Future Store Manifesto

 Boston Retail Partners November 2015 Sponsored by Table of Contents INTRODUCTION 3 THE STORE IS NOT DEAD – IT’S DIGITIZED 3 THE TRANSFORMATION OF THE STORE 4 THE STORE OF THE FUTURE MOBILE RELEVANT PERSONAL UBIQUITOUS SECURE 4 4 5 5 5 6 CHALLENGE – CURRENT ENVIRONMENTS CAN’T SUPPORT THE STORE OF THE FUTURE 6 OUTDATED LEGACY SYSTEMS MULTIPLE VERSIONS OF THE TRUTH ORGANIZATIONAL CHANGE FATIGUE 6 7 7 FUTURE STORE IMPERATIVES 7 IMPERATIVE #1 – A UNIFIED COMMERCE PLATFORM IMPERATIVE #2 – CLOUD APPROACH IMPERATIVE #3 – MOBILE TECHNOLOGY 7 8 9 KEY TAKEAWAYS 9 ABOUT BOSTON RETAIL PARTNERS 10 SPONSOR PERSPECTIVE 11 The Future Store Manifesto | Page 2
Introduction The digital world is infiltrating brick and mortar stores, where consumers are equipped with smartphones and a new set of expectations. While two-­thirds of online transactions occur after a shopper visits the store, 90% of all retail sales transactions still occur in the store.1 The physical store is accessible, convenient, instant, and now digital. The Store is not Dead – It’s Digitized Over the past twenty years, many in the retail industry have predicted the demise of the physical store. That might seem a reasonable assumption given the accelerated growth of e-­commerce and advancements in mobile technology. In fact, many millennial shoppers utilize their smartphones for research and purchases and have no need for a physical store. But the reality is, the store is still the foundation of retailing. It is where the tactile and sensory experience comes together for the consumer. While McKinsey predicts that physical stores will account for approximately 80% of U.S. retail sales by 2020,2 the most significant consumer and retail value will continue to be created within the four walls of the store. With the convergence of bricks and clicks, retailers will build loyalty and brand value that transcends channels. Online shoppers have become accustomed to features such as product reviews, extensive choices, one-­
click transaction processing, and personalized recommendations. Unfortunately, these expectations don’t dissipate when they walk into a physical store. Consumers’ expectations are likely magnified given that one-­
third of consumers shop more than one channel as part of their shopping journey. Retailers must therefore infuse digital features into the store environment to exceed customer expectations, compete more effectively with online pure-­play retailers and offer a better, more complete, shopping experience. There are five critical elements necessary to ensure retail success for the future store. Stores must be Mobile, Relevant, Personal, Ubiquitous, and Secure. 1
2
On Solid Ground: Brick-­and-­Mortar is the Foundation of Omnichannel Retailing, AT Kearney The future of retail: How to make your bricks click, McKinsey The Future Store Manifesto | Page 3
The Transformation of the Store The physical store is still the foundation of retail;; however, we are on the cusp of a significant and fundamental transformation in the store environment. Much of this disruption stems from consumers’ adoption of mobile devices to research, communicate, and purchase throughout a non-­linear shopping journey. In addition to the ubiquity of mobile devices, the following micro trends are affecting the role of the store: • Online pure-­plays opening stores – Onetime online pure-­play retailers such as Birchbox and Bonobos have opened physical stores to provide customers instant gratification. • Stores as showrooms – Retailers such as Restoration Hardware allow customers to touch and feel products and interact with associates, but ultimately ship the product from a distribution center or make to order. • Stores as a theater – Bass Pro Shops and Cabela’s offer “entertainment” such as archery ranges and aquariums to deliver emotional impact. • Stores as distribution centers – Innovative retailers such as Vineyard Vines leverage their store network for distribution to optimize inventory and increase sales and customer satisfaction. • Pop-­up shops – Each fall, Party City and Spirit Halloween open several hundred Halloween stores, while Cole Haan creates pop-­up showrooms in Shanghai to extend their brand without the cost and complexity of operating long-­term fixed stores. Stores must now encompass both worlds – the sensory experience of the physical store and the personalization and convenience of online shopping. The most successful retailers will seamlessly blend the physical with the digital in the future store. The Store of the Future Mobile There’s no question that mobile devices are pervasive and have changed shopping behavior and elevated expectations. But the