries (including upwards of 12,000 in North America alone) and 2009 revenues of nearly $9.8 billion are testament to the company’s winning formula, while its pleasing blend of coffee beans and comfy sofas have made it the primo destination for web-surfi ng students, stressed-out executives and thirsty shoppers looking for a place to relax between work and home. The Th ird Place, as it has become known, has become the 21st century’s communal space of choice and a high street ubiquity. A large part of that success is down to the skills and dedication of Starbucks’ thousands of staff members. Traditionally there’s been a very strong bond between the company’s leadership and its employees (or ‘partners’, as the firm is keen to have them known), and company values dictate that a motivated and engaged workforce leads seamlessly to a better customer experience – which in turn, of course, leads to growth. “We’ve done a lot of research on the connection between an employee that feels really satisfied and their ability to provide a great customer expe-
Retail Workforce.indd 90
rience,” explains Elizabeth King, Vice President for Global HR Solutions and Services at the coffee giant. “So for us, building trust and connection to the folks in the store is really critical.” It was a value that was sorely tested back in 2008 when a leaked memo from CEO Howard Schultz – the man behind the chain’s rapid rise – confi rmed what critics had been suggesting for a while: that in its push for greater revenues and global coffee house dominance, the firm had become somewhat disconnected from its core customers and, just as importantly, its employees. “We have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks experience,” Schultz wrote, lamenting more “sterile, cookie-cutter” store environments, their loss of coffee aroma since the adoption of flavor-lock bags, and the diminished service theatrics that came with a switch to robotic espresso machines. For many customers, Starbucks was about selling an experience as much as selling coffee, and over the past few years the company has been working hard to rebuild that experience; clearly, its partners play a huge role in that going forward. “Re-establishing the trust relationship we
2009 revenues approximately
$9.8 billion
08/10/2010 15:33
RETAIL WORKFORCE 91
“It’s about having funds to invest in things that are more important to the customer, more important to our partners and more important to the longterm interest of Starbucks”
Retail Workforce.indd 91
had before with our existing partners is critical,” says King. “Then as business improves and we start growing again, acquiring, building and developing the right talent will be critical too.” As such, the company has taken a number of steps to re-engage with its employee-base, including an organization-wide poll of opinions, comments and ideas for improvement. “I think that the biggest thing we’ve done is implement this across-the-company employee survey in which the questions allow for a fairly significant amount of non-check-the-box answers,” says King. “There’s a lot of scope for people to express themselves. And I think because of that ability to express themselves, a couple of things happened: we’ve now got the richest data we’ve ever had around what our employees are thinking and how we can improve their experience of working here; and it also gave people a chance to have their say on things that they’ve been concerned about.” The next step, says King, is to really use that information to improve what the fi rm calls its ‘perks’ – benefits, pay and recognition. “When you have 150,000 partners those programs are really expensive, so to do something that doesn’t meet the needs of our partners doesn’t make sense,” she explains. “First you spend money that you could’ve spent in a better way, and second you don’t really get the results you want.” Such a collaborative approach to improvement – including ensuring that channels of communication are both open and effective – is key to the fi rm’s ongoing success. And in a company as diverse as Starbucks, ensuring the multitude of voices are all heard is a major priority. “There’s a big challenge in communicating effectively in a timely way, and in a way that’s relevant to the partners in the company, regardless of what generation they may fall into,” confi rms King. “We have something called the ‘partner experience’ happening right now, where there’s lots of cross-functional involvement across the company, with leaders working with partners to help us figure out areas that could be improved. And we’ve also extended our customer-focused My Starbucks Idea program to the partner side as well, to harness the many great ideas and suggestions our partners have on a daily basis.” King also feels that Starbucks’ focus on employee engagement has helped it weather the downturn better than many others. For instance, the firm recently shuttered around 600 of its most underperforming stores in order to reinvest the money in employee training, new products and other partner programs. “It’s about having funds to invest in things that are more important to the customer, more important to our partners and more important to the long-term interest of Starbucks,” she says. “I think the downturn has given us a chance to understand the things that have made us successful and re-evaluate those things that were troublesome. “We’ve also taken an active look at lean processing – not only in our stores, but in a lot of the corporate functions as well – to try to not only take cost out of the equation, but also to create better, more fulfi lling working
processes for people. We’ve really tried hard to address the issue of manually intensive work that doesn’t add a lot of value and, if we’re not able to eliminate it completely, at least simplify it to the point where it’s not driving people crazy. We take a lot of pride in the intelligence and skillsets of the people that we hire, and we certainly don’t want to encumber them. So the downturn has given us a chance to look at some of these things as well.” Of course, we shouldn’t be surprised to see a fi rm looking after the customer by looking after its employees; after all, that goes to the heart of what retail should be about. But it is refreshing to see a company refusing to take its continued success for granted. “I think what we learned through the downturn is that the expectation of the service experience has increased,” concludes King. “And when you have a high-end product, the expectation of the service that goes along with that product is even higher. What it’s also done is put us in a situation where we’re trying to figure out more innovation for the customer as well.” ■
Train to win On February 26,2008, Starbucks underwent a dramatic training exercise. For three-and-ahalf-hours, every one of the almost 7100 US stores closed as more than 135,000 partners worked to transform the customer experience and work towards ‘Espresso Excellence’. For that short period, coffee fans were forced to look elsewhere for refreshment. The risk of inconveniencing consumers was deemed worth it to ensure the long-term goal of pleasing every consumer, every time. The training forms part of CEO Howard Schultz’s new focus on innovation and customer experience, so don’t rule out more eye-catching educational efforts in the future.
08/10/2010 15:33
PHILIPS DPS.indd 1
01/10/2010 16:11
PHILIPS DPS.indd 2
01/10/2010 16:11
94
NEXT BIG THING
Energy effectiveness: getting beyond energy efficiency Emerging opportunities for retailers extend energy management concepts and tools beyond just energy efficiency to consider the potential for improving the shopper experience and driving sales increases. By Andy McMillan
E
nergy efficiency has been a hallmark of energy policy in the US and around the world for decades, and the focus on energy efficiency has yielded substantial improvements in retail building design, materials and equipment, as well as new rating systems for buildings. To complement these gains, great strides have been made in operational energy efficiency through the integration of building controls with enterprise information systems. Without question, energy efficiency concerns have driven these gains – but they have also limited the discussion of energy utilization in retail environments to the cost side of the bottom line. Dramatic advances in controls technology, coupled with dynamic lighting technologies, are going to enable a more comprehensive measure of energy utilization that takes into account the impact of energy use on the shopping environment. That new measure, energy effectiveness, incorporates traditional energy efficiency but also captures the impact of energy utilization on top line revenue. Over the next 10 years, energy effectiveness will drive dramatic
PHILIPS NBT.indd 94
progress in retail design, materials and equipment in much the same way that energy efficiency has in the past.
