Retailers who improve their connection with consumers, give instant service, and find new ways to enhance the shopping experience will be the ones who survive and thrive in this disruptive period in our industry’s history. That was the overarching message at the 20th Annual Global Retailing Conference presented last week by the University of Arizona’s Terry J. Lundgren Center for Retailing.

The conference, entitled “Retail is IN: INtimate, INnovational, INstant” was held at the beautiful Loew’s Ventana Canyon Resort in the foothills of the Catalina Mountains. It was attended by 350 of the industry’s top C-level executives, tech gurus, consultants, analysts and futurists, who shared perspectives on what’s happening and how best to navigate the whitewater rapids-like waters that characterize business today.

Macy’s Chairman and CEO Terry Lundgren, whose unique personal involvement in his alma mater’s event is what sets it apart from other industry get-togethers, set the tone in his keynote address by underscoring the importance of developing talent within the organization and of taking risk: “If you’re in the fashion retail business, this has likely been a challenging period. That’s okay, we’re used to coming up against these challenges and addressing them. I’ve always found that when you have these headwinds in your face, the only way you move forward is to do things differently than you have in the past. You can’t do the same things over and over again and expect a different result. It’s Einstein’s belief and certainly the rest of ours as well.”

Macy’s Ideation

Macy’s thinks differently with its Idea Lab, located in San Francisco close to where the Silicon Valley talent pool wants to live and work. “We’re the sixth largest Internet company in America,” said Lundgren, “so we needed to go where there would be a steady pool of talent.” The Lab, which operates as an incubation tank for out-of-the-box online/digital ideas, is modeled on team presentations; the top five concepts get evaluated in a “Shark Tank” type of event, after which new teams are formed to develop the winning prototypes. So far, the lab has yielded 31 new ideas, of which nine are in production and three are going live this year.

Lundgren also said that Gamification has emerged as a platform for improved engagement with consumers, particularly young ones, who want to get more fun out of the shopping process. Macys.com’s use of incentive-driven gaming activities on the site has so far generated over a hundred million dollars in business.

The Backstage off-price concept is another example of how Macy’s, already a promotional department store competing with off-pricers like TJX and Nordstrom Rack, is thinking about and doing things differently. Lundgren said “We had to ask ourselves, do we really need our own version of this? And the answer was yes, because our customers are also shopping at those other off-pricers, so we need to bring the spend back to us.”

Lundgren said he’s particularly happy that Backstage is attracting a much younger consumer than the core Macy’s shopper, and that these new customers are gravitating toward categories that aren’t traditionally strong for the company, like home décor and packaged foods. The next step, said Lundgren, is for Macy’s to take the Backstage concept and put it right inside the Macy’s store as a way to drive shoppers to locations that are seeing a slowdown in traffic.

Lundgren said: “I don’t worry about the top 150 shopping malls in the country, but we need to make the stores in the middle 500 malls more productive. If I can take 25K square feet out of a 180K-sq. foot store and drop in a new business that brings in more people, then that’s great. We’ve had two of these Backstage store-in-stores now open for only 10 days, but we’re really thrilled with our results so far.”

High-end multi-brand beauty specialist Bluemercury, which Macy’s acquired a year ago, will allow Macy’s to expand its brand offering in markets not big enough to support individual counters for premium brands like Trish McEvoy, Bobbi Brown, and La Mer by basically dropping a preformed beauty shop-in-shop into its department stores.

Lundgren challenged everyone in the room to do what he has asked each person the Macy’s organization to do: identify the three things he or she is going to do differently in 2016.

Connecting with the Connected Consumer

With anything available with the click of a mouse today, people never really have to leave their house, so it’s no wonder physical store traffic is declining. According to spending data guru Sarah Quinlan of MasterCard Advisors, getting more intimate with consumers—one of the key themes of the conference—means figuring out how to bring consumers into your store.