proliferation of mobile devices is only the beginning. Wearables are now available to the masses. The store of the future allows shoppers to simultaneously browse online through their digital glasses while shopping within the store, and then simply wave their watch to purchase their items. Mobile devices offer further opportunities to enhance customer service. Mobile point of sale (POS) enables associates to complete a customer’s purchase on the sales floor at the moment a buying decision is made. It frees associates from the checkout desk to enable more personal interactions and simplifies the experience for the customer by eliminating the need to wait in line. As the focus within the store shifts to incorporate digital technologies, mobile devices will play a larger role in personalization. Sensors, beacons, and other technologies can identify customers via their mobile device when they enter the store, giving the associate the opportunity to personalize the shopping experience. The Future Store Manifesto | Page 4
Relevant The film Minority Report gave us a glimpse of the store of the future when Tom Cruise’s character entered the store and his retina was scanned for identification. This type of recognition allows the retailer to understand shopping history and communicate relevant and personalized information to the shopper. Once identified, retailers can understand who the customer is and can communicate contextual messages. Geolocation and geo-­fencing are two methods retailers utilize to deliver messages based on context and location. Geolocation uses a combination of indoor location-­based technologies and a customer’s mobile device to transmit their location within the store. Geo-­fencing defines geographical boundaries as a form of virtual barrier. Once a customer crosses the barrier, associates and the shopper receive relevant alerts, based on that location. To effectively leverage this technology, retailers must analyze the customer data that is collected and offer meaningful offers based on customer context. Customer context – the interrelated factors of customer insights and environmental conditions that make the shopping experience relevant – is essential to personalizing the experience. Technologies such as touch screens, virtual mirrors, and virtual reality offer possibilities for further interaction and a more immersive environment. The North Face, for example, recently gave customers in its flagship stores the opportunity to use virtual reality to rock climb in Yosemite National Park. “Smart” fitting rooms utilize virtual mirrors and/or motion sensors to interact with customers to offer product information, suggest complementary products, or notify an associate that a different size is needed. Virtual mirrors allow shoppers to envision themselves in different garments, glasses, or cosmetics. These technologies, coupled with a personal digital assistant, can make recommendations based on customer information, purchase history, and current promotions within the store. Personal Retailers must understand and choose in-­store technology carefully to empower associates and personalize the customer experience. Mobile devices used by store associates to assist customers with clienteling, guided selling, inventory look-­up, and even checkout throughout the store are prime examples. In this scenario, associates are free to interact with and assist customers anywhere in the store. The future store may enable customers to videoconference with their favorite sales associate – from home. Customers can request to see different products and get a better understanding of size and color options based on interaction with a live associate. Ubiquitous Real-­time retail is the ability to deliver a seamless, personalized experience to the shopper whenever, wherever, and however they choose to shop, and will be a requirement for the store of the future. It enables retailers to identify shoppers and gather, analyze and disseminate customer, product, pricing, and inventory data across all channels – instantly. Without real-­time data, information provided internally and externally is out-­of-­date and risks being inaccurate and out of context. Enterprise data, functionality, and business rules must be ubiquitous and always available. Retailers are increasingly turning to cloud commerce providers for a single, unified platform to deliver consistent and relevant shopping experiences in an omni-­channel commerce environment. This moves data storage and The Future Store Manifesto | Page 5
software integration to a centralized location and allows easier access to information across the enterprise (stores, distribution centers, suppliers, etc.).
