From RFID to Stagflation, Here Are This Month’s Insights From Our Top Retail Influencers
Last Friday, the team at RETHINK hosted their third Small Groups Mixer, a monthly virtual event catered to all of 2022’s Top Retail Influencers. During the Mixer, topics ranging from RFID to stagflation, DTC, and the retail experience were discussed at length. Here, we’ll explore these topics and additional insights from the Mixer with the help of a few of our outstanding influencers!
Richard Honiball: Blurring organizational silos
It is critical that organizations “blur” their borders, move past “silo” thinking, if that organization is going to move forward. Strategies are ignited when groups work together, ideas clearly understood, adopted from top to bottom and across all groups. Resources need to be effectively mobilized across organizational borders. This doesn’t mean “my idea won”, rather there a clear understanding of the organizational priorities and resources properly aligned. Teams won’t give up their resources if there isn’t a strong direction.
Technology can enable the connection between cross functional teams and allow greater levels of collaboration and communication. But technology / systems fail when the right processes and culture are not in place. Organizations that think that investing in technology will cure their ills are often disappointed. It starts with people. People understanding the common mission. A common mission that brings disparate groups together. Distrust can tear it apart. When that exists, failure happens not because the technology didn’t work, it is because the culture isn’t willing to adapt and adopt processes that will improve efficiency and effectiveness.
Retailers need to find a value proposition that wins, that stands out. Tell the story clearly and stick to it unless it needs to evolve. Teams across the organization need to understand that value proposition clearly and how it is supported by focused strategies, so that they are aligned. Otherwise, different teams will chase “Bright Shiny Objects”…those new “things” that someone somewhere thinks will change the trajectory of the business. Investments by various groups across the organization that will run conflict to each other or exhaust valuable resources. Or, teams trying to go after the “Magic Bullet”…thinking that there is one action that will change the trajectory of the business. What you end up with is everyone rowing hard, but against each other creating inertia, worse yet against the tide of competition and industry pressures, the organization drifts backwards because there isn’t the forward momentum created by an organization rowing in the same direction.
Neely Tamminga: Impact of stagflation
Heat or Eat? Following more than a year of rising prices and a summer of crosscurrents in consumer demand, the outlook for growth is a common query among retailers and brands. Defined as an economic environment in which economic growth slows while unemployment rises and prices remain high, stagflation is a portmanteau of stagnation and inflation. Discussed among experts in economics, technology, engineering, and real estate across the globe, three themes emerged in our roundtable conversation: 1) food and energy prices continuing higher; 2) the susceptibility of small business; and 3) the buffering (thus far) of luxury.
Beyond these three themes, the group discussed ways we would suggest retailers and brands prepare for further uncertainty in the economy. The consensus sourced five practical ways any company—especially small businesses and enterprises—as action steps that can be taken right now. First, control costs by making sure financials are up-to-date, inventories are streamlined, staffing matches demand (including cross training staff into multiple tasks), and overhead expenses match usage. Second, revisit assortments in inventory to ensure current goods reflect current demand and future orders reflect considered commitments. Third, seek support from vendors and partners through transparency, and seek evangelism from customers who already believe in the value of the brand.
While the group largely found common ground in conclusions and concerns, the one area receiving the most debate is the outcome of what could be stagnation: will we see the fully autonomous store replace customer service or will customer service evolve into new technologies like the metaverse. Only time will tell the long-term effects as economies emerge from years of disruption and potential periods of stagnation.
Marie Driscoll: Rebranding the retail experience
Newness is the mantra across retailers, demanded by consumers and this applies to retail experiences online and offline as well as merchandise selections and retail services.
Having recently visited Gap Inc’s four lab stores at its HQ in San Francisco, was impressed with the testing and trying environment, from instore events (Athleta), to vintage (Gap), a whimsical yet convenient General Store (Old Navy) to heightened luxury lifestyle with elevated service (Banana Republic).
Store visits span multiple use cases, from discovery to expediency, convenience to storytelling and the same shoppers shop for different reasons regularly. This demands instore associates with emotional intelligence along with product intelligence, not just warm bodies. A difficult situation with the current labor shortage.
Younger shoppers regularly using reviews before making big purchases ($) and in unfamiliar categories, in part because they learned this online and in part because the instore associates aren’t experts/specialists.
What 2Q at Walmart and Target tells us. What went wrong? Mix shifts from higher margin apparel to lower margin grocery and rapidly changing consumer demands, unprecedented in the word of the quarter, year, or COVID.
Low margin groceries have been the lure at Walmart for 30 years to get shoppers into the stores weekly and just add some discretionary higher margin products to the basket to improve profit margins. That didn’t happen in Q2. The paradigm is shifting as consumers use online for some of their grocery shopping and are shopping grocery in a more targeted manner, with more intent and less impulse. This has an impact on margins, which is being offset as retailers take a page from Amazon’s playbook and integrate services into their business model.
Retail as a platform means retailers that are a consumer destination can monetize advertising, marketplace, fulfilment, and services such as healthcare, financial services, resale. The economic profit is being squeezed out of the retail industry and profitability can be captured by diversifying into these services that a platform supports. Lots of moving parts and partnering, but RAAS is creating new profit streams. Look at Amazon.
Check out Carol Spiekerman’s podcast for more on Walmart, Target and retail’s reinvention.
Marshall Kay: Retail RFID
- Most people don’t realize that even Walmart uses RFID. Factories apply RFID smart labels to all Apparel and Footwear sold by Walmart USA.