Only part of the story It is a self-evident truth in quality management circles that you get what you measure. With that in mind, we should look at how we measure energy efficiency. Most measures of retail building efficiency are related to energy used or energy dollars spent per square foot of retail space. Th is leads to a focus on energy efficient building design, temperature setpoint management and lighting schedules, as well as making use of natural resources (daylight harvesting, building orientation, etc). At some point, though, trade-offs must be made between the amount of energy used and the amount of value created. After all, in theory it is easy to save energy in retail buildings – just lower the space temperature in the winter, increase the space temperature in the summer and reduce the amount of artificial lighting all the time. But while it is simple in principle, the reality is complicated by the inconvenient fact that saving
08/10/2010 15:28
NEXT BIG THING 95
“Trade-offs must be made between the amount of energy used and the amount of value created”
energy is not the primary objective of retail facilities management. The primary objective is providing an environment conducive to maximizing customer buying behavior – and at some point that objective is at odds with reducing energy consumption. The balance between minimizing energy use and providing a positive shopper experience is frequently an informal compromise managed around anecdotal data. Chains often evolve to ‘standard’ settings for temperature, lighting levels and other parameters through industry norms, customer complaints, store manager observations and management’s prior experience. A focus on energy efficiency brings into question the specific standards used and also drives consistency in the use of those standards throughout a chain’s portfolio of stores. The recent development of enterprise energy management systems for chain stores enables cost-effective analysis of energy efficiency across stores and enables enforcement of whatever standards evolve in an organization. These systems can also provide a platform for exploring and managing energy effectiveness.
the course of a day or the change of seasons, would sales increase? If holiday themes in a store were complemented by corresponding color changes in lighting for targeted aisles, would sales increase? These are all questions that are perhaps mere curiosities in the current world because dynamic control of light color and intensity is expensive. But the world is changing. As we rapidly shift to solid-state lighting for improved efficiency, it becomes cost-effective to include dynamic lighting control. And at that point, these kinds of questions become very relevant for retailers who expand their objectives beyond energy efficiency to include energy effectiveness. Another set of questions related to energy effectiveness arises when dynamic control of the environment is extended to customer interactivity. Would giving customers (collectively) some influence over the temperature in a store increase sales? What if customers could adjust the lighting in focused areas of the fashion department to view clothes in different settings? Would sales increase?
New answers, even more questions Calculating energy effectiveness
Andy McMillan is the General Manager of Philips Teletrol, a leading supplier of energy information and control systems for chain stores. He is also president of BACnet International. His background includes broad open systems marketing and industry development experience, as well as strong technical knowledge of distributed automation and information management systems.
PHILIPS NBT.indd 95
The measure of energy effectiveness is ‘value created’ divided by the ‘energy used’. For a store, energy effectiveness can be defi ned as the amount of energy consumed per revenue dollar, or the amount of energy consumed per customer served. Both measures lead to interesting questions about how stores are operated and what level of control and information will be needed to optimize energy effectiveness. For example, both revenue per hour and customers served per hour varies substantially over the course of a day. Given that, could we consider tailoring energy use more specifically to the daily revenue profi le as opposed to having constant temperatures and lighting levels? Or, in another vein, would it make sense to have different temperature zones in a store that correspond to the placement of specific merchandise (e.g. less heat where sweaters are displayed)? The major energy-consuming devices in retail stores are HVAC, lighting and refrigeration (where it is present). All are relevant in considering energy effectiveness, but the one that holds the greatest potential for improving energy effectiveness over the next five to 10 years is lighting. With the widespread adoption of solid-state lighting, retailers will be able to reduce energy use while at the same time getting far more control over the intensity and color of light in their stores. How (or if) retailers utilize enhanced control of light may have little impact on energy efficiency, but could have substantial impact on energy effectiveness. It is well known that light levels and the color of light impact buying behavior. What is less clear is the impact of changes in light intensity and/or color on buying behavior. For example, in a women’s department, each season will bring shift s in merchandise colors. If a retailer could easily change the color of the light in that department accordingly, would sales increase? If the overall lighting of a store varied between cool white and warm white over
Many of the questions regarding energy effectiveness are hard to answer because there has been little focus on them. The drive for energy efficiency has fully occupied our attention and even where some thought was given to energy effectiveness, the technology for addressing it has not been cost-effective. But that is changing. Equipment that goes into stores is rapidly becoming more intelligent and connected. Whether you look at HVAC, lighting or refrigeration you fi nd that standard network interfaces (such as BACnet) provide far greater levels of dynamic control at little or no extra cost. The emergence of solid-state lighting with its wide range of options for dynamic intensity and color will provide another rationale for exploring these questions. Another obstacle to answering – or even asking – these questions has been the limited availability of information links between energy management systems and other enterprise applications (for example, shopper tracking and POS). To automatically measure and report on energy effectiveness, these systems have to exchange information. Historically that would have required custom application soft ware development. Fortunately, the rapidly growing sophistication of enterprise energy information and control systems is simplifying that interface with an open systems approach and is lowering the overall cost of implementing meaningful energy effectiveness measures. For the most part, retailers have made impressive gains in energy efficiency over the last 10 years. Leading retailers recognize, though, that energy efficiency is not enough. They are starting to look at energy use more critically and asking themselves, “what comes next?” Knowing they have achieved a high level of energy efficiency they are now starting to consider how to further optimize their energy utilization. The promise of dynamic control for solid-state lighting, coupled with flexible, enterprise energy information and control systems-suggests the next big thing might well be energy effectiveness.
08/10/2010 15:28
96
SUSTAINABLE STORES
RETAIL GOES
GREEN Why a growing number of retailers are putting sustainability at the heart of their business models.