Secure The store of the future requires a secure environment beyond retailers’ current focus on payments and network security. Retailers need to strike a balance with consumers between gathering information and maintaining trust. As retailers seek new ways to provide relevant information and experiences, like product recommendations via digital screens in the dressing rooms or facial recognition alerting an associate to a shopper’s arrival, they must understand the impact on the customer relationship. There is a fine line between clever personalization and concern over personal data. While more information offers a more personalized experience, it also provides a greater opportunity for data theft and fraud. Retailers need to establish security policies that ensure the data privacy of their customers’ information. Consumers want retailers to understand them as individuals – not put their personal information at risk. Challenge – Current Environments Can’t Support the Store of the Future Realizing the store of the future will certainly be a major challenge. Retailers have legacy systems, inconsistent customer data, and are generally not organized in a way that supports the transformation. Outdated Legacy Systems The evolution of the store has been held back by disparate systems built in silos based on old technology and paradigms, and a lack of robust networks;; all creating today’s architecture and integration challenges. For decades, retailers added new technology for specific channels. For instance, when e-­commerce was introduced, retailers implemented stand-­
alone systems, support staff, and inventory that weren’t integrated with the store systems that essentially performed the same functions. Retailers often had separate inventories and systems for order management, customer relationship management (CRM), and merchandising for each channel. This model has been perpetuated and many retailers have ended up with disparate technology and duplicated cost structures at almost every customer touch point. “Retailers can no longer afford to operate from within silos and must transform their technology, business processes, and organization if they want to align with their customers’ expectations.” Ken Morris – Principal, Boston Retail Partners Further, networks in the past were unreliable, slow and expensive, creating a decentralized store technology model based on necessity. A decentralized infrastructure is expensive to maintain, slow, inflexible, and difficult to secure. However, today’s robust networks are very fast, reliable and resilient. Take a look at the banking industry. It capitalized on widespread network availability and security to introduce ATMs that revolutionized the industry. Now people deposit checks on mobile devices and transfer money without stepping inside a bank. Retailers need a similar reinvention. The Future Store Manifesto | Page 6
Multiple Versions of the Truth Retailers have struggled to gain consistent, shareable, and accurate customer and inventory data across the enterprise, which has hampered their ability to provide personalized, relevant service. As data grows exponentially, organizations grapple with disparate silos where inaccurate, incomplete, inconsistent, and redundant data resides. It is not surprising that a single version of the truth rarely exists. As a result, retail executives make decisions based on inaccurate or inconsistent data. The ability to more effectively manage and synchronize data throughout the enterprise is an essential requirement for real-­time retail. Real-­time visibility to customer, product, price, inventory, and order information across all channels is critical to deliver a seamless customer experience. Organizational Change Fatigue For most retailers, the pace of technology acceleration is confusing, overwhelming, and exhausting. This has caused organizational change fatigue. Retailers constantly deal with change – technology change, process change, and organizational change. As the latest generation, Gen Z or Boomlets, enters the workplace, the challenges will continue. This generation has likely never seen a green screen, and they require the ease and intuitiveness found in consumer apps in order to operate a POS. Along with technology architecture and usability, retailers must address organizational change. Store associates must often learn new processes and take on additional responsibilities, often without receiving extra resources or relief from their everyday responsibilities. They do not have a clear sense of the organization’s vision, their role in the transition, or which elements of change should be their top priority. Retailers need to manage change and embrace a different architectural approach for today’s retail paradigm. Future Store Imperatives To address the key challenges and support the five critical elements for successful stores – Mobile, Relevant, Personal, Ubiquitous, and Secure – retailers must shift their focus from channel integration to a holistic customer experience. It is imperative to evolve both multi-­channel and omni-­channel retailing to provide a seamless shopping experience in the store, on the Web, and on mobile devices. From a technology perspective, there are three key elements that enable retailers to achieve the essential capabilities of the future store: a unified commerce