Bad Retail is Dead — Long Live Retail

Stephen DeAngelis

November 05, 2018

Brick-and-mortar retailers continue to declare bankruptcy at an alarming rate. Ben Unglesbee (@Ben_RetailDive) and Cara Salpini (@CaraSalpini) bluntly write, “Last year was a dismal one for certain retailers. Those ‘certain’ retailers include ones with a lot of debt, that depend on malls and whose business is especially susceptible to the explosion of Amazon online and off-price sellers in the physical world. (Think department stores and specialty retailers, especially those selling apparel.) By December, 2017 had seen 26 major retail bankruptcies (defined in this case as companies with more than $50 million in liabilities).”[1] The press has called this spate of bankruptcies the “Retail Apocalypse”; but, some business executives don’t believe the crisis has reached apocalyptic levels. For example, at the NRF’s 2018 Shop.org conference, CVS Pharmacy President Kevin Hourican, told participants, “Retail isn’t dead. Bad retail is dead.”[2]

Good retail responds to customer desires

Hilary Milnes (@hilarymilnes) reports during the course of the NRF conference retail executives insisted “the only way to win [in the retail sector] is to tap into what customers want, and be able to respond to it.”[3] This is true for both brick-and-mortar and e-commerce retailers. How do retailers learn what customers want? Data. Kiran Mani, Google’s managing director of retail, told conference participants, “Personalization is nothing but translating information into assistance. Over the next few years, $800 billion in sales will shift to e-retailers that use site personalization, and away from those that don’t.” Mani’s prediction highlights the need for brick-and-mortar retailers to implement personalized, omnichannel operations so they can get in front of the money flowing into e-commerce. A couple of years ago, retail consultant Denise Lee Yohn (@deniseleeyohn) predicted big box retailers failing to personalize would find themselves in trouble. She explained, “Big box retail stores are losing relevance, while e-commerce and specialty stores grow in appeal. People no longer want — or need — to shop as anonymous customers in large stores with shelves stocked high in aisle after aisle. As a result, big box retail must shift its strategy — from competing on access and selection to staging big experiences and providing big discounts.”[4]

Lucas Roh, CEO of Bigstep, believes brick-and-mortar retailers successfully adapting their operations to consumer behavior will survive.[5] He notes, “Retail chains understand the biggest advantage e-commerce retailers have is their ability to collect and leverage insights into consumer behaviors gained by technological innovations like big data.” He also observes, “Brick-and-mortar retail is not dead. According to Market Track, U.S. shoppers still prefer to make most of their purchases in-store.” Here’s the rub. Customer desires and expectations are becoming more complex and demanding. As one company notes, “Customers in general are becoming more demanding, and this poses new challenges for businesses. Many consumers expect convenience from all angles now that they know it’s possible. When they’ve received one service from a business, the bar is raised, and they expect that all their other favorite brands will do the same. When it comes to delivery, customers expect the option of next-day delivery, if not sooner with the presumption that they can track their parcel before it arrives. For businesses, this means that an efficient supply chain with a well-managed inventory tracking system is essential. And, when it comes to getting in touch with the business, customers expect instant contact through the channels that they’re most used to — Twitter, Facebook and instant messaging platforms.”[6] While all this sounds bad for retailers trying to survive, technology can help.

Retail and the digital supply chain

Data collection and analysis are absolutely essential for success in today’s retail sector. Yohn notes, “Personalization is expected. The use of technology by leading companies from Apple to Uber to personalize their offerings have raised people’s expectations. Customers no longer want anything that is mass-marketed. PwC has observed that niche products, experiences, and services uniquely suited to individual tastes, interests, and aspirations have become ‘the new consumer indulgence’.” Another source notes, “To meet the rising demand of customers, retail businesses have begun to reassess their supply chains. Artificial intelligence (AI) has started to play a big part in the supply chain of retailers. In fact, according to 2017 findings by McKinsey & Company, taking an AI approach to the supply chain could reduce forecasting errors by up to 50% and overall inventory reductions of between 20% and 50%. This sort of technology can think and learn like humans, reacting to stimuli often without human input, too. In the supply chain, AI is able to assist with packaging, research and development, and inventory management which can help make the process more efficient.”[7] Graham Brown, a partner at Lerer Hippea, told NRF conference participants, “The way to ensure success in retail today is to be tech-first, and then closely aligning online and offline channels. It comes down to how you manage your inventory, your channel attribution, how you think about in-store analytics. Technology is a much more integral part of the business when it comes to building brand and product today.”

Tobias Schulz, a pre-sales consultant at Quintiq, writes, “Instead of dreading digitalization, physical retailers can harness its potential to ensure their long-term survival. … The powerful combination of dynamic planning and advanced analytics allows retailers to rely on accurate forecasts and recognize customer trends at an early stage. Thus, they are always a step ahead. However, success belongs only to retailers that consistently integrate processes and data — from procurement logistics to goods management to home delivery service. These companies can fully unlock the potential of a digital transformation, and ultimately thrive as retailers in the tough battlefield to win customer loyalty.”[8] Roh adds, “While the retail apocalypse is closer now than it was five to 10 years ago, there is still time for brick-and-mortar stores to make the most of big data and adapt to the new way consumers are shopping. In most cases, retailers have the tools and data sources they need already in place; they just need a better way to leverage them.” Cognitive technologies, like the Enterra Enterprise Cognitive System™ (AILA™) — a system that can Sense, Think, Act, and Learn® — can help retailers understand and leverage their data.

Summary

Roh concludes, “Consumers now expect a more convenient, tailored omnichannel shopping experience, whether they are online or in-store. The new face of retail involves consumers engaging with a brand seamlessly across their e-commerce, brick-and-mortar, social media and every other channel to create unified, consistent encounters.” But, as Schulz notes, “Customer behavior is changing rapidly. Experts say that every second physical retailer is expected to shut down within the next 15 years. It’s easy to see why: digital economy has changed the rules in supply and demand.” Cognitive technologies can help retailers keep abreast of changing consumer tastes and behaviors so they can respond appropriately and remain relevant. Long live retail.

Footnotes
[1] Ben Unglesbee and Cara Salpini, “The running list of 2018 retail bankruptcies,” Retail Dive, 8 October 2018.
[2] Hilary Milnes, “Retail Briefing: ‘Bad retail is dead’,” Digiday, 18 September 2018.
[3] Ibid.
[4] Denise Lee Yohn, “Big-Box Retailers Have Two Options If They Want to Survive,” Harvard Business Review, 22 June 2016.
[5] Lucas Roh, “The Retail Apocalypse Is Not Happening: Why Retailers Who Innovate Will Never Go Extinct,” Forbes, 28 September 2018.
[6] Daily Business contributor, “Has technology boosted the retail supply chain?Daily Business, 7 October 2018.
[7] Ibid.
[8] Dr. Tobias Schulz, “How digitalization ensures survival in physical retail,” Quintiq, 25 September 2018.