F
rom building stores out of recycled materials to installing low-flow water faucets and investing in solar power, an increasing number of retailers are embracing the green ethos – and not just out of a desire to save the planet. Many are realizing significant fi nancial benefits, and claim that going green will eventually become the only feasible route as energy costs skyrocket and regulators – both federal and local – take a hard look at businesses’ environmental efforts. Tapping its two million employees, 100,000 global suppliers and a consortium of NGOs, scientists and other businesses, Walmart has rapidly grown into the world’s greenest retailer and believes that being an efficient and profitable business goes hand-in-hand with being a good steward of the environment. “We’ve shown as a company that our sustainability efforts are really good for our business,” confirms Matt Kistler, SVP for Sustainability at Walmart. “We’re reducing costs, we’re improving efficiencies, we’re eliminating waste, and all those things represent cost savings that we can then pass along to the consumer.” Th rough an approach it calls Sustainability 360, Walmart is taking a holistic view of its business in order to develop goals that both reduce its own environmental footprint and engage suppliers, associates and customers in sustainability efforts to achieve even greater results. “It takes all of us working together – collaborating with our suppliers, with NGOs, with the government and working together on common solutions – to allow us to make the progress that we need to make to attain those large goals we have set at the company,” says Kistler. The initiative
SustainableStores.indd 96
takes into account the supply chain, the products it sells, the store associates and the communities in which it operates, and has three key goals: to be supplied 100 percent by renewable energy, to create zero waste, and to sell products that sustain people and resources. Walmart is using a number of technologies around the world to make progress towards its goal of being supplied by 100 percent renewable energy. For example, in the US, Walmart purchases wind energy in Texas, and is testing fuel cells and small wind turbines. In Mexico, Walmart is buying energy from a local wind farm for 348 facilities and has installed solar panels on two facilities. And in Canada, Walmart is testing geothermal, fuel cells, solar and wind, and is the largest corporate purchaser of low-emission power through a local provider of clean, renewable energy.
Contractors install 1248 photo voltaic modules on top of a Kohl’s Department Store roof in Hamilton Township, New Jersey. The project is part of a SunEdison Corporation contract with Kohl’s, in which electricity generated by the solar modules will cut Kohl’s usage on average by 25-30%
08/10/2010 15:34
SUSTAINABLE STORES 97
Business benefits of going green According to IBM, green retail is a major driver for delivering overall business sustainability. It’s a way to demonstrate corporate social responsibility by reducing the environmental impact of an enterprise while simultaneously delivering significant financial benefits. In short, what began as an initiative to improve the health of the planet has evolved into a means of boosting profit margins. These efforts can offer significant benefits to businesses by: • Reducing the amount of energy used by data centers and point of sale terminals, lowering carbon emissions and slashing operating costs • Optimizing the supply chain, which helps reduce waste, increase flexibility and tighten control of product delivery and demand-response time • Migrating to green infrastructure, which provides an opportunity to re-evaluate operations for improved efficiency and to help locate surplus expenses • Implementing green operations that can improve compliance with government regulations – now and in the future
But it is the company’s use of solar power that is attracting the greatest attention. On top of existing efforts, September saw the firm expand its renewable energy efforts through lighter, lower cost, thin fi lm solar technology. The company plans to add solar generating systems to another 20-30 sites in California and Arizona, and the majority of these locations will feature the new technology; when complete, this project is expected to supply up to 20-30 percent of the total energy needs for each location, produce up to 22.5 million kilowatt hours of clean energy per year (enough to power more than 1750 homes annually), avoid producing more than 11,650 metric tons of carbon dioxide equivalent
annually (equal to taking more than 3000 vehicles off the road for a year) and add to the 31 current solar installations Walmart has in California and Hawaii. “By leveraging our global scale to become a more efficient company, we are able to lower our expenses and help develop markets for new technologies,” says Kim Saylors Laster, Walmart Vice President of Energy. “Developing and incorporating new renewable energy sources, like thin fi lm, reduces energy price risk and aligns very well with our commitment to solving business challenges through technology.” To help meet its waste reduction targets, the company has committed to eliminating landfi ll waste at its US stores and Sam’s Club facilities by 2025, and between February 2008 and January 2009 alone, it redirected more than 57 percent of the waste generated by stores and Sam’s Club facilities, exceeding the national recycling rate. This success was in part due to the success of its ‘super sandwich’ baling process, which involves compressing 32 recyclable items between layers of cardboard, creating bales that are then sent to certified recyclers. So far, Walmart has diverted 182 million pounds of loose plastic, 18.9 million pounds of plastic hangers, 12.4 million pounds of office paper and 1.3 million pounds of aluminum from going to landfi lls, and has also sent 25 billion pounds of cardboard to paper mills to be processed into new products. Meanwhile, the company’s Sustainability Index – a farreaching program designed to meticulously measure the environmental impact of every single item it stocks – aims to establish a single source of data for evaluating the sustainability of products. “Customers want products that are more efficient, that last longer and perform better,” explains Mike Duke, Walmart’s President and CEO. “And increasingly they want information about the entire lifecycle of a product so they can feel good about buying it. They want to know that the materials in the product are safe, that it was made well and that it was produced in a responsible way.
The energy efficient refrigerated freezer section of a Walmart
SustainableStores.indd 97
08/10/2010 15:34
98
SUSTAINABLE STORES
We do not see this as a trend that will fade. Higher customer expectations are a permanent part of the future.”
Carbon copy Consequently, Walmart is not the only big-box retailer to embrace the concept of sustainability. Wisconsin-headquartered retailer Kohl’s Department Stores is another high-profile retailer to jump on the carbon neutral bandwagon, having announced its intention to achieve net zero greenhouse gas emissions as part of its participation in the Environmental Protection Agency’s Climate Leader program. EPA Climate Leaders comprises a group of companies committed to reducing their impact on the environment by analyzing and reporting aggressive GHG reduction goals; Kohl’s, for instance, wants to achieve net zero status by the end of 2010. That goal accounts for emissions at all Kohl’s facilities, including stores, distribution centers and corporate offices, as well as emissions resulting from business travel. Kohl’s currently operates 1089 stores in 49 states, and if it is achieved, the company says it will be equivalent to removing more than 130,842 vehicles from the road for a year or offsetting the annual emissions from electricity used by more than 99,084 homes. “We recognize the importance of encouraging environmentally smart energy practices, and we aim to set a positive example in how we operate our buildings and run our business,” explains Ken Bonning, Kohl’s Executive Vice President of Store Planning and Logistics. Initiatives central to Kohl’s achievement of its net zero GHG goal include a continuation of five environmental strategies: maximizing energy efficiency, minimizing waste, improving new building design, reducing emissions and encouraging environmental values. In addition, the company is committed to using green power and renewable energy. Kohl’s ranks as the number one retailer on EPA’s list of Green Power Purchasers, and in 2009 purchased 851 million kilowatt-hours in renewable energy credits – enough to meet 71 percent of the company’s purchased electricity use. It plans to reach 100 percent green power by the end of this year. And not content with just purchasing green power, the company is also producing its own. It currently has solar panels at select stores and distribution centers in California, Wisconsin, Connecticut, New Jersey, Maryland, Oregon and Colorado, and last month reached a milestone in its solar program by activating solar panels at its 100th solar location in Mays Landing, New Jersey and announcing plans to expand the solar program into Pennsylvania. Kohl’s began construction of its solar arrays on the rooftops of seven Pennsylvania stores in August, which is expected to be completed by March 2011. The eight locations combined are expected to generate more than 2.3 megawatts of power annually. On average, the 1400 panels per location will supply nearly half of each store’s energy, preventing the emissions of more than nine million pounds of carbon dioxide over 20 years. “Solar is an integral component of our environmental efforts and contributes toward our goal of being carbon neutral by the end of this year,” says Bonning.