And Quinlan ought to know. MasterCard processes 160 million transactions per minute, and uses over a million rules and algorithms to project them to total spending figures. Though upbeat about the U.S. economy, Quinlan acknowledged the challenge for retailers is to make a connection with female consumers, who still represent 75 percent of transactions but who were so dramatically changed by the recession: “Before the recession, she would buy anything. Post-recession, you have to pull her in.”

Quinlan said that although tourist spending is down because of the strong dollar, domestic spending by Americans is on the uptick, for all the right reasons.  “People aren’t building up credit card balances anymore – that’s 2006 behavior. They’re spending because they’re working.”

The lifestyle shift toward seeking experience over stuff is driving spending in lodging and casual dining restaurants. Also, millennials are moving out on their own and Gen Xers are having babies, fueling the markets for furniture and other home furnishings.

High-Tech, High-Touch Experiences

Several conference presenters cited examples of how retailers are utilizing tech to enhance operational efficiency, drive marketing and brand messages, and launch new business models.

Deborah Weinswig, Executive Director of the Fung Business Intelligence Centre, pointed out that with “store traffic down, in-store experience is key. High-end malls have been the least affected because they have invested the most in experience-enhancement technologies like beacons, mobile, apps, and more.”

Weinswig said that some mall owners are using beacons to track shoppers, which helps with co-location strategies.

But she warned that the brick and mortar downsizing that is going on might be the result of unwarranted panic: “I fear that retailers are being too aggressive in store closures. Instead, they should be looking at ways to utilize technology to change the experience. Millennials like to go into stores, but they want it to be worth their while. I’m a big believer in Click-and-Collect, loyalty programs, and other ways that retailers can create a seamless experience. Walgreen’s was a late entrant into this, but ended up having the most successful loyalty program roll-out of any retailer in history.”

Rachel Mushahwar, Head of Global Enabling of the Internet of Things Group at Intel, pointed out that 81 percent of shoppers are conducting online research before buying, and that 60 percent of US retail revenue is either influenced by or transacted on the Internet. “Winning all the screens, from desktop to smartphone to wearable, will be critical to success,” said Mushahwar. “The smart phone is the remote control for daily life, particularly for millennials, who look at their device 43 times per day, on average, and are leading the trend toward m-commerce.”

Beck Besecker, Co-Founder and CEO of five-year-old Marxent, the leader in Virtual and Augmented Reality (VR and AR) solutions for enterprise, described his firm’s work with Home Improvement Retailer Lowe’s on its VR Holoroom, where a homeowner can don a VR headset and experience what a home renovation design will look like before it ever exists.

According to Besecker, VR will revolutionize the way we live and the way marketers communicate with consumers.  “It’s hard to imagine now, but in five or six years, we’ll be spending a lot of time in headsets. Travel, entertainment, all kinds of social experiences –we will recreate all real environments as virtual environments. In that world, when it happens, how will you advertise? It won’t be Google ad words anymore.” The answer, Besecker said, is product placement. “I’m in my headset, traveling and walking through a beautiful room in Italy and a beautiful rug on the floor catches my gaze, and I look at it and it says ‘Available at Macy’s’ –that will be the new ad unit.”

Tempus Fugit

The rise of services like Amazon Prime, Instacart and Google Express has trained consumers to expect immediate gratification. Scott Hessell of the Lundgren Center noted, “In the past, retailers were thinking about how to get their products to the customer in one week. Now they’re wondering how they can do it in one hour.”

That should come as no surprise, according to Intel’s Mushahwar, given the renewal rate for Amazon Prime of around 90 percent, and the 10 million increase in Prime memberships during the last holiday season. She also pointed out that the total R&D spend at GAFA (Google, Amazon, Facebook, and Apple) exceeded $27 billion last year, compared to only $13 billion for the top 250 retailers in total.

Said Fung’s Weinswig, “Amazon generated 24% of retail growth last year,  will be 14% of total retail by year-end 2016. Now they’re getting into fashion apparel in a big way, so you can bet they’ll be an even larger share of the total this year.”

Plans are already underway for next year’s Tucson conference, to be held April 20-21, 2017 at the stunning JW Marriott Starr Pass Resort. It’s already on my calendar.