platform, cloud computing, and mobile technology. Imperative #1 – A Unified Commerce Platform Unified commerce eliminates individual channel silos and offers a seamless experience across all customer touch points by leveraging a single, unified platform for commerce, inventory, customer, pricing and transaction data. To architect the optimum foundation, retailers must consider the three major components of a unified commerce platform: Networks – Today’s networks are robust, fast, reliable, resilient, and can support a single centralized platform. Service-­oriented architecture (SOA) – A SOA layer for integration or ‘glue’ between ecosystems is essential to effectively enable real-­time retail capabilities and unite various retail systems to bring the unified commerce platform to life. The Future Store Manifesto | Page 7
Order management – Central to unified commerce is an order management system (OMS) designed to manage orders across all channels, including a POS user interface, complex fulfillment options, and inventory in real-­time. Key benefits of a unified commerce platform: 1. Cross-­channel inventory visibility – Increases sales by enabling ‘endless aisle’ capabilities and the ability to ‘save the sale’ by selling merchandise not available in the store. 2. Flexible ordering and delivery options – Offers customers the flexibility to buy online/pick up in the store, which creates opportunities for ancillary sales. 3. Simplified and flexible technology – Centralizes systems to either a data center or the cloud to reduce the number of devices and licenses to maintain, enables the uniformed deployment of application updates, and simplifies security with only one point of failure. 4. Personalization – Enhances cross-­channel visibility to gain a singular view into the customer’s virtual closet (purchase history, browsing behavior, and personal preferences), which is the cornerstone to delivering a personal shopping experience. 5. Glass pipeline – Establishes a single version of the truth for data, functionality, and business rules to enable seamless and real-­time interactions across the chain. Imperative #2 – Cloud Approach A cloud approach enables retailers to significantly reduce infrastructure, improve security and increase effectiveness within each store through central management of key elements of product, price, inventory, order, and customer data. Many retailers choose a unified commerce platform in the cloud to take advantage of the lower costs and speed to deployment. While some retailers have traditionally been apprehensive about the network connection, reliability has significantly increased over time. Retailers may select a private cloud or hybrid approach for their unified commerce platform to ensure their stores can always “scan and bag.” Cloud is an effective path to seamlessly connect all e-­commerce, mobile commerce, and in-­store POS transactions to order management, inventory, marketing, financials, and customer service. The speed and agility of the cloud enables retailers to support dynamic and complex needs of transactions and real-­time customer engagement. A cloud approach offers retailers significant advantages: 1. Cost efficient – A cloud infrastructure relieves enterprises of the resource burden of procuring and maintaining on-­premise technology. 2. Scalable data storage capacity – Storing information in the cloud offers nearly unlimited, dynamic, and expandable storage capacity. 3. Automatic software integration – Software integration is reduced and delivery occurs automatically, with no additional manual efforts to integrate with individual locations. 4. Backup and recovery – Easy access to data for backup and restoration services. 5. Access to information – Information is accessible any time from any device. 6. Continual innovation – New functionality is deployed simply and continually, without the traditional cost, complexity, and risk. The Future Store Manifesto | Page 8
Imperative #3 – Mobile Technology Mobile technology untethers store associates from the cash wrap (traditional POS environments) and enhances customer engagement. Mobility enables enterprise inventory visibility, even for products not immediately available, and enables associates to complete the transaction anywhere in the store. Advantages of mobile technology: 1. Customer identification and location – The ability to identify the customer as they enter and shop the store – via a smartphone and geolocation services – helps retailers personalize the shopping experience with relevant content and promotions based on personal information and location within the store. 2. Mobile point of sale – Utilizing a mobile device as the checkout device enables store associates to complete a customer purchase on the sales floor at the moment a buying decision is made. Key Takeaways While the role of the physical store is changing, it remains the hub of the shopping journey. The digital world offers consumers new ways and “places” to research and shop. These digital possibilities, along with mobility, have raised consumer expectations, and forced retailers to transform and evolve to succeed. “The technology in stores today is outdated and broken – it can’t support the real-­time connection between the consumer, the associate, inventory and pricing essential to the omni-­