SustainableStores.indd 98
The use of central energy management systems has also significantly reduced emissions at Kohl’s facilities. As of 2008, all Kohl’s locations are operated by a system that controls most interior and exterior lighting, as well as heating and cooling systems. In the first year alone, the company reduced its greenhouse gas emissions by 12 percent – even while adding more than one million square feet of retail space through new and existing store expansion. But the initiative has also had an additional benefit: that of generating considerable cost savings. Kohl’s estimates that energy management programs have helped prevent nearly $50 million in electricity costs, and over the past four years have improved the company’s energy efficiency by more than 20 percent, primarily in stores. Energy efficiency initiatives such as replacing 75-watt incandescent bulbs with 24-watt metal halide bulbs, implementing building automation systems and better controlling variable speed fans on commercial rooftop HVAC units have all helped the retailer achieve ENERGY STAR ratings for 500 of its stores – the latest being its Menomonee Falls location in Wisconsin, announced in July. Commercial buildings that earn the ENERGY STAR label rate in the top 25 percent of facilities in the nation for energy efficiency and performance, use an average of 35 percent less energy than typical buildings and release 35 percent less carbon dioxide. “Reaching the milestone of our 500th ENERGY STAR store is exciting for our company and our associates. We are building on our commitment to drive energy efficiency companywide as we continue to near our goal of being carbon neutral,” says Bonning. As of spring 2011, all newly constructed stores will pursue ‘Designed to Earn the ENERGY STAR’ designation, which is awarded for building designs with an estimated energy performance that meets ENERGY STAR criteria. Designed to Earn the ENERGY STAR-designated buildings will be eligible for the ENERGY STAR after maintaining superior performance – rating 75 percent or better on a scale of 100 – for one year in operation. Five Kohl’s stores in 2010 have already received the designation. “Energy management is an ongoing effort, and the ‘Designed to Earn’ designation for newly constructed stores will help us continue to achieve the high environmental standards we have in place for our facilities,” says Bonning. “Our 100 solar locations, commitment to build 73 LEED-certified locations and 500 ENERGY STAR stores demonstrate our ongoing commitment to sustainability with meaningful results.”
“By leveraging our global scale to become a more efficient company, we are able to lower our expenses and help develop markets for new technologies” Kim Saylors Laster, Walmart Vice President of Energy
Competitive advantage It’s a rallying cry that is increasingly being taken up by many of the biggest firms in the industry. Tesco – the world’s third-largest retailer, best-known in the US for its small format Fresh & Easy grocery stores – is another major player with designs on saving money whilst saving the planet. But interestingly, the supermarket giant also sees sustainability as a significant competitive differentiator. “The battle to win customers in the 21st century will increasingly be fought not just on value for money, range and convenience, but on being good neighbors, behaving responsibly and seizing the
08/10/2010 16:09
SUSTAINABLE STORES 99
In Mexico, Walmart is buying energy from a local wind farm for
348 facilities
SustainableStores.indd 99
environmental challenges,” said Tesco Chief Executive Sir Terry Leahy in a 2007 speech in which he set out a number of green goals for his company, the most notable of which was a 50 percent reduction in emissions from 2006 levels by 2020. And with the chain already achieving a 13 percent reduction in the two financial years since that initial projection, Tesco has now upped the ante and is committed to becoming a zero-carbon business by 2050. State-of-the-art technology, energy-saving lighting and a big team of so-called ‘Energy Champions’ means Tesco is saving thousands of tons of CO2 a year. The company has revolutionized the way it designs and builds its stores so that they are as green as possible: combined cooling, heat and power plants are helping stores generate their own electricity, while an advanced metering system helps keep a close eye on how much energy and water is being used. Elsewhere, refrigeration systems are cooled with carbon dioxide, which is thousands of times less damaging to the climate than traditional refrigeration gases, while the new store template has been designed with a more energyefficient heating, lighting and air-conditioning system at its core. Changes are being made right across the store environment, and extend back through the supply chain, too. But it is in the firm’s approach to its IT architecture that some of the greatest strides are being made. Tesco’s technology infrastructure consumes about 75 percent of the company’s total energy use – and Mike Yorwerth, Head of Global Technology and Architecture, is the man charged with bringing that figure down. “In 30 or 40 years time, people will need to live on possibly a fift h of the carbon they use today,” he explains. “We’ve got to be leaders in climate change and help drive the move to a low carbon economy. We’re reducing our carbon emissions on a like-for-like basis by 50 percent compared to 2006 figures. That means for every single store, we need to reduce the emissions in that location – whether from energy, from lighting, from heating, from refrigeration, or from transportation – by 50 percent. We also said we’d reduce emissions on every case of goods that we ship by 50 percent as well.”
