At the end of 2018, retailers breathed a collective sigh as the holidays came to a close. Despite fluctuating stock prices, trade wars, and tariffs, the sector had chalked up a strong shopping season. According to Mastercard SpendingPulse, an initiative that monitors online and in-store spending, sales in the US between Nov. 1 and Christmas Eve grew five percent to $850 billion — retail’s best performance in six years.
Scott Galloway, a professor at New York University’s Stern School of Business, cautioned against comfort. “I don’t bear a message of hope,” he said to the crowd at the National Retail Federation’s Big Show, an annual conference for the retail industry.
“There has been this [disruptor] called Amazon, clearing out the old and the weak, so that retailers that come out the other end have more business to spread across other players. This will not last long,” said he said. “Most of you are in [dated] businesses. Every day, you’ve got to figure out a way to convince your consumer not to go to a bigger, better player … [and to go] back to your store.”
Under the glass ceiling of the Javits Center, 16,000 retailers discussed how to vie for attention from customers that have access to thousands of options at their fingertips. We hone in below on examples from JD.com, the Chinese e-commerce site; Home Depot; STORY (now part of Macy’s); and Levi Strauss.
Creating the Future of Fulfillment
As the appeal of e-commerce grows, more customers expect products to arrive on their doorstep in two days or less, at no additional cost. To keep up, businesses have to focus on both their products and fulfillment.
“Who’s going to pick up the goods from the shelf? Who’s going to [package it]? And who’s the last mile delivery? … [T]hose are all becoming the responsibility of the retailer,” said Hui Cheng, Head of Robotics Research at JD.com’s Silicon Valley Research and Development Center. “Our customers always demand more, faster, and better.”
According to USA Today, China is expected to surpass the US as the world’s largest retail economy. And JD.com is a major player in that market. With a bottom line of 362.3 billion Renminbi ($55.7 billion US dollars) in 2017, the company is the largest retailer in China by revenue.
According to Cheng, the site has over 300 million customers and began offering next-day delivery in 2010. “When a customer orders by 11 in the morning, they will receive [their package] that day, and [if they order] by 11 at night, they receive it the next [morning],” Cheng said. “In order to provide that, we need AI’s help too.”During a panel on the future of artificial intelligence in retail, Cheng showed a video of JD.com’s fully automated shipping facility in Shanghai. A combination of robotic arms and conveyor belts sort products, retrieve items, label them, and prepare packages that will be shipped to consumers. According to Cheng, employees can also use a mechanical exoskeleton to help them lift heavy items in the warehouse.
“Our warehouse workers… walk two kilometers per hour. By leveraging technology… walking can be reduced by more than 60 percent, while the efficiency rate improved by 30 percent,” Cheng said.
Cheng said the company has multiple ways to deliver goods to 99 percent of China’s population.”We’re providing not only ground automated vehicle deliveries, but also by drone in areas that are challenged by ground delivery to be efficient,” Cheng said. Drones, for example, can serve rural villages that may not be accessible by car. “That’s why AI is becoming another quintessential part of retailing, by providing the smart logistics.”
For customers who can’t wait 24 hours, JD.com also has physical locations throughout the country.
Building the Store of Tomorrow
Online retailers aren’t the only ones making use of new technology. From deploying “smart” mirrors that suggest matching pieces in GUESS fitting rooms to implementing digital kiosks that can help customers navigate products, more brands are using technology to enhance the brick-and-mortar shopping experience.”What’s [the] future of checkout? This idea of cashier-less checkout has been making a lot of headlines lately,” said Albert Vita, Director of Store Strategy, Insights & Visual Merchandising at The Home Depot. “[There’s] this idea of in-store digital, whether its a tablet, kiosk, VR, AR, any type of customer-facing digital.”
Vita oversees Home Depot’s pilot store in Atlanta, where the company can test up to 300 unique pilots in a three-month period. During a session focused on building the store of the future, Vita emphasized the importance of continuously testing new ideas.”I think about our pilot store as a living lab. … A pilot store or a store of the future is not a singular activity,” Vita said. “The idea here is that the moment that you put in an in-store innovation the … countdown towards obsolescence starts immediately. So you have to be aware of what I call the decay rate of innovation, and immediately [think about] how you can sustain [innovation].”
