I recently attended Shoptalk Europe in Copenhagen with 350 retail and retail tech CEOs and another 2,050 retail practitioners and investors who were interested in hearing what those CEOs had to say. Here are a few aha moments I had that are shaping the future of retailing.
The Brave March Forward
One staggering conclusion I reached after hearing those discussions is that Alibaba is taking over the world, not Amazon. Currently Alibaba has more online sales than any other company, excluding Amazon, and is becoming one of the world’s biggest retailers, and one of the world’s biggest companies, most of which is retail. So, yes, we all know that Alibaba has the second biggest online presence in the world and the ability to create a completely fabricated holiday — the 11/11 singles day — which drove more sales in one day than any other event in history. But did we all realize that they were also operating 16,000 stores in rural China where 700 million (or so) people do not even have access to the internet? Or did we know that Alibaba thinks they can increase those 16,000 locations to over 100,000 rural stores that will serve all of rural China? And those 100,000 stores will not just be business to consumer (BtoC) stores, they will also serve as “trading posts” (like the 16,000 already in operation already do) with two-way commerce. So even the most isolated people in China can sell their wares into the “system” and be part of a wider economy.
In addition, Alibaba has been buying up shopping malls in China. The company also intends to be the B2B solution for the six million “corner stores” in China…and then take over the world. All right, they did not actually add the “then takeover the world” phrase into their presentation, but they certainly sounded like a company that wants to “serve” everyone. I personally think that also includes serving all of the rest of the retailers in the world…on a spit…over an open flame. And once you step away from “retail,” both online and brick and mortar, there is Alibaba the cloud company and Alibaba the payment system. They are gaining experience with smart phone payments faster than any other company because China has more smart phone payment transactions than most of the rest of the developed world combined. Simply stated, 80 percent of the payment transactions in China take place on a phone.
Merging Into One
After I concluded that Alibaba was indeed taking over the world, I got hit with just how fast artificial intelligence (AI) is enhancing visual search, as exemplified by Slyce, Twiggle, and Clarifai, and is likely to take over the world of online retailing. Just like Alibaba is taking over the world. No, not take over the world of online retailing, just take over the world of retailing, because I also came to the realization that online retailing, brick-and-mortar retailing and omnichannel retailing no longer exist. Everyone competing in the world of retailing is not competing in a subspace called online or brick and mortar or even omninchannel. The real subspaces are things like local, or off-price, or fast fashion, or full price, or apparel or hard goods or beauty, and even all of those spaces are merging into one space. AI enhanced visual search is about to become all search. Because if you are not enhancing search on your site with AI, you are just not going to be competitive as a retailer. This echoes the idea that if you think you are “just” an online player, you are just not going to be a player in retail.
And if you are wondering what I mean by the subspaces disappearing, let me try to convince you that the “fast-fashion” space and the “off-price” spaces are merging. I contend that H&M, Inditex (Zara), Forever 21, Primark, TJX (in all of its formats), Burlington and Ross are more alike in the mind of the consumer than they are different. Yes, TJX, Burlington and Ross are mostly “branded,” and H&M, Inditex, Forever 21 and Primark are almost 100 percent private label. And, yes, H&M, Inditex, Forever 21 and Primark are on mall, and TJX, Burlington and Ross are off mall. But everyone must admit that many of the brands in the traditional off-price players are brands most consumers have never heard of. And what resonates with the customer in all of these formats are aggressively low prices and fashion that is appealing, enforced by scarcity of product so that the customer believes “if I don’t buy it now it will be gone.”
Supply Chain Speed Economics
And the discussion of off price and fast fashion is a natural transition to the pressure on the supply chain in retail. Several companies presenting at Shoptalk commented that the supply chain is being looked at more and more as a “profit opportunity” versus a cost center. The pressure on the supply chain is so great and the rate of change in the technology of supply chain management is so rapid that supply chain managers are hesitating to make the needed investments for fear of immediate obsolescence. Therefore, companies are making much smaller, quicker payback projects the priority. And some have just decided to throw the money into the best talent that they can find instead of into technology investments and hope for the best.
Boring Is Dead
In conjunction with technology becoming so fast moving and expensive that supply chain managers can’t keep up, we now learn that omnichannel retailing is dead, both as a concept and as a buzzword. Several speakers even banned the term in his company. While the death of omnichannel is not “new news,” it is worth reiterating that omnichannel retailing is dead, online retailing is dead, brick- and-mortar retailing is dead. It is simply retailing now, and I can assure you, retailing is not dead. Most retailers have finally figured out that retailing isn’t dead — boring stores are dead, boring shopping centers are dead, boring websites are dead, and retailers that don’t get the fact that the consumer is in charge now and wants to buy whenever and wherever he or she wants to buy are dead.
The Advantage of Playing in a Physical Space
Maybe that’s the news. Boring is dead. The smart retailers have figured it out, but the bad news for the smart brick-and-mortar retailers is that everyone knows that it is very expensive and a low ROI prospect for these traditional retailers (with substantial store footprints) to move into the online space. As online pure plays start to open with brick-and-mortar footprints, they are discovering how amazingly cost effective having stores can be, how great the ROI can be, and how a physical presence actually enhances their online selling.