It’s a big commitment and, as Yorwerth explains, IT has a big role to play in meeting those targets. “If you look at IT as a proportion of the carbon footprint of Tesco as a whole, IT is quite a small proportion,” he says. “It’s only somewhere in the order of 2-3 percent of the overall carbon footprint. However, it plays a critical role in reducing the carbon footprint of the other 98 percent.” As a result, Yorwerth’s team – alongside meeting its own 50 percent reduction targets – is also focused on what it can do to help Tesco reduce its carbon footprint across the organization as a whole. The opportunities are numerous, as he explains. “Technology can play a role right the way through the supply chain, whether it’s providing better forecasting information to suppliers so that they produce less and thus ship less so that we store less, or whether it’s in the distribution end of things so that we get better transportation and routing and things like that.” It also plays a crucial role in store, too. Yorwerth says that the biggest energy users in stores are systems such as refrigeration and HVAC. But by looking at those physical assets as IT systems – and by implementing similar monitoring and measuring tools usually associated with the management of IT – Yorwerth believes his team is better able to understand where the inefficiencies lie. “We can see where they’re working out of tolerance, when they’re using more energy than they should be, whether somebody has left the lights on and things like that,” he says. “There’s lots of work we can do to reduce the carbon footprint of Tesco by using IT. We look from a design, an architectural and an infrastructure point-of-view at how we can minimize the carbon footprint of a particular project or program, and then we measure it once it’s gone in and set a carbon budget for the year for the department based on those measurements.” It’s yet more evidence of the potential returns that are possible from green investments. And as technologies improve to help retailers build eco-friendly stores and products, many will fi nd it’s going to be economically inefficient not to be green. ■
08/10/2010 15:34
iStrategy AD_B2B.indd 1
30/09/2010 14:27
Travel 36 hours in... Las Vegas, Nevada P104
|
Gadgets
Less is more Restructuring Liz Claiborne P106
|
Leisure
Objects of desire Tech for today’s executive P108
|
Money
Agenda Upcoming events in Q4 P110
101
Photo finish Fashion’s big night out P112
Details. The final curtain call? As the industry’s most iconic stores fi les for bankruptcy, Next Generation Retail takes a look at the changing face of the movie rental sector. By Nicholas Pryke
Back Section new.indd 101
08/10/2010 15:07
102
DETAILS. OPINION
B
ack in the glory days when mobile phones were just phones and pixellated monkeys ruled cutting-edge games consoles, renting a film consisted of little more than taking a drive down to your local, and most probably only, home entertainment retailer; choosing from a shelf of staff-decided VHS titles and leaving with a bag of something overly sugary – completely content with the lack of choice and simplicity of decision. These were the days of unbridled success for the Blockbusters and Movie Gallerys that indulged our need for escapism and entertainment. But those days are long gone now. They’ve been replaced by the world of binary we call the internet and the phenomenal pace of technological advancements that surround us. Where the home entertainment retailers of yesteryear dictated what we could watch and for how much – not forgetting the dreaded incurring of late fees upon delayed arrival – twenty-first century technology and lateral thinking has introduced the industry to its next generation of pioneers. Unfortunately for the ‘old timers’, that means an introduction to a market they have little control of. Such is the recent case with global home entertainment retailer Blockbuster who, following in the footsteps of former competitors Movie Gallery, filed for bankruptcy at the end of September. While the company will continue to operate and intends to be back in business once it has completed Chapter 11 proceedings, it goes without saying that to do so, it will need to shed at least 1000 of its 3000 US stores – and with it wave goodbye to a significant chunk of its customers. According to Blockbuster’s “pre-arranged” plan, the company will cut its $1 billion debt down to a more sizeable $100 million. The proceedings include securing a $125 million “debtor-in-possession” (DIP) financed from its Senior Noteholders to help meet its obligations to customers, suppliers and employees in the ordinary course of the recapitalization process. With poor understanding of a failing business model and an inability to adapt, the majority of the company’s debt is to major film studios: Fox is owed $21.6 million; Warner Brothers, $20 million; Sony Pictures, $13.3 million; and the list burrows further into the independents. Jim Keyes, Chairman and CEO, commented at the announcement of the bankruptcy: “After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers”. According to the optimistic Keyes, the recapitalized Blockbuster will “move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional library
Back Section new.indd 102
“This variety of delivery channels provides unrivalled convenience, service and value for our customers” Jim Keyes, Blockbuster
Redbox offers an estimated 27,000 rental kiosks round America with rates of just $1 a night
of more than 125,000 titles and our position as the only operator that provides access across multiple delivery channels, stores, kiosks, by-mail and digital. This variety of delivery channels provides unrivalled convenience, service and value for our customers.” Unfortunately, someone forgot to tell Keyes that the reason Blockbuster has found itself in this position is because they have been pushed out by competition that provides access across multiple delivery channels: stores, kiosks, by-mail and – you guessed it – digital. In fact, writing for the Dallas Observer Dallas is home to Blockbuster headquarters, Niko Celentano even called for Keyes to hand in his resignation, claiming that he “failed all shareholders in the fiduciary responsibilities due to them. [He] is the main reason Blockbuster is in this position today due to his denial of being in a business model that did not work anymore. Had he of seen the changes that were evolving in this industry in the past few years, Blockbuster would not have been in the courts filing Chapter 11 protection.”
08/10/2010 15:07
OPINION. DETAILS
A sign up outside a Blockbuster store last year. The company will need to lose at least 1000 of its 3000 stores across America
And while retrospective advice is about as helpful as setting off a fire alarm in a burnt-out building, Celentano does well to epitomize precisely where the specialty retail giant went wrong. For starters, with DVD-mailing service and 24-hour kiosk companies such as Netflix and Coinstar’s Redbox leading the film rental industry, Blockbuster simply can’t compete in terms of flexibility, availability, variety of choice and ultimately, price. When you compare Netflix, which offers you a simple $8.99 monthly plan for unlimited DVDs, two at a time, delivered straight to your door – with no late fees – Blockbuster was always in the danger zone. Combine that with the fact the Blockbuster charges and relies upon extortionate late fee rates, and you can see where their business model started to crack. On the DVD-rental kiosk front, Blockbuster did actually realize the potential to grow into the market, but by that time Coinstar-run Redbox kiosks had already sped away with the prize, with Wedbush Morgan analyst Michael Pachter noting that Redbox had 26,900 kiosks as of the end of June 2010 – and predicted that number to exceed 28,000 by the end of October. And Pachter doesn’t have much applause for Blockbuster’s kiosk tactics either, saying: “The most they are getting out of this is a five percent royalty. By
Back Section new.indd 103
Online rental company Netflix offers customers unlimited movie rentals for just $8.99 a month. Shares in the firm have risen steadily in recent years, but soared following the Blockbuster’s Chapter 11 filling
103
putting kiosks in, all it does is to help them cannabalize their own business”. For the Dallas-based former movie giant, it seems as though technology and innovative thinking have proved stronger than having a brand stretching back to 1985 that hasn’t moved with the times. But perhaps they should have already learnt their lesson before now. After all, their closest competitor, Movie Gallery, also fell victim to changing movie-watching habits and filed for bankruptcy protection back in February – its second trip through bankruptcy court – before biting the bullet and liquidating in August. However, it’s this idea of changing movie-watching habits that has affected Blockbuster most. With almost anyone anywhere able to download or stream movies online, customers aren’t prepared to wait for a movie they can watch immediately, nor are they understanding of being charged a late fee for something they could have got pro bono on the web. The inherent nature of the internet has played a major hand in the decline of Blockbuster too, allowing the streaming and downloading of movies that in years gone by would only have been released through DVD. Netflix specifically has made sure a large part of its business model includes its online business, with members being able to go to their website and stream movies on a whim, but more importantly at no extra cost. So what does all this mean for the future of Blockbuster? Well, with shares of Netflix hitting an all-time high the day Blockbuster filed for bankruptcy protection, it would seem that there is little confidence behind the former king of movie rentals. With 36 percent of the $6 billion US rental market compared with Blockbuster’s 22 percent going to Netflix, and with Blockbuster’s shares being de-listed from the NYSE after it closed at $.011. Tony Wible, an analyst with Janney Montgomery Scott, summed up the future for Blockbuster by affirming that “Netflix is operating in an environment with limited competition.” Regardless of how the crumbling company reforms itself, the chances are that, even if it does come back fighting, the market will have moved on again from what it is now. With Netflix and Coinstar not only having a finger on the pulse of the industry, but literally progressing it, the only way Blockbuster can reverse their fortune is by reinstating trust in their now former customers and leaning on new innovation to play a phenomenal part in its future. But for the moment at least, it would seem as though the Block has busted.
