Even as families rush to get ready for the upcoming holidays, retailers are facing mixed signals.
On Black Friday this year, retail sales decreased by five percent, compared with 2021. And with inflation up compared with prior years, roughly half of shoppers said they would purchase fewer items than in previous holiday seasons. But a report from the National Retail Federation predicted a six-to-eight-percent increase in holiday sales.
As the direction of economic trends remains uncertain, Stockholm-based H&M Group has been aggressive with its experimentation. It has debuted virtual apparel in the metaverse; integrated smart technology in stores to offer easier payment and style recommendations; and created experimental pop-up stores offering seasonal merchandise and live events.
Alan Boehme joined H&M as its Chief Technology Officer in 2020, after stints at Procter & Gamble and The Coca-Cola Company. H&M has nearly 5,000 retail stores and over 100,000 employees globally.
In a recent interview, Boehme explained how he handles relationships with innovation teams; discussed H&M’s plans for 2023; and shared his view that large corporations should be functioning similarly to VCs.
At H&M Group, are there separate innovation groups around the organization? Do you have ownership for innovation and emerging technology?
Innovation can happen anywhere, anytime, from any group, any geography, anywhere in the world. To think that any organization can centralize that into any single function, you’re just fooling yourself. There [are] innovation capabilities, groups, functions within the IT organizations or business tech. They exist in what we call our CO:LAB [venture capital] organization. They exist within the H&M brand, the COS brand, the portfolio brand companies.
If you’re trying to put a process around something like this, I guarantee that you’re going to miss out on some of the most exciting things in the world, because you can’t be everywhere at the same time. The idea is to trial many things; make sure you have KPIs; understand how you can derive benefit and value from those things; and then you want to socialize it and bring it back in, in order to scale.
Innovation can happen anywhere, anytime, from any group, any geography, anywhere in the world. To think that any organization can centralize that into any single function, you’re just fooling yourself.
Scale is sometimes a misused word; sometimes we think scale means it has to be through the entire organization, the entire company, the entire customer base. I would argue that’s a misuse of the word scale. You can scale in a region; you can scale in a city; you can scale in a specific sector of your business… Scale is a wonderful thing for commodities that you want to get costs out of; it’s not a great way to think about innovation.
Sometimes innovation or product development groups are set up in opposition to technology or IT groups. Would you share some advice about building the relationship with existing technology or IT groups in a way that’s constructive?
There isn’t a right or a wrong way to introduce innovation into a company…You have to look at what stage that company is in. Does that company need innovation as a catalyst in order to move forward quickly? Are we talking about incremental innovation?… Are we talking about a new business model to help you get to the next S curve in your corporate life?
Some companies find it easier to do it as part of their core — especially if it’s technically based — to do it as part of the core technology group. Some companies find that the core technology group is not agile enough, flexible enough, [or] has other corporate priorities, so they will set up a parallel organization to deal with that. In other cases, it’s a hybrid… All the models work; all the models fail. They work or fail for different reasons.
How do you build a partnership so that you’re not going to the IT organization and saying, ‘We need, we need, we need,’ and they don’t feel bought into it?
The reason that a lot of these [new innovation] groups get set up is because the IT organization has other priorities, and they can’t meet the requirements for the business and what they’re trying to accomplish. However, whenever you deploy anything, you have security concerns; you have governance concerns; you have privacy concerns; you have system integration concerns… But the reality is you can’t be 100 percent independent if you’re trying to integrate something back into the core of the organization. It just doesn’t work.
My advice is have the discussion early on. Make sure they understand that you will follow the guardrails and guidelines that have been set up by the organization — whether it’s legal counsel, whether it’s governance, whether it’s audit — but that the goal is to get to a POC (proof of concept) or an MVP (minimum viable product).
What are some of your goals in 2023 going to look like, in terms of technology?
Technology enables experiences to happen… With the right technology and capabilities, any experience is possible…
When I think about technology, it’s the idea of separating the data out from the backend systems and exposing that data so that it can be used in unique and creative ways that are only limited by the imagination of our marketing teams, our sales teams, our merchandising teams, and others…
As we move forward, privacy is going to become more important. So we’re doing a lot of the underground work — the plumbing, the things that are necessary to allow consumers to become more and more in charge of their data. … It’s not just the [right] regulatory thing to do; it is the right thing to do — to empower the consumer to have more and more and more control, versus what’s happened traditionally with big tech over the years. …
And then, again, what is the next customer experience going to be? The metaverse is just one… But we really need to tie that back into the real world. There’s a difference between buying and selling digital goods and physical goods. Somehow, this needs to merge together. This is going to become reliant on various pieces of technology.
