Not quite a generation ago, a 30-something started a new type of company his friends raved about and sceptics sniped at. "We're going to be unprofitable for a long time. And that's our strategy," he said in 1997 to Inc. magazine, two years after opening for business.
Today, Amazon.com, started by Jeff Bezos, looms over the shops and malls of the retail industry globally, enticing customers into online buying, often after these people have looked over items in brick-and-mortar stores first. This 'Amazon effect' devastates some retailers. An empty chair may have a lot to do with all of this. Every now and again, Bezos insists on leaving an open chair at a meeting table for 'the customer, the most important person in the room', reports Forbes Asia.
Shoppers appreciate Amazon's and other online retailers' slick, personalised service to such an extent that physical stores simply have to shape up to survive. Mostly, this is about a profound shift in power away from retailers.
"If we turn back the clock 30 years, retailing was a supplier-led industry: Kellogg's, Coca-Cola...all the big brand houses had the power," says Lee S. Gill, VP retail strategy EMEA at JDA, previously with Marks & Spencer.
"Retailers played second fiddle to them. Then power shifted to the retailers in the late '70s to the late '90s. What's happening now is that the consumer is starting to have the power."
Previously, retailers focussed on having the right product at the right store, at the right time and the right price, he says.
"The customer doesn't really care about that anymore, and says, 'I want the right product for me'. The one-size-fits-all product assortment is gone. If you are a brick-and-mortar retailer, that means you have to make your store absolutely tailored, with good assortment intelligence about the local community. And you have to personalise the Web site."
Retailers have to get their houses in order for what's coming, predicts Gill.
"I believe we have a perfect storm ahead of us."
Tactile experience
Given this power shift, one may well ask, 'Why do retailers exist at all?' argues Neels van Tonder, CTO at Argility. It comes down to who captures the eyes and hands of consumers, he says.
"The power retail wields now is the negotiation power with manufacturers and access to the consumer, because they have invested in a store or a site. These things are getting devalued now, because people say that with increased connectivity, the consumer can be connected directly to a manufacturer, so what value does this retailer-middleman add?"
However, the survival of in-store retail is bound up with our human need to see, feel and smell items before we buy them. Our need for instant gratification also favours brick-and-mortar: buying something but not wanting to wait for delivery.
"The need for a tactile experience is not going away; neither is the desire to take the item home as soon as it's been bought. These are psychological phenomena," says Van Tonder. "Online is getting better at this. In the US, you can buy something online and have it delivered the next day or the same week."
Pick us
While online sales are growing rapidly, one needs to compare this with the overall retail picture. Quoting a Gartner report, Van Tonder says global in-store retail sales revenue has decreased from 91% of the total in 2009, to 87% currently, and is predicted to be down to 84% in 2015.
"That still means that in 2015, online sales and channels other than in-store will only be 16% of the total sales revenue."
Core retail processes are getting duplicated for every channel.
Neels van Tonder, Argility
So most consumers still prefer in-store shopping for many items, but who will get the sale? Not only does Amazon teach the online shopper that there is an alternative to in-store, it highlights what's nasty about many in-store experiences.
Consumers have different expectations of stores depending on what they're shopping for, says Chris Shortt, senior executive, application services, at UCS Solutions.
"With grocery shopping, the customer has specific requirements, different from clothes shopping or shopping for a sound system or TV. With groceries, for example, I expect the shop to have what I want, when I want it, and have enough of it so I can buy some when it's being promoted," says Shortt.
"With a promotion, I must know where to go in the shop, and the item must be easy to see so I can get in and out and do what I need to do as quickly as possible. If you have new things you want to tell me about, make sure I know about them on any one of the channels on which you might interact with me, and make sure it's consistent across those channels.
"These expectations vary across LSM (Living Standards Measure) groupings. At the higher levels, people say, 'Let me know about things, but make it personal and relevant to me'.”
However, the next retail wave won't just be in-store technology, says Shortt, but also about loyalty programmes and getting to know customers better.
It will be about linking detailed transaction information to people's profiles to make promotions more personal and relevant. The promotions will have to be executed really well. Don't irritate a customer looking for the TV on special, only to find that the in-store price is higher than advertised in the paper.
Offering personal and relevant retail service means persuading the customer to part with some personal information.
"South Africans and global consumers were surprised when we asked them whether they were willing to share personal information. They all said no," says Gerard Dumont, retail solutions industry manager at IBM SA, referring to the recent results of the company's two-yearly global retail study.
"However, if you ask, 'Are you willing to share your information in return for something of value to you?' the answer is, 'Yes',” he comments.
"This includes addresses, data showing what was bought, how much and when, and their product and entertainment preferences. As long as the information is secure, they will share their location with you. They only get cagey about heavy financial and medical stuff."
For the retailer, retaining trust influences the single most important moment in the shopping cycle: the moment of purchase.