08/10/2010 15:07
104
DETAILS. TRAVEL
36 hours in... Las Vegas TIME : -8HRS GMT | STATE : NEVADA | POPUL ATION : 1.8 MILLION
‘Bodies…The Exhibition’ at the Luxor Hotel
The sparkly lights of Sin City lure hardened gamblers and those who just fancy a flutter from all over the world. However, it’s also the convention capital of the world and a popular business destination, as NGR discovers.
T
he city that never sleeps – and it truly never does – is without doubt the world’s largest adult playground; exchange the climbing-frames for blackjack tables and swings for slot machines and you get the idea. But nothing can replace the moment when you realize you’ve just walked past two pyramids and a sphinx in the middle of the Nevada Desert while the skyline illuminates everything behind you. Fortunately, Las Vegas is a hub of events and conferences, spanning across hotels, arenas, and incredible customized venues that have been serving the industry’s biggest and brightest for a good few years, so if you haven’t had the privilege of having your jawdropped recently, NGR has the answer in its own version of Las Vegas tourist information. Take our word for it.
Back Section new.indd 104
The Stratosphere Las Vegas Hotel and Casino Two types of people walk through the doors at the Stratosphere – those there to relax, which is completely understandable for a hotel, and those there for an adrenaline rush. If you’d consider yourself one of the latter, then this is a must. Standing at a chilling 1149 feet high in the Vegas skyline, the Stratosphere Tower boasts of being the tallest observation tower in the US. Not that exciting? Well, add three roller coasters and a controlled free fall, all outside the roof of the tower, and you have your answer. The ‘X-Scream’ propels you 27 feet over the edge of the tower while you look 866 feet below you, while ‘Insanity’ extends you 64 feet out from the tower on a huge mechanical arm and spins you with a force of 3G for a truly memorable experience. Just don’t try to take your drink up with you.
Perhaps not one to visit immediately after the Stratosphere rides, ‘Bodies…The Exhibition’ will easily trump any science lab dissection you did at school. With an intricate, 3-D vision of the human form, visitors get to see real bodies preserved along with their inner organs. Showcasing 13 wholebody specimens from China and more than 260 organs and partial body specimens, each piece goes through a method known as polymer preservation where all the tissue and water is replaced with silicone rubber. There are sections dedicated to bodily decay, wonders and anomalies that will leave you with a completely different perspective on the human body – after all, it’s not everyday you get to see what makes you tick.
08/10/2010 15:07
TRAVEL. DETAILS 105
Top five hotels 1. Wynn Las Vegas: The newest hotel to hit the strip, the Wynn holds original Van Gogh and Picasso pieces strewn around Louis Vuitton and Chanel shops – if you didn’t feel luxurious enough already. 2. Four Seasons: A hotel within a hotel, based on floors 35-39 of the Mandalay Bay hotel. Say no more.
The Freemont Street Experience Legendary casinos, free entertainment, old-fashioned gambling hospitality – this is the vintage Vegas of the Freemont Street Experience. On any given night you could bump into famous bands, strolling showgirls or be privileged enough to witness an amazing saxophone performance. The first paved street in Vegas, Freemont Street boasts a seven-block, open-air pedestrian mall underneath a 90-foot LED canopy that projects a myriad of eye-popping colour combinations, while 12.5 million bulbs ramp up the resolution to literally blow your mind. To cut a long story short, no visit to Vegas is complete without a walk down this legendary street.
The Bellagio conservatory With over 100 cast and crew members, this could very well be Vegas’ biggest free gig. With over five million visitors each year, the conservatory lets the seasons dictate its contents and, just like a Broadway show, the floral theatrical productions take months of work and an army of talented people. From giant ants to dragons throughout the walk, you can’t help but become a small cog in the imagination of the Bellagio – inspired, of course, by Mother Nature herself. Last year’s summer event was witness to a 40-foot tall ferris wheel and an assault of 16-foot tall poppies, and the word on the grapevine is that this year’s event promises to surpass any other they’ve ever done. The best bit about it all – it stays open 24 hours a day so there’s no need to interrupt your luck at the tables.
Siegfried and Roy’s secret garden and dolphin habitat at The Mirage hotel
Gondolas at The Venetian
Not only is The Mirage hotel an icon in Vegas, but many of the attractions it holds are too – and Siegfried and Roy are no exception. Their secret garden and dolphin habitat lets you come face-to-face with white lions and tigers, panthers, leopards and a family of bottlenose dolphins; if looking at them isn’t enough for you, or indeed your little ones, then you can indulge your fantasy and become a dolphin trainer for the day. Working with their dolphin specialists, you’ll participate in plenty of activities including playing with, training and getting in the water with the dolphins. When you finally tire of your aquatic shenanigans, there’s a three-course gourmet lunch waiting for you. Didn’t think you could do that in the desert did you.
I’m sure everyone is aware of the gondola rides in Vegas, but how many people have actually been there? For those of you who haven’t –shame on you. But you can make it up by taking a stroll down to The Venetian hotel and casino at the intersection of Las Vegas Boulevard and Spring Mountain Road to witness the surreal for yourself. With opera singers, a strolling juggler and various violinists all under a painted fresco overhead, a visit is sure to entice your Italian side out to play. If shopping is your thing – or your other half’s thing – then the Grand Canal Shoppes has everything to offer, including exceptionally high-quality blown glass and unique Venetian masks. Of course, you could just use it as an excuse to lose someone and go gambling. The choice, as they say, is entirely yours.
Back Section new.indd 105
3. The Bellagio: Remember Ocean’s Eleven with the amazing hotel fountains and the angry boss? This is that hotel – minus the angry boss. 4. THEhotel at Mandalay Bay: If you’re looking for the biggest rooms in Vegas, look no further. 5. The Venetian: Italian opulence, complete with marble baths in every room, provides a truly relaxing stay away.