Vita also shared advice for measuring new in-store initiatives. While brands may default to using traditional metrics like sales per square foot, he said, innovations that seek to improve the in-store experience require different yardsticks. For example, Vita said that retailers could look at how many times customers encounter associates or touch products using in-store cameras.Vita also discussed the importance of listening to employees on the floor: “[W]ho knows better than the people in your stores, who are there everyday on your front lines? Who better to know if a certain innovation is working or not, or resonating or not? So you have to make sure you’re going through the effort of pulsing your associates.”
Focusing on Collaboration
Retailers have also turned to engaging experiences that encourage customers to visit their physical locations. Manhattan-based STORY treats its brick-and-mortar store like a gallery that focuses on rotating themes, like color, love, and home for the holidays. The products and design of the store change to best suit the month’s concept.
“I can go buy a great product online … [but] we want someone physically in our retail environment, and we want them to buy,” said Rachel Shechtman, Founder of STORY, during a panel on the in-store experience. “[T]he litmus test is, are we giving him or her an experience that they can’t get on their couch?”Shechtman said that collaborations with partners allow her team to craft compelling experiences — from choosing the right sponsors to picking merchandise to hosting events in the space. “[Y]ou really need partnerships when you’re pushing that envelope,” she said.
When thinking about collaborations, Shechtman said her team looks for companies who have “authority and authenticity” on a subject matter. For example, when focusing on wellness, STORY partnered with Cigna, and insurance company, to add relaxation pods to the store. Additionally, STORY sponsors may pay to have their products represented in the store.According to Shechtman, her team focuses on three questions when looking for partners: Do they add authority and authenticity to their category? Do they create a product that could be relevant with some subset of men, women, and kids? Does the team at STORY like the partner or product?
“So in addition to writing a check for sponsorship or producing product, [we ask] is there an overlap in customer base, or is it a customer acquisition play, or is it a PR play?” Shechtman said.Macy’s acquired STORY in May of 2018. Shechtman is now the Brand Experience Officer at Macy’s.
Using Authenticity to Reach New Customers
Chip Bergh, CEO of Levi Strauss, took the stage for his fireside chat dressed head-to-toe in denim — blue jeans and a faded blue button-up. Bergh joined the company in 2011, long after Levi’s had dipped in popularity. With a peak revenue of $7.1 billion in 1996, the company’s sales plummeted to roughly $4 billion a year.
“[W]hat happened was we lost relevance with young consumers. So we had the old, mostly guys, as our real loyal, dedicated, hardcore fans, but we had lost [a] generation,” Bergh said. “I have two grown boys that are now in their 30’s. … [W]hen they were teenagers, … they were wearing all the other guys’ jeans. Levi’s wasn’t in their consideration set.”
In the 70’s, punk bands like the Ramones took the spotlight in the company’s jeans and jackets. Young people wore Levi’s 501s as they clambered over the Berlin wall in 1989. According to Bergh, the company wanted to maintain authenticity and pay homage to its history while revitalizing the brand.
To recapture the younger demographic, Bergh said, the global retailer focuses on tailoring strategy for different grassroots markets.
“[W]e run our product engine … [and] supply chain in a fairly centralized way to leverage our scale. But then we execute in the local markets in locally relevant ways. A good example is music festivals,” Bergh said. “[I]n the U.S. the big one is Coachella, but just about every country has their … festival — big and small.”
According to Bergh, Levi’s ability to customize products also appeals to young shoppers. Starting with an experiment in a London brick-and-mortar location, new Levi’s tailor shops inside stores can embroider guests’ apparel with patches or the city that they visited. “[T]hat creates an experience that becomes a memorable experience that they then attach to the brand,” Bergh said.
Under Bergh’s leadership, company revenues have climbed back up to $4.9 billion in 2017. According to Bergh, Levi’s seeks to keep its cultural impact central as the brand steps into the future.
“We are the original, the authentic pair of blue jeans,” Bergh said. “We are at our very best when we are at the center of culture.”