channel experience. It’s time for change.” Eric Olafson – SVP Store Solutions, Demandware Retailers need to focus on five critical elements to successfully meet consumers’ new expectations: Mobile – The proliferation of mobile technology offers retailers new ways of enhancing customer engagement by utilizing the mobile device already in customers’ and associates’ hands. Relevant – Identify the customer when they enter the store and understand their browsing history and past purchases, in addition to current environmental factors to offer relevant, contextual messages to the customer. Personal – Enable personalized customer service that is not available in other channels by arming associates with product and customer knowledge and insights. Ubiquitous – Identify shoppers and gather, analyze, and disseminate customer, product, pricing, and inventory data instantly to deliver a seamless personalized experience to the shopper whenever, wherever, and however they choose to shop. Secure – Ensure a secure environment to safeguard customers’ payment and personal data. The physical store will continue to be the heart and soul of retail operations for the foreseeable future;; however, a transformation is in process. While the store isn’t going away, it’s about to get a whole lot more connected, mobile, and smarter. The Future Store Manifesto | Page 9
About Boston Retail Partners Boston Retail Partners (BRP) is an innovative and independent retail management consulting firm dedicated to providing superior service and enduring value to our clients. BRP combines its consultants' deep retail business knowledge and cross-­functional capabilities to deliver superior design and implementation of strategy, technology, and process solutions. The firm's unique combination of industry focus, knowledge-­based approach, and rapid, end-­to-­end solution deployment helps clients to achieve their business potential. BRP’s consulting services include:
Strategy Business Intelligence
Business Process Optimization Point of Sale (POS) Mobile POS Store Systems and Operations Payment Security CRM Customer Experience & Engagement Order Management E-­Commerce Merchandise Management Unified Commerce Supply Chain Private Equity For more information or assistance on any of the topics covered in this white paper, please contact: Brian Brunk, Principal Don Yee, Vice President (405) 590-­0542 (925) 913-­0030 [email protected] [email protected] Ken Morris, Principal Paul Valle, Vice President (617) 880-­9355 (917) 621-­7844 [email protected] [email protected] Walter Deacon, Principal Beatrice Egan, Consultant (781) 337-­2060 (631) 903-­0590 [email protected] [email protected] David Naumann, Director of Marketing (916) 673-­7757 [email protected] Boston Retail Partners Headquarters Independence Wharf, 470 Atlantic Ave., 4th Floor, Boston, MA 02210 www.bostonretailpartners.com ©2015 Boston Retail Partners. All rights reserved No part of this publication may be reproduced or transmitted in any form or for any purpose without the expressed permission of Boston Retail Partners. The information contained herein may be changed without prior notice. The Future Store Manifesto | Page 10
Sponsor Perspective Demandware believes that in order to provide consistent and seamless interactions wherever and whenever consumers shop, retailers need to transform the physical store, which helps provide a single view of customers, orders and products across all retail channels. Retailers need this now and in real-­time. This spans digital, store, fulfillment and customer service. To remain competitive, retailers must also take the shopping experience to the next level with personalization and branded innovations. Nowhere is this more important than where the majority of transactions take place, the store. Success in retail today requires that stores be part of the unified commerce experience. However, disparate commerce systems between the store and other channels make a seamless shopping experience difficult to achieve. It is simply not sustainable or realistic to innovate on legacy store technology. Demandware can help retailers’ achieve the store of the future by following three principals: 1. Cloud: Bring POS into the cloud to drive store innovation 2. Unified: Merge the physical and digital experience together to support a unified customer experience 3. Mobile: Empower associates to become mobile and engage with customers where decisions are made – on the sales floor At Demandware, the store is an integrated part of the Demandware Commerce Cloud, the cloud-­based, enterprise platform for unified commerce. Through the platform, both store operations and digital commerce share strategic capabilities such as merchandising and promotions management, as well as a single view of customers, products, prices, orders and other critical data elements. While traditional and mobile POS options empower sales associates to engage customers wherever they are with full tendering, inventory lookup, and assisted selling capabilities. With one platform from Demandware, retailers are finally able to create unified experiences, a single lens in which to express their brand, engage consumers and drive retail success now and in the future. For more information, visit http://www.demandware.com, call +1-­888-­553-­9216 or email [email protected] The Future Store Manifesto | Page 11