- Walmart is now beginning to use smart labels on all Home Goods, Tires, Car Batteries and many Toys, Sporting Goods, Consumer Electronics.
- Target, Zara, Uniqlo, H&M, Macy’s, Lululemon, Nike, Adidas, Levi’s, Decathlon and Gucci are among the dozens of retailers worldwide who use RFID in Apparel & Footwear
- Omnichannel makes it very tough for retailers who sell Apparel & Footwear to operate profitably
- RFID also solves classic pain points that plagued retailers for over a century
- Retailers who use RFID in their stores to manage inventory have much better:
- Inventory Accuracy: 95-99% “SKU Level” accuracy, versus 60-70% without RFID
- Inventory Visibility: Actionable data on each SKU’s Salesfloor vs. Stockroom unit quantity (plus Dwell Time)
- Inventory Findability is “the 3rd leg of the stool”:
- Employees use RFID to start their search (look on Salesfloor versus look in Stockroom). When needed, they use their mobile RFID scanner in “Geiger” mode. The device starts beeping if the employee is within 20 feet of the item
- Findability is facilitating BOPIS and Ship-From-Store, and also expediting the daily restocking of Salesfloors
- Inventory Accuracy drives better enterprise-wide decisions, like: Routing online orders; Pricing/Markdowns; Replenishment of stores from DCs
- Most midmarket department stores now require RFID tagging for the majority of their merchandise
- Quick Service Restaurant chains (e.g. McDonald’s, Chipotle) are in the midst of large rollouts
- Supermarket operators are eyeing RFID more closely too for use in certain parts of their stores
- Smart Labels cost 5 cents more than traditional labels. They typically get applied by Factories, not at the store itself.
- Asset Protection professionals are slowly learning how to add RFID to their arsenal of tools to reduce theft by employees and shoplifters
- There is excitement about “secondary” uses of RFID within stores:
- Rapid Checkout: Uniqlo and Decathlon use RFID to speed up checkout (including a speedier form of self-checkout)
- Smart Fitting Rooms: Retailers/Brands can see which items get tried on but not purchased
Ricardo Belmar: E-commerce and DTC
Hot topics included the current media narrative that DTC is a failing strategy and not profitable. However, most agreed that established brands can make a good percentage of their sales come from DTC channels. Examples included Nike, Williams Sonoma. Plus, most felt these conclusions were being drawn with a view through the wrong lens. The right way to view DTC is as one part of an entire sales strategy. Most digitally native DTC brands “graduate” to some sort of wholesale model and/or open stores as part of their strategy. Harry’s razors was one example given by Jeff Sward. When they first appeared, he became a customer. Over time he became a recurring customer ordering from Harry’s online. And then Harry’s became available at Target, and Jef went from a monthly frequency of buying direct, to buying Harry’s as part of a weekly Target run. In fact, because of the quite large amount of shelf space devoted to Harry’s in the razor aisle, Jeff decided to try out a new Harry’s product he wouldn’t have thought to buy online sight unseen. Now Harry’s has replaced another brand of body wash in his weekly purchases. This story plays out for more and more brands and the group felt that’s the natural evolution for digitally native DTC brands. Many of the participants felt that DTC brands tend to target early adopters within their product category. Eventually, they run out of these customers and growth stalls. The DTC brand at that point needs to expand and digital customer acquisition costs have become so high, this becomes unfeasible without either a wholesale strategy with retailer partners or requires opening their own stores. Finally, marketplaces were seen as playing a big role in this overall strategy – being where your customers are, much like how Peloton decided to sell on Amazon as part of their sales strategy.
Another hot topic related to apparel. Fit was agreed as the number one challenge facing e-commerce sales of apparel. Most consumers will buy 5 different sizes of the same item and return 4 of them. This returns management problem has been as high as 60% since the pandemic and is clearly unsustainable. The group discussed how some brands are trying to charge consumers for returns. But, the power of “free” is too strong to overcome for most consumers. Everyone generally agreed consumers will simply try that brand once, and if they’re charged a fee for returns, they will simply try another brand next time. Loyalty is hard to come by when facing the power of free!
Sustainability was also discussed as an e-commerce challenge in the context of returns. Can sustainability be leveraged as a motivator for consumers? Not everyone agreed on this point. Many felt that consumers will say they care about sustainability but when faced with a higher cost to fulfill that sentiment, they will simply buy the cheaper non-sustainable product.
Cathy Hotka brought up that she has been in discussions with retailers for years about solving the “fit problem” and although there are solutions now via technology to try and solve this, none of these solutions have reached critical mass yet. The group believed that these solutions need to come down in price to achieve better adoption rates. The group couldn’t decide why apparel retailers have so much difficulty solving the fit issue and questioned if it’s an industry culture issue and that perhaps the apparel industry just doesn’t want to fix this yet. Maybe they lack the motivation to do so.
Lastly, supply chain was seen as very much related to e-commerce and DTC challenges, especially in the context of profitability due to last mile fulfillment. This area of last mile fulfillment was discussed as the most important area in need of new innovations. The group discussed how there are now solutions DTC brands should consider that allow them to evaluate all options in an area for last mile fulfillment and then select the best lowest cost option. Technology plays a role here and much like the fit challenge the group agreed adoption of these technologies is not yet high enough to make a difference. When asked why this is so, some in the group felt it was a lack of awareness of the solutions, others felt it was a cost issue to implement these solutions.