Features, Innovation, Strategy and Operations

A Roadmap to Innovation

Change the Culture

Several major themes at the Retail Innovation Conference emerged, but one of the most dramatic was that for the largest retailer in the world, with 5000 stores in the U.S., machine learning/AI can make significant improvements in operational efficiencies. At Walmart, they are removing the human factor in monitoring and managing the in-store and food storage temperatures. Machine learning applications have led to cost savings, improved in-store experiences (not too cold and not too hot), reduced food spoilage and a more sustainable business model. The goal is 100 percent machine-made decisions for in-store temperature maintenance. And this is just the beginning.

Keynote Clay Johnson, CIO of Walmart said it’s easy to be overwhelmed with all the new tech. You also need the talent. To that end, Walmart recently opened offices in Austin and Dallas and Johnson just returned from his second trip to Israel with a team of Walmart innovators and business leaders. “We spent a few days meeting with 30+ startups that are experts in mobile, AI, machine learning and computer vision. Phenomenal technologies are coming out of Israel that will drive the pace of change even faster.” Johnson’s team will narrow investment support to three startups with technologies designed around the future of how people shop and RPA (robotic process automation), with consideration to scalability and ability to integrate.

There’s clearly a culture change at Walmart. They are advocating the fail-fast mantra of startup mentality, necessary for innovation, at the same time acknowledging that nine out of 10 ideas won’t work. But hey, that that isn’t failure. Johnson explained that having bought a lot of startups in the last couple of years, Walmart’s larger ecosystem has been infused with risk and failure. Speed has been the big change. “Get 80 percent right and just go — that’s what the startups teach us.”

The prioritization process of investing in new initiatives is tied to its business case, but Johnson noted they are careful not to be driven entirely by the numbers. Often things that don’t have a return are actually really good ideas. The fact that the corporate culture is so embracive of innovation is because Walmart’s Digital Transformation Office is led by the CEO, Doug McMillon. Ideas get cross-company visibility in terms of their application to the entire company or a smaller segment/country.

Some Innovations Are Obvious!

Jake Annear, manager of Digital Marketing and Innovation for Moët Hennessy spoke about the need to enhance storytelling with the emergence of new technology. This reflects a very modern approach, considering Moët’s products were created 300 years ago. Annear says, “How we communicate has changed, not the product itself.”

Moët Hennessy is one of the 70 luxury brands within the LVMH portfolio. LVMH operates as a loose confederation where individual brands have autonomy and Annear’s role is to focus on utilitarian uses of innovation across all the LVMH brands. His criteria for innovation is that there must be a real business reason or a business problem to solve. He is not interested in tech that is gimmicky. Whether it’s smart kitchen or a smart home, the innovations must provide new ways of connecting with the consumer in one-to-one conversations among LVMH’s 26 wine & spirit houses brands. Moët has done a lot in the voice space since 2017. For example, Annear took the top 20 questions asked on Google search about Champagne and Alexa answered them in “Bottles and Bubbles.” What makes this voice strategy even more impactful is that typically the wine and spirits category is a step removed from the end user. Now voice is bridging the gap.

What Matters in Digital Advertising?

Nariman Noursalehi, VP Marketing, Customer Acquisition at Overstock.com, left a law career to join Overstock.com, a company that is “unique in the online space in that it actually believes in being profitable, not just focused on revenue. Being a marketer versus our competitors who are spending willy-nilly, we need to justify every dollar we spend. We have no budget, so in effect the team has an unbounded budget as long as there is a return.”

Noursalehi believes most of the ROI metrics used in marketing data analytics are bulls**t. He says we need to understand how much of the marketing spend is adding unique value. When he arrived at Overstock.com over three years ago, the prevailing metric was a last click scorecard, a misleading metric that concludes “retargeting ads are your most valuable display ads. Facebook is a terrible place to play. Email is where you should put all your dollars because its really good at closing and it doesn’t give any value to the top of the funnel.” Using A/B testing he isolated a better approximation of incremental ROI. Today they are making day-to-day decisions using a seven-day post click metric with a perpetual hold out test. They are constantly validating the value of Facebook where their annual spend is about $50 million, and decreased spending on Criteo.

“Google is the bane of everyone’s existence with through-the-roof pricing. At the end of the day, we are overspending on text ads on Google shopping. Collectively we are in a race to the bottom, all trying to outbid each other for nothing. We are throwing money away. I think the value of the text ad is probably 70 percent of what you are spending” Noursalehi opined. To prove it, Overstock pulled 20 percent of spend at Google and went dark in 20 percent of the U.S. He got a call from Google the next day and together they constructed a geo-test. “Until you can tie it to an actual incremental value, Google’s ROI is just a number, its meaningless.” Granted, visibility on Google is a brand positioning strategy, so they’ve separated head terms on Google where they were hemorrhaging money to better assess incremental ROI on Google.