Another huge change that was discussed at Shoptalk Europe is the way retailing works today. Only a few years ago, retail could be termed as “linear.” In the past, the product went from the distribution center to the store and the customer picked it up and carried it home. With the advent of online selling, buy online pick-up in store, return to store, and ship to home, the pathway is no longer linear. The connection points for purchase look like a computer model for predicting the path of a hurricane: there are connecting lines, zigzagging everywhere. Jerry Storch, CEO of Hudson’s Bay showed at least 100 possible purchase pathways. And those are just the ones we have thought of so far. My guess is that the purchasing and selling pathways will get increasingly complicated from here on.
It’s Only About Me
And if the pathways were not complicating things enough, we all recognize that the customer wants experiences, not just “stuff.” While every retailer is talking about providing an experience in the store, the typical retailer is providing an experience that the consuming public doesn’t want (that’s according to a lot of attendees at Shoptalk Europe, and I think that they are right). Eataly, Rapha and Space10 have certainly figured out how to provide an experience that the customer does want, but there’s still the challenge of ever being scalable with high return and truly profitable. Eataly probably needs no introduction, and they have succeeded in doing a pretty good job of convincing the customer that it is fun to come in and eat … and shop. Maybe that doesn’t seem like rocket science, but a lot of other food providers are struggling to accomplish Eataly’s magic. Rapha is even more fun and more interesting from the point of view of experiential retail spending. Rapha does not sell bikes and bike gear, they sell biking as a way of life, a locus of community. It’s more than a hobby or a way of staying in shape, it’s a way of matchmaking. A lot of Rapha customers “pair up” with their life partners on Rapha rides. I still have not figured out what Space10 sells, but boy do they have fun! They ask, “How can we best design the living and playing spaces of tomorrow? How will augmented reality and virtual reality change the way people (customers) experience space? How can we empower people (the customer) to build their own spaces? And, how can spaces stimulate social interaction?” How can you make a buck doing all of that? At the moment, it doesn’t matter. They are scaling up and their investors are supportive.
So if something like Space10 is the ultimate in experiences, and Rapha is maybe the ultimate in experiential retailing, and if we all believe that experiential retail is important to the customer, nothing is more important for getting and retaining that customer than personalizing the experience, personalizing the product itself, and making the customer feel like the store is just for him or her. A bad experience or a boring experience is worse than no experience at all. So, the thought is that the store needs to be local, or at least feel local, be socially responsible, provide product that is customized or can be customized for the individual customer — and wouldn’t it be great if the store also included a cool bar with food. The new Tommy Bahama test in one of their Florida stores is called The Marlin bar. And their New York outpost offers libations and dinner as well.
So here’s the innovator’s dilemma: Personalization is great, but it’s hard to show a positive ROI while providing it, and it’s really hard to scale.
Another theme that almost all retailers have now embraced is the new mantra “loyalty, loyalty, loyalty.” It used to be location, location, location. That’s over. Location still matters, but physical store locations matter less every day, and are becoming more of support system for online sales versus the primary source of the sale. Don’t believe that? Williams-Sonoma is already more than 50 percent online. Urban Outfitters is already more than one-third online. Virtually every department store is pushing 25 percent online. Loyalty drives sales more than location. And location is everywhere when you have your mobile in your pocket, so loyalty is really important.
The Grande Dame
On a happier note, while traditional stores are certainly struggling, there is still a place for a store like Harrods, (yes, Harrods’s was at Shoptalk Europe) which has always been experiential, has always provided true luxury, and is about wonderment and awe. But in our shrinking global marketplace with shrinking material wealth, there is a limited opportunity for Harrods’s. It serves the tenth of a percent of consumers, and they are influential but rare. Harrods’s can’t easily be replicated, just go enjoy and marvel at its uniqueness.
On a more practical level, the Casper online model for mattresses and bedding proves that a huge market that has been run one way for about 100 years is always ripe for disruption. Talk about a tough market. There are so many sellers of so many types, price points and firmness settings for mattresses. The product can be bought in so many places — from mattress specialty stores to department stores — and it is so big, bulky and unwieldy. Compounded by the fact that discounting has been so rampant and margins so compressed that it seems inconceivable that anyone even wanted to try to get into the mattress space. But Casper is, according to the founders, the “world’s first sleep brand.” Given Casper’s success, no one should ever say that some products can’t be sold online. But even Casper admits that…drum roll please…they need some stores to support the online growth.So, they have partnered with Target and they will open some of their own showrooms. It’s another argument for “stores aren’t dead, they are just going to be fewer and smaller.”
The New Normal
One other consistent theme among attendees at Shoptalk Europe was that retail sales in the U.S. (not Europe) are not keeping pace with the increase in asset growth that has occurred since 2008. While that does not seem odd to me given that the Great Recession was only exceeded in the U.S. in severity by the Great Depression, it seemed odd to most Europeans. That prompted me to wonder if a catch-up (reversion to the mean) is coming, or if we are just in a “new normal.” The Europeans seem to think a catch-up is the more likely scenario and that luxury goods should skyrocket in the U.S. at some point. Most attendees from the States think that we are in a new normal. So, the question is “do the Europeans know us better than we know ourselves?”. Maybe.
I want to close with this thought: If watching 15 retail tech startups at Shoptalk Europe spend six minutes apiece telling you how new technologies can change the world of retailing does not convince you that “We are not in Kansas anymore,” you are completely out of touch. Me? I’m convinced we are living in Emerald City.