Next Generation Retail Q4 2010
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Next Generation Retail Q4 2010

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Next Generation Retail explores the topic of Net Returns: How the web through e-commerce, social networks, smartphones — has changed the retail landscape forever.

Next Generation Retail explores the topic of Net Returns: How the web through e-commerce, social networks, smartphones — has changed the retail landscape forever.

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Next Generation Retail Q4 2010 Next Generation Retail Q4 2010 Document Transcript

  • www.ngretailus.com • Q4 2010 Riding the recession How the best retailers have profited from the downturn Survival of the fittest Office Depot’s Steve Odland on tackling tough times Energy effectiveness Philips Teletrol’s Andy McMillan on improving the shopper experience Net returns How the web – through e-commerce, social networks and smartphones – has changed the retail landscape forever SUSTAINABLE RETAIL • DIGITAL SIGNAGE • WORKFORCE M ANAGEMENT • STORE DESIGN • PAYMENT SOLUTIONSCover NGRUS1.indd 1 08/10/2010 16:15
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  • FROM THE EDITOR 5 Changing the retail landscape – again Why the mobile revolution has fundamentally altered the way we live and shop. W ith apologies to Ferris Bueller, technology that one in five consumers planned to use their mobile “While mobile moves pretty fast – if you don’t stop and phones to shop during the 2009 holiday season. look around once in a while, you could retail is real now, Indeed, the variety of applications for mobile tech- miss it. Mobile is just the latest disruptor it’s very quickly nology are huge. “We believe the true potential for to revolutionize the way we interact with information. m-commerce is to provide consumers with a valuable Picture the following scene: a group of friends going to morph tool for research, comparison shopping and retailer are sat in a pub, arguing over an obscure fact. In years into something interaction,” says Malcolm Pinkerton, Senior Analyst gone by, the argument would have raged for hours, different from at Verdict Research, in our cover story. Google, mean- with neither side willing to give an inch; these days, while, believes that mobile will also bring advantages however, such debates are solved easily at the touch of the types of location-based marketing and social media market- a button via a simple Google query. Elsewhere, a com- of mobile ing to the mix and these, while not necessarily driving muter on the way to an important meeting is stuck in functionality we direct sales from handsets, will provide the cornerstone traffic; a real-time travel update means he is able to of the future shopping experience. reroute his journey to get there on time. Meanwhile see today” The marketing whizz kids at Apple put it best: “This a tourist is looking for somewhere to eat in a strange changes everything. Again.” In many ways, Apple’s city; no problem, the location-aware software on her ad might represent excessive marketing industry mobile phone instantly provides her with a range of hyperbole, but it does hold an essential truism: the choices. mobile revolution has fundamentally altered the way Mobile phones must be one of the best on-the- we live. More importantly, it also highlights another spot information retrieval resources of all time – which truth – that while mobile retail is real now, it’s very is why they are increasingly becoming the weapon quickly going to morph into something different from of choice for a new army of consumers constantly in the types of mobile functionality we see today. We’ve search of lower prices, better deals and greater infor- barely scratched the surface of what’s possible. mation on everything from product comparisons to It’s hard to plan for a constantly evolving technology. user satisfaction. With consumers relying on hand- However, retail execs cannot afford to take a backseat held devices for everything from phone calls to web and wait for others to shape the mobile landscape. Ferris surfing, retailers are looking to mobile as the next had it right: snooze and you’ll almost certainly lose. frontier of the shopping experience. Approximately 1.15 billion mobile handsets shipped in 2009 around the globe, with smartphones accounting for 81 percent of the estimate. eBay’s iPhone app, launched earlier this year, has already been downloaded in excess of 11 million times, and the online auction giant is gunning for a whopping $1.5 billion in mobile sales this year; Amazon’s mobile site traffic is second only to eBay among vendors of real- world stuff, according to figures from Nielsen; while Ben Thompson an annual survey from Deloitte last year that found Senior EditorED NOTE.indd 5 08/10/2010 16:15
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  • CONTENTS 7 28 Survival of the fittest Office Depot CEO Steve Odland on how the company weathered the downturn and is now looking ahead to a brighter future 60 76 Heart and sole The art of celling With mobile commerce set to How Zappos has leapfrogged traditional stores revolutionize the to become one of America’s favorite shopping retail environment, destinations Ben Thompson asks whether the country’s businesses are ready for the next wave of change 38 Riding the recession As America recovers from one of the most crippling financial climates in the country’s business history, Lucy Douglas asks what a retailer needs to succeed in 82 a recession? Kindling customer engagement How CTO Werner Vogels transformed Amazon.com into the world’s most customer-centric organizationCONTENTS.indd 7 11/10/2010 11:58
  • 8 CONTENTS Regulars 12 The brief A look at the forecast for holiday spending 16 Global