Can Better Data Stop The “Coming Physical Retail Death Spiral”

Technically, the holiday season started November 1st. But we all know that holiday shoppers put their game faces on a week from today on the busiest shopping day of all days in the U.S. – Black Friday. But, this year, brick-and-mortar merchants may be wishing that Santa brought them that crystal ball they asked for last year to see just how retail-ready these shoppers really are. The last year – well, the last several years, really –  have been tumultuous, to say the least. Though brick and mortar is still a dominant 90+ percent of all retail transactions, foot traffic has been on a gradual but persistent decline.

“Intense competition from online and mobile channels, pricing pressures and shrinking margins, high fixed costs, changing customer demographics, and eroding revenue opportunities,” are the pressures that took down newspapers, according to MPD CEO Karen Webster.

In her cheerfully titled article “The Coming Retail Death Spiral”, Webster notes the same troubles have been coming to call for the traditional shops for the last several years, and that though retail isn’t going to do die (because people actually like stopping in store) it’s going to have to evolve, and soon.

“Reinvention of the physical retail sector is essential, and like Darwin’s theory, only the fittest will survive. “

RetailNext, a data analytics firms that works exclusively with retailers, is one of the change agents helping retailers survive the great commerce evolution. In a podcast interview with Webster, RetailNext’s CEO Alexei Agratchev and Head of Business Analytics Chitra Balasubramanian explained that when their firm first launched 7 years ago they had a simple goal – to give physical retailers access to the same kind of information that their online counterparts routinely capture and use.

Now armed with the data of over 800 million shoppers worldwide, RetailNext can deliver all kinds of information about those consumers and some pretty good leads on what those shoppers will do, well, next.

“The kind of data we collect is about giving retailers information that can measure and improve the in-store experience.”

And that data is wide-ranging–the company can tell its retail partners how many customers they have per day, what their gender breakdown is, how many are new and even data about how often the regulars come in and what they do while they are there.

“We can collect a lot of information about what people do when they are inside the store, how much time they spend shopping, which parts of the store they got to, which merchandise they interact with, if they interact with sales associates, how much time they spend waiting in line, what products they buy, what products they don’t buy, etc.”

Further, the RetailNext analytics team can mash that up external information such as the weather outside, and even where their customers were shopping prior to visiting a particular store.

You might wonder how they do that. And the answer is “that depends.”  There’s no one method that RetailNext uses to gather data, their data streams come from in-store video, POS data, interactions between mobile devices and in-store wi-fi. What’s interesting is that, in most cases, RetailNext is simply digitizing and making accessible via their platform data that companies are actually already gathering–by installing video cameras for security purposes and integrating at the POS to capture transaction level details.

Now that can sound like a lot of surveillance, and Webster questioned whether consumers knew RetailNext was watching their every move so closely.  Agratchev noted that generally their merchants were upfront about the data gathering, and that in any case the date pulled is aggregated to find patterns, not to zero in on any one person individually.

“Most of our customers are fairly proactive about communicating about the fact that they’re using technology to measure what’s happening in their stores. Depending on the technology used it varies how our customers wish to actually communicate it.  However, almost everything is completely aggregated anonymous data. Nothing I talk about is about tracking individual customers.”

But then again, data without context is of questionable benefit – and that’s where RetailNext adds its greatest value.

“We work with lots of existing data but the core of our company is making sense of the data and making it actionable and usable for our merchant  customers,” Agrachef noted.

Because it’s with enhanced context that data becomes truly meaningful, RetailNext’s data for October demonstrates just how powerful data with the right context can be.

Webster noted during the discussion that, according to RetailNext’s Composite Index for October the results were a mixed bag. Foot traffic was down, transaction value was down, sales were off.  She remarked that their numbers painted quite a grim picture for retailers.

And yet a closer look, explained Balasubramanian, shows more consistency in the numbers than may first be apparent.

“I really think that though you see the number representing a mixed bag, it’s not as bad as it looks.”

Specifically, though their figures show traffic on the down swing down, sales per shopper are actuallyup 5.5 percent between over the last five months.

“Over the last five or six months we’ve seen sales per shopper, which is how much revenue an individual shopper will spend with a retailer, actually positive year-over-year and increasing. Those who are walking in are spending more on average,”  Balasubramanian told Webster.

And this should give retailers something of a boost going into Thanksgiving and the unofficial national celebration of commerce known as Black Friday. Shoppers, seem smarter when they visit a physical retailer – they’re more efficient with their time, but seem to be opening their wallets just a bit more when they’re inside.

As for November, Balasubramanian told Webster that although it may have started off a little bumpy with Halloween being its first weekend’s lead-in, it’s a situation that data indicates is smoothing out.

“Going into the big Thanksgiving weekend shopping events and the holiday shopping season as well, I think the idea that people are spending more on average and that conversions – those who intend to buy, actually buy – is really going to be a positive for retailers to make the most of consumers who make it to their doors.”

So the game to win, Webster said, is getting them into the store. And, how to do that, she asked? It is simpler than most retailers think, notes Agratchev.

“Our biggest surprise was just how much low hanging fruit there is. Within every retail store we look at, which at this point is thousands and thousands of stores throughout the world, slight changes to things that can make big results, changes to stock, layout. The idea is that you can optimizes the in-store experience by making minor changes by understanding what the customer is doing.”

Most of these things are not difficult he noted, nor do they cost anything to the retailers bottom line.  And yes, every one they’ve worked with has had at least one “easy fix” open to them.

“We haven’t seen a store where they haven’t identified things within a few months that they could modify and see improvements in a big way.”

And those improvements small but big improvements could make all the difference this year ,as more and more retailers are starting Black Friday early, on Thanksgiving Day.

“A lot of our retailers are planning on opening up their doors on Thanksgiving Day or  increasing the number of openings that they had from the prior year,” Balasubramanian said

And while more days to shop on the surface can seem like it can only be to the good for retailers, Balasubramanian noted that perhaps the extra days are a bit of a dual-edged sword when it comes to total weekend performance “From the prior year retailers have learned from our information that opening on Thanksgiving can cause people to shop less throughout the weekend.”

With that challenge, Balasubramanian notes, also comes an opportunity for retailers. Forewarned is forearmed and knowing the potential overall depressive effects of the early opening lets merchants know that they need to put an additional emphasis on outreach throughout the shopping weekend.

As for December?

Balasubramanian told Webster that things on the outset seem favorable for the holiday shopping season this year, especially because it is one crucial weekday longer, which tends to act as a boon for those last minute procrastinators.

More interesting to watch, she noted, may be the shopping patterns from Friday December 26th to Sunday the 29th.  RetailNext is expecting retail activity to be very strong, and not just among consumers cashing gift cards and making returns.

As for Balasubramanian’s and Agratchev’s view on whether online is cannibalizing in store shopping, neither see an ongoing war between in store and online retail – even though it may seem that way now. Merchants want customers who buy, and they want to help make that buying experience pleasurable, where ever it takes place.

“Ultimately it’s about having synergy between the channels.  How do they make the most of the different channels, how do they engage their customers throughout all of their available channels?”

As the season of giving (and buying) wears on, merchants will be thinking extra hard about how to best use those channels, lest they end up going the way of the regional newspaper daily – shrinking margins and fewer customers. At least RetailNext with its ever expanding base of merchants, growing stockpile of consumer behavior data and analytics platform that helps make sense of it all, has the tools to help merchants figure out how to avoid that fate.