How much time are you spending focusing on new retail experiences and their creation? And how much are you focused on the underlying tools and enabling technology?
We’re going through a transformation. We’re updating and modernizing many of the underlying tools, and there is significant investment there, but that’s needed to be able to get to the next S curve, where we can have very unique experiences.
We’re continuing to build new experiential things [like] the metaverse that we’ve done. In order to make those things usable, and make those things feel real, you have to have the basics in place. You have to have strong networks; you have to have security; you have to have fast response times; you have to have some support capabilities. We need to make sure that we have the right business capabilities with the right metrics in place, and look at it through our consumers’ eyes first, as opposed to looking at it through our internal eyes.
Could you talk a bit more about the metrics you’re using?
When you look at innovation — and let’s talk about real innovation, not incremental — you have to act as a venture capitalist. I’m an active angel investor, and I’m in a couple funds, as well. But all venture funds — I’m going to oversimplify the metrics a bit — for every 10 investments that they make, they’re hoping for one of those to become a unicorn; they’re hoping for two to three of them to have significant returns; they’re hoping for one or two to break even; and they’re willing to write off five of them as lessons learned.
You have to have that mentality, because you’re not really pushing the envelope unless you’re failing. You never know what’s going to fail and what’s going to take off. Use your best analysis skills to try to drive things — but you just never know.
When you look at innovation — and let’s talk about real innovation, not incremental — you have to act as a venture capitalist.
You have to take that same mentality into the corporation; you have to have people that are willing to have your back in order to try things. And then you need to be able to communicate effectively [around] the measurements that you put in place to prove that those were successful — whether it’s increase in revenue, productivity, brand awareness. If you can prove it’s successful, that’s when you can go ahead and propagate it further throughout the company and scale.
Aren’t most companies more conservative than VCs? Do you find yourself having to sell that concept?
The number one job of a large corporation is to maintain its processes and continue growth as planned. That, by nature, is going to make it very conservative. However, you can do so much for so little money today… You don’t need to spend a lot of money to learn quickly. And if you are spending and paying people lots of money to learn, I feel sorry for you.
We recently tested [smart mirrors] in our COS Store in Beverly Hills… We went from concept to reality in 45 days, working with a vendor, and we did the entire thing for less than $50,000. We were able to put RFID readers into the ceilings; we were able to create an app so that customers and employees could interact with it; we were able to see real-time inventory of our assortments moving into the fitting rooms. We created new experiences where a customer in the fitting rooms doesn’t have to leave in order to get the correct size if they brought the wrong size in. We laid the foundation to do self-checkout, without having to stop at the counter.
We did all of that within 45 days by integrating some very interesting, innovative technology from two or three small startups. If you think it takes a lot of money, you’re not doing it right.
A lot of times, innovation groups have incentives that are about growth, revenue, trying to get the Net Promoter Score up, and everybody in IT, HR, finance has differing incentives. What would you say about how you get incentives aligned, if the mission is getting to these next-generation experiences, technologies, and growth?
There’s two ways to get there: one is top-down, and one is bottom-up. What I mean by that is top-down is [aligning] with your corporate goals and objectives. [That] will lead you to very pragmatic things that are needed to execute on for the existing year’s business plan.
You have many organizations where the CEOs have set up separate funding mechanisms, separate strategy groups, in order to at that three-to-five your horizon, and you can put a certain percentage of your resources towards that. But the majority of resources have to be focused on making quarterly numbers [or] six month numbers. So that is one way to get there.
The other way to get there, which I found very successful at other companies that I’ve worked for, is we go out into the field, and start working with some reactive and innovative sales leaders. Money talks; if a salesperson or a region or a district is all of a sudden producing more revenue than people in the neighboring regions, or more than planned, the salespeople want to know why. “How come you’re able to get this deal closed, by introducing this new technology?” Having a positive impact on a small number of salespeople creates a tsunami. All of a sudden sales management sees it, and corporate management sees it.
Top-down is one way to get there, but then you have to worry about adoption. There’s always a push-back about things that come from the top. Bottom-up is a great way to do it, but you have to have the right individuals with the right mindset who are willing to take a risk and take a chance.