Bold, fearless moves, but for Noursalehi, necessary, and the huge media platforms did budge, are sharing more data and enabling Overstock to make better decisions on media spend.

Think Like a Digital Native Brand

Traci Inglis is brand president at Just Fab and shoedazzle, divisions of TechStyle, She believes the new era of consumer behavior requires a different corporate model and TechStyle is “using data and technology to reimagine the fashion business and serve the customer in a smarter way.” Ecommerce is where the retail growth is. Inglis cites estimates that 30 percent of apparel and accessories spend will be done online next year — and she sees it growing to 50 percent penetration. The challenge is customer acquisition. Traditional retailers are missing out on what she calls the ”leaky bucket syndrome,” moving customers from store to ecommerce but losing some along the way. A key pillar to thinking like a digital brand is how to acquire customers digitally through paid advertising.

Inglis compared the effectiveness of customer acquisition through opening new stores versus digital paid ads. “Opening a store build-out costs are about $250,000 to $500,000 with a lease commitment of two-five years. We can spend those dollars on digital media and get the same amount of growth from digital customers. Plus we have the flexibility to ramp it up seasonally. In December, I can spend more digitally and less in June. Imagine if you could have more stores in December and fewer in June; wouldn’t that be amazing?”

TechStyle’s media payback is within six months and a 2.5X ROI over a three-year period. Digital media is vertically integrated with an in-house digital buying agency and in-house studio team that conceptualizes, writes, directs, shoots, and edits TV commercials. Working in-house allows for extensive iterations of commercial content at significantly lower costs compared to working with an outside agency. “We never have a pencil down moment with our agile customer acquisition strategy that spans TV, online, display, social media affiliates and influencers. We do 24,000 versions of media annually and are constantly iterating around what’s working now,” Inglis said.

The Analysts’ Take

Charlie O’Shea and Brian Nagel are retail analysts at Moody’s and Oppenheimer respectively. O’Shea spoke to retail transformation: “Key to thriving online is flexibility. We focus on progress. We’ve all ceded online to Amazon. I don’t think anyone retailer will catch Amazon, but 85 percent of sales still occur in stores. Stores are still critically important to a brick-and-mortar retailer’s existence. You can’t starve the stores to spend money on your website and you must integrate them. No one is there yet. No one really has mastered omnichannel.”

Nagel, a self-proclaimed optimist, stated “2017 was the beginning of a turning point where the large traditional retailers began to fight back. In one way Amazon has been a big positive. It has helped to cull the earth and forced many less efficient retailers out of business. Another plus is Amazon is teaching traditional retailers how to do things better, particularly connecting better with their customers.”

For O’Shea, all retailers will do both online and brick and mortar, while Nagel sees some categories, such as tractor and auto supply that will remain largely a brick-and-mortar business. They did agree that as you invest online—vital to your competitive position and an effort to offset the Amazon threat—it will be accompanied by a hit to margins, which are unlikely to return to the levels of 20-30 years ago. Retail investors have penalized traditional retailers as they make these investments, which contrasts with the largess of the Amazon shareholder base that is largely agnostic to profitability. “It’s the toughest balancing act retailers have right now” O’Shea quipped.

Choosing Remarkable

Steve Dennis, president, Sageberry Consulting says “Ecommerce and brick and mortar is a distinction without a significant difference, because digital is becoming so pervasive and the consumer will shop wherever they want. Many retailers are at the precipice. The choices are optimizing the online buying process and offer incredible convenience, great price, and vast assortment. Or pursue the alternative of creating a special shopping experience. Many retailers straddle the middle and end up not being good at anything, or they try to out-Amazon Amazon, a dangerous strategy.”

Dennis has seven steps to a reimagined and remarkable retail that would remove the boring sea of sameness across much of today’s retail landscape:

  1. Harmonized, remove the silos;
  2. Digitized, digital first and to the core;
  3. Personalized and curated, treat different customers differently;
  4. Localized;
  5. Socialized, from sharing to buying;
  6. Amplified, uniquely relevant and remarkable at scale;
  7. Radicalized, a culture of experimentation.

The store is being reimagined, think Saks Wellery, Bonobos, Amazon Go, Nordstrom Local, Restoration Hardware. We need reasons other than transactions to go to stores. “Most retailers got themselves into trouble because they refused to change, to take risks, and watched the last 15 or 20 years happen to them. If failure isn’t an option, then neither is success. It’s really a cultural thing of building processes and innovation into your business. You have to take a lot of bets and hope your ability to learn quickly will take you forward” Dennis concluded. Isn’t that the innovator’s way?

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