Wynn Las Vegas
08/10/2010 15:08
106
DETAILS. LIZ CLAIBORNE
Less is more Liz Claiborne’s Peter Warner speaks to Next Generation Retail about keeping up with the industry and how stripping a business back to the bare essentials can give the much needed facelift to succeed in tough times.
I
n the retail world, it is generally considered that more sales is good, fewer sales bad. For apparel brand company Liz Claiborne however, cutting revenues from $5.5 billion annually to $3 billion annually has been part of a major restructuring of the business. “The previous CEO had been buying brands and building them onto the platform,” explains the firm’s COO Peter Warner. “That was a trend that happened in the nineties and early 2000s. Instead of growing your earnings naturally, you were buying it, integrating it into the company and institutionalizing these brands. We did that pretty well with several brands, but many of them were not very good and so they were not profitable. Over the last three years, we’ve been shedding those brands and moving out of businesses that were just not institutionalizing the business very well.” As part of this corporate weeding strategy, Liz Claiborne has almost halved its turnover but, according to Warner, has significantly increased its profits. And for a company that dealt in women’s fashion to the wholesale market, selling to department stores that were struggling in the economy, shedding the underperforming brands and concentrating efforts and resources on the established and popular lines was simply a logical business strategy. “Had we stayed the same, we wouldn’t be here right now,” Warner says. “We would have caved in and not made it; it was basically a house of cards.” He goes on to explain that as part of the business strategy, Liz Claiborne is moving away from the exclusively wholesale model it had operated with for so many years, and looking to a much more retail based model. With department stores taking the hit of the economic downturn, slashing their prices and or casting off brands altogether, the wholesale market was proving all the more risky for firms such as Liz Claiborne. The company is now looking to open up brand stores for some divisions, namely Lucky jeans and Juicy Couture, and establish an exclusive relationship with a retailer to sell all Liz Claiborne brands. And Warner highlights that finding a strong retail partner will pay dividends to the business. “We did not have Liz Claiborne stores. There were zero Liz Claiborne stores,” Warner reiterates. “The only stores that
Back Section new.indd 106
were Liz were outlet stores. So, we still have those but we’ve done a big deal with JCPenney. Now JCPenney is the exclusive retailer for Liz Claiborne. We’re co-designing with them and sourcing it and moving into that model, so it’s a much more profit-rich model, there’s a better profit pool. We also don’t have people fighting over it in different markets, and so they’re taking care of the brand. We’re taking care of it because we’re designing it with them. They’re happy because they’re getting a higher revenue and margin off of it, and we’re happy to share in that, as well.” Warner explains that in order to succeed, he and his colleagues have had to recognize their shortcomings as an organization. “We were not retailers,” he concedes. “We didn’t understand how to do the retail market.” Learning from others in the market has become a priority for Warner, as he highlights that going forward he will be examining various elements of retailing, such as how the retail experience works, how a product sells in stores and creating a better understanding of inventory. “Our sales per square foot are anaemic when you compare it to everybody else that’s out there, so that’s going to be the biggest thing over the next couple of years,” he says. Still, it is not all an uphill struggle. As a wellestablished brand, Liz Claiborne still has a loyal following of consumers. “People still love the product,” Warner says. They come into the stores and they love the experience. But we’re not necessarily good at converting that customer, and so they’re enjoying the brand and they love Jack Spade, and they love buying our suits and they love buying our denim, but we’re not maximizing the profitability of that, and so what we have to do now is get very efficient at how we operate those stores.”
Omni-channel Warner explains that the new bricks-and-mortar side of the business will hopefully be part of a multichannel approach to the market. “We have a new leader at Lucky brand jeans,” he reveals. “He believes that his internet business could be $200 million of the sales, which would be about 45 percent of his current sales right now, and so he’s putting a lot of energy into that business. I think it’s the right thing to do, personally. I think in some ways the bricks-and-mortar part of this industry is sort of like the Model-T. It’s like the horse-
08/10/2010 15:08
LIZ CLAIBORNE. DETAILS 107
and-buggy carriage. You know, there are still forms of transportation but we’re moving on to the next thing right now.” For the more traditional retail companies in the market, embracing the technological advances of the industry was not something that happened too easily. Warner highlights his feeling that many long-term players were fearful of technology during the original dotcom boom. “I think now the technology is mature and it’s safe,” he says. “It’s sort of like the nuclear industry. The reality is it’s actually a pretty good industry if it is truly safe, and that’s the thing that you have to figure out.” He acknowledges that the forthcoming generation are becoming acclimatized to the current retail landscape, explaining that there is little “capacity for patience”, and convenient, mobile or online retailing will continue to flourish. “Also,” he adds, “I don’t think the world can sustain this.” Indeed, the environmental impact of traditional retail is becoming increasingly under scrutiny. “We were talking this morning about just the amount of touches that a product needs to get into its channels,
Back Section new.indd 107
“The design side and the development side of the businesses, they’re still the same. It’s still people reinventing a different version of a different recipe, but the retail and supply chain sides are gonna be big investments for us, especially the virtual retail side, where it’s social or applications or phone”
and by the time it gets to a store and somebody is buying a handbag, or whatever, that’s not efficient. The amount of gasoline and energy and work put into that, and then a woman or a man buys it and they put it in their 4,000-pound car and drive it five miles back to their house. It’s quite sad, actually, when you think about it. There’s got to be a better way to do this, and I think a lot of it just comes down to breaking down the paradigms, so it’s going to be an interesting ten years. I also think it’s more cost-effective.” As far as Warner is concerned, technology will be a key area of development for the business as it looks to move forward. “A lot of it comes down to the speed technologies, the ones that link our supply chain into our distribution and our retail channel needs,” he explains. “The design side and the development side of the businesses, they’re still the same. It’s still people reinventing a different version of a different recipe, but the retail and supply chain sides are gonna be big investments for us, especially the virtual retail side, where it’s social or applications or phone. I think there’s a big future for that.”
08/10/2010 15:08
108
DETAILS GADGETS
Technology for today’s executive Sony DR-GA500 headphones
Polaroid 300 Instant Camera
Sony has officially unleashed their brand new gaming headphones, with 7.1ch 3D surround sound effects. With a separate signalprocessing unit, which decodes and delivers Dolby Pro Logic llx audio, Sony has also ensured that the headphones themselves are created with ‘triple enfolding’ padding, so they’ll sit on your ears for hours without the least bit of irritation.
After being dropped for a few years, Polaroid instant cameras have been rejuvenated by a new creative director, Lady Gaga, and a new flagship instant snapper in the shape of a Polaroid 300 Instant Camera. While pretty chunky, the Polaroid 300 is also surprisingly lightweight. An instant flash is now built in and there are four scene-settings to get the most out of the straight-to-shot prints.