"If a retailer does well at helping people to identify products and research them, but then they go and buy it somewhere else, that retailer has failed. You have to get them to spend the money with you so you can realise the margins,” says Dumont.
Trust also drives people to tell others about their shopping experience, and drives their spend, he adds.
Whether a customer trusts a retailer depends on factors that vary across LSM levels, retail sectors, and whether one becomes aware of a product, buys it, returns it or has it repaired.
Some trust factors stand out in South African retail stores, says Dumont. Accurate shelf labelling and pricing, shop assistants, and communications and promotions are key, according to IBM's study. The latest study polled 28 500 consumers from 15 countries, including a representative group of 1 800 South Africans.
At the recent National Retail Federation in New York, he says, everyone talked cross-channel and omni-channel, but the other, surprising conversation was about store personnel.
"They were saying that the retailer can do everything to build trust. If you then walk into a store, that trust can be broken in 10 seconds because some guy didn't feel like doing work that day."
Retailer woes
Of course, customers could care less about retailers' woes, but these woes are formidable, explains JDA's Gill, and start with brick-and-mortar retailers' technology infrastructures.
"A large percentage of retailers have legacy systems built in-house. They were created 20 or 30 years ago for a totally different business that simply pushed: buy products, put them in a warehouse, put them in stores and replenish. What consumers want is a product available anywhere, anytime, at the price they want."
The supply chain itself is another woe factor.
"Now the challenge is multi-delivery. It was a simple situation previously where a lorry delivers to a store and the customer takes it home. Now, the customer wants to order online and have delivery options."
Now the challenge is multi-delivery, multi-fulfilment.
Lee S. Gill, VP retail strategy EMEA at JDA
Traditional retail-think creates some of the problems. All retail systems processes were developed specifically for the original channel, the physical store, and not for channels such as Web sites and mobile apps, argues Argility's Van Tonder.
"Mostly, the retail selling process is still the same. There is an item, a price, maybe a promotion. What you find, though, is that core retail processes are getting duplicated for every channel, as a consequence of the different types of technology used to support these channels," he says.
"That makes it very difficult to create a seamless customer experience across the different channels. Mostly, you have a silo for your online system, another for your brick-and-mortar business, another emerging for mobile. And another solo for your contact centre.
"From a system's perspective, the trick is to synchronise all these different channels to one customer, so we can consistently understand him or her.”
Survivor technology
A lot of retailers get the emphasis wrong when spending on in-store technology, continues Van Tonder.
"They tend to focus only on customer-facing self-service like information kiosks and scanning items to check the prices, or even self-checkout technology. But customers now have access to far more product information than before on their iPads and smartphones. You don't have to create that for them, they already have it.
"It's better to focus on the true value for the store, so the staff can tell someone an item is actually in stock. This drives everything. It's how you let the customer see, touch and smell it, or try it on if that is important; and let the person who's decided to buy walk away with it immediately.
The top five technologies that deliver real value in retail stores are cross-channel customer inventory synchronisation, customer-facing self-service touch points, delivering information to store-owned devices, POS, and distributed order management, says Van Tonder.
"Cross-channel customer inventory synchronisation is about an item bought online, but the customer wants to pick it up at a store. Without this technology, he gets to the store, and they do not know about the purchase. Or the customer wants to buy something urgently, but does not know where it is available; the retailer's system must be able to say which stores have the item.
"While there is an overemphasis on customer-facing self-service such as kiosks, the retailer will still have to provide this to improve store staff engagement with customers."
Thirdly, for store staff to walk around with iPads and answer questions, the retailer needs consolidated, aggregated, real-time supply chain information delivered to connected, mobile store-owned devices.
Fourthly, older-generation point-of-sale systems operate in batch mode that supports daily updates, not the real-time information customers want.
Fifthly, distributed order management makes it possible to order something online in various ways, pay for it and have it delivered in various ways, and also return or have it repaired in various ways.
South African retailers that want to survive need to tackle some key issues, says UCS Solutions' Shortt.
"Retailers that don't have an integrated view of their business, across all of their outlets, through to head office and distribution facilities, will find operating increasingly difficult," he says.
Without this view, it becomes even more difficult to deliver consistently on promises made to customers. But gathering all the information at transaction points and consolidating it by customer, rather than product, is tricky.
"One of the things Amazon has done particularly well is to track, as you shop and buy things against your username, what you were looking for and what you are viewing now. Then they can show you what others have bought and suggest things to you. You get that sense of personalisation, because they are trying to build up an understanding of you."
The Amazon.com butterfly has been fluttering its wings for a while now. Whole retail empires have started crumbling, or crashed because of its effects, combined with other reasons. Retailers will have to accept that customers want more say in how they shop, and will have to adjust their in-store processes and technology to accommodate that.
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