Can Retail’s Present Keep Up With The Demands Of Its Future?

Except for a few notable high-profile examples, it’s not easy to be a retailer these days.

The struggle is most apparent when one casts an eye on the brick-and-mortar retail space — where reviewing quarterly earnings results can seem like an exercise in trying to distinguish the walking wounded from the actual zombies who are dead and just don’t know it yet.

But as much as conventional wisdom has in recent years liked to look at those ever diminishing results in physical retail and respond with “go digital” as the easy and obvious cure, the experts sitting in on Innovation Project’s “The Future Meets The Present Right Now: Can Retail Keep Pace?” panel noted that reality has a hard time living up to that particular admonition.

The panel included Recurly CEO Dan Burkhart, Loop Commerce CEO Roy Erez, former Rakuten CEO Fumio Kobayashi, VP of Digital Innovation at SharkNinja Ajay Kapoor and moderator J. Skyler Fernandes,
founder and investor at One Match Ventures, formerly the founder and head of Simon Venture Group (the largest U.S. corporate venture fund dedicated to retail)

Going digital isn’t as easy as flipping a switch. There is a tremendous amount of technical integration that has to go on to make that channel work at all — and even more if one wants to make it work in tandem with the already existent physical channel.

Which, the panel noted, retailers absolutely have to think about — because as much as the remarkable growth of eCommerce is constantly being lauded, the reality is running a profitable eTail enterprise has proven to be very near impossible for most businesses that aren’t Amazon.

“I think the new cliché is that eCommerce is dead,” panel moderator Fernandes noted. “It is funny how many startups are pitching me these days with eCommerce as their starting point with plans for physical locations in the future. Their big innovative idea is they are opening physical stores, and, in offering omnichannel commerce, is where they plan to become profitable.”

But, “going omnichannel” insofar as it is the 2017 update for “going digital” isn’t quite a silver bullet. In fact, the panel was in complete agreement on one idea: There is no silver bullet.

Which isn’t to say that the future of retail is hopeless, but that retailers who don’t evolve — and in some cases as quickly as in the next 12-18 months — aren’t going to be around for many more bites of the apple.

The Changing Consumer

The biggest reset — and the one that the panel returned to most often — was the idea of consumer expectation and experience.

Said simply, the low (one percent to two percent) conversion rates and basket sizes online are a symptom of consumers who are very used to the idea of being able to get what they want, when they want it, more or less anywhere. The second the consumer hits friction on that path, it’s “game over” as far as that sale is concerned.

And there are a lot of friction points up for grabs in digital environments: difficult payment experiences that make a customer work too hard to enter their credentials and check out; bad displays that mean the customer pays but then returns an item because it’s not quite what they were expecting (20 to 40 percent of the time in online channels) and shipping times that are so long that the consumer decides they’d rather just go to the store and get it (or buy it on Amazon) and have it in their hands much, much sooner.

Physical environments aren’t any easier, the panel commented — mainly because it is increasingly difficult to get customers in them. As digital experiences improve, more direct consumers will opt for them, meaning merchants that can ship quickly have an advantage.

And, in some cases, physical retailers aren’t adding anything to the in-store experience. One panel member lamented trying to buy binoculars and being unable to find a single sales associate who knew anything about binoculars, despite being in a store that putatively specialized in goods for hikers and other rugged outdoors types.

Physical retailers face some very difficult costs in serving up that need for immediacy to which they best cater. A customer whose washing machine has broken on the upper east side of Manhattan certainly wants (and expects) to be able to purchase its replacement and have it installed on the same day; but renting real estate in downtown Manhattan to “warehouse washing machines” is an extremely expensive way to supply that need and expectation.

Simply failing to meet it is not an option, because there is an option that will and the consumer is carrying a supercomputer in their pocket at all times that will connect them to that other option as soon as they encounter friction at their first stop.

The Challenges in Overcoming Friction

The issue, the panel noted, is that retailers can simply decide to become omnichannel and “think outside the box.” Experimenting with ideas like pop-up shops, same day delivery, smaller locations in prime retail real estate with goods housed “in a less desirable part of town,” rewards or gifting — these are all complex technical integrations that have to work seamlessly so that the customer doesn’t get a choppy experience between channels.

One participant said that in many ways, the retail environment is very much still “the wild west” — that while most retailers know they want to get a fully operational omnichannel experience and are very much onboard with that idea, getting there is going to take time. A lot of that is “unsexy back office [stuff] that all has to be taken care of or none of the best and most creative ‘out-of-the-box’ solutions to tack[le] retail will work.” The reason we’ve heard more about omnichannel retail than we’ve seen it successfully on the loose in the wild is that the next few years are likely to be spent clearing structural impediments that need to be figured out at scale.

The other big challenge, the panel agreed, is connecting the dots on all of the data flowing into and around retail — “and figuring out how to map consumer behavior across [that] ever proliferating and evolving” arena.

The fundamental challenge (and the hardest) is how to intercept the right person at the right time and the right offer — and then make it easy for that person to finish the transaction. And getting to it, the panel noted, isn’t going to be one magic change but a lot of upgrading and evolving incrementally so that retailers that survive will be the ones who can most consistently make that “right person, right time” easy conversion alchemy happen.

The Shorter Term

While much of the challenge retail faces will be fought out over a longer time frame, the panel did say there are things that need to happen in the next 12 -18 months that will probably be deal breakers or makers for a lot of players in the field.

The first is that companies are going to need to get better at knowing what they don’t know and finding a way to fill those holes. Unilever’s acquisition of Dollar Shave Club was a favored example, as the panel revealed that the firm was acquired at five times the revenue and wasn’t profitable.

But that wasn’t the point, the panel said. The point was that Dollar Shave Club came out of nowhere to give some major and entrenched players a run for their money buy building a direct-to-consumer brand with the strength on digital acquisition. Unilever didn’t need a profitable line of razors half as much as it needed Dollar Shave Club’s core strength in digital customer acquisition.

And even for smaller players who can’t make a billion dollar acquisition, this insider knowledge will be key when figuring out what parts of the digital infrastructure will thrive better in the hands of a partner retail enabler.

Moreover, the panel noted, getting the data to work in concert will be crucial in the emerging fight so that the channels aren’t a series of daisy-chained silos — and can actually function as a single omnicommerce engine. Data has to move upstream and downstream easily for that to happen and to be able to inform decisions across a retailer or brand.

There are no easy answers — and no easily declared early victors except, according to the panel, maybe Amazon. But there are a lot of ways to do it better. And it will be clear which retailers did it better — and which didn’t. Because the ones that didn’t won’t be around anymore.



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