Apple 12-core Mac Pro Packing a punch, the 12-core Mac pro desktop beast is now available from Apple, with prices starting at a whopping $4999. But for that price tag you get a lot of machine. Entry models feature two 2.66GHz six-core Intel Xeon Westmere processors, a 1TB hard drive and 6GB of RAM with an ATI Radeon HD 5770 in charge of graphics duties. Splash the cash further and the 12-core Mac Pro offers even more.
Sanyo Xacti VPC-PD2 Sanyo have finally delivered what we’ve all been waiting for: a high-def pocket camcorder with optical zoom lens. The VPc-PD2 offers a 3X optical zoom lens that ranges from 38mm wide angle to a 114mm telephoto, along with stereo microphones on the sides of the camera. The price fits the rest of the market at only $170 and it measures a slinky 2.48 x 0.87 x 4.36, weighing 3.7 ounces – that’s positively pocketable. Good work Sanyo.
GADGETS 2.indd 108
08/10/2010 15:28
Your World. COVERED From the people you hire to the products you sell, if you’re in business, we’ve got it covered...
Next Generation Retail NGR provides an impartial, invaluable perspective on key industry issues by bringing together key executives from the most innovative and successful extended retail companies. Our readers learn from them and other extended retail industry experts, to advance the reputation of the retail industry as a whole. ALSO AVAILABLE FOR: EUROPE
EU Edition
Find out more: www.ngretailus.com
CATALOGUE PAGE.indd 109
Next Generation Pharmaceutical
Business Management
Approximately 50% of new drug development fails in the late stages of phase 3 – while the cost of getting a drug to market continues to rise. NGP is written by pharmaceutical experts from the discovery, technology, business, outsourcing, and manufacturing sectors. Available for: US, EU
What business processes work? What are the proven, successful strategies for taking advantage of domestic and international markets? Business Management is a targeted blend of leadership and learning for key decision-makers in government and private enterprise. Available for: US, EU, MENA
Find out more: www.ngpharma.com
Find out more: www.busmanagement.com
Financial Services Technology
Infrastructure
Providing for its customer’s needs and demands is the goal of financial institutions now more than ever. But it is a tricky remit to fulfill. Your customers want it all – security, cost-efficiency, speed, added functionality and, most of all, convenience. Can it be done? Read FST to find out… Available for: US, EU
Infrastructure provides insight on how developers can achieve critical objectives by integrating leadingedge solutions across their operations – helping them to make informed decisions about technology and operations solutions for all of their areas of responsibility. Available for: US, EU, MENA
Find out more: www.usfst.com
Find out more: www.americainfra.com
08/10/2010 15:41
110
DETAILS. AGENDA
Coming up… Oct. 30-31 West Hollywood Halloween Carnival One of the world’s most creative, outrageous and original Halloween celebrations will begin early in the City of West Hollywood, as several events get underway over Halloween weekend. Get the festivities started at the Halloween Youth Carnival or the Annual Doggy Costume Contest, before ending the week at the 2010 West Hollywood Halloween Carnival where a special celebration of the 35th Anniversary of the Rocky Horror Picture Show will take place.
Nov. 04 Kinect for Xbox 360 Launch The launch of Microsoft’s longawaited Kinect gaming system will be the biggest one in the history of consoles, surpassing the one of the PlayStation 3, Nintendo Wii or even Microsoft’s own Xbox 360. In North America alone, over 7000 retailers are doing midnight events to celebrate the launch and pre-order momentum looks huge. “This is going to be the number one consumer electronics purchase this holiday,” claims Phil Spencer, Head of Microsoft Studios.
Back Section new.indd 110
Nov. 11 Harry Potter 7 The world premiere for Harry Potter & The Deathly Hallows: Part 1 will be held in London’s Leicester Square on 11 November 2010, with the US premiere taking place in New York four days later before the film is released nationwide. The associated sales should prove a boost for retailers in the run-up to Christmas. “We definitely feel like customers are responding to entertainment-driven merchandise,” says Laura Phillips, VP of Toys in the US for Walmart Stores Inc.
08/10/2010 15:08
AGENDA. DETAILS 111
Nov. 21 NASCAR Sprint Cup Series Finale The Ford 400 at Homestead-Miami Speedway is the final race of the NASCAR Sprint Cup season; for the drivers involved, the whole season comes down to this one critical race. One of the most viewed professional sports in terms of television ratings in the United States, last year NASCAR fans generated $3 billion in annual licensed product sales. And with many marketers considering NASCAR fans the most brand-loyal of all sports, it’s no wonder Fortune 500 companies sponsor NASCAR more than any other motor sport.
Nov. 25 Macy’s Thanksgiving Day Parade An annual calendar favorite presented by Macy’s, the tradition started in 1924 and is held in New York City starting at 9am EST on Thanksgiving Day. In addition to the well-known balloons and floats, the parade also features live music and other performances – such as college and high school marching bands from across the country – participating in the parade. More than 44 million people watch the parade on television each year.
Nov. 30 Rockefeller Center Christmas Tree Lights Industry experts may cite Black Friday as the start of the Holiday Season, but for most New Yorkers Christmas doesn’t kick-off until the first Wednesday in December when the Rockefeller Christmas Tree Lights get switched on. For the best view, enter Rockefeller Center from 5th Avenue and walk through the horn-blowing Angels toward the tree. Entering from the side, 47th or 50th streets is just not the same view or experience.
Dec. 02-11 National Finals Rodeo Organized by the Professional Rodeo Cowboys Association, the National Finals Rodeo, held at the Thomas & Mack Center at the University of Nevada in Las Vegas, is the grand finale of the modern professional rodeo circuit. It has been held in Las Vegas since 1984. Known as the Super Bowl of Rodeo, this 10-day event puts the talents of the nation’s top 15 money-winners to the test and they compete for championship titles.
Back Section new.indd 111
08/10/2010 15:08
112
DETAILS PHOTOFINISH
A night of retail revelry On September 10th, shoppers gathered in major retail cities across the world to celebrate the second annual Fashion’s Night Out. The high fashion houses, department stores and mid-range retailers of New York City opened their doors late, rolled out the red carpets and played host to hundreds of excited shoppers looking to soak up the atmosphere and perhaps bag themselves a designer item at a reduced rate. The event, organized by Vogue, debuted last year in an attempt to keep interest and revenues high in the luxury apparel sector, and was met again this year with the same enthusiasm.
PHOTOFINISH.indd 112
08/10/2010 15:27
THE RIGHT THING AD.indd 1
01/10/2010 16:11
RETALIX AD.indd 1
16/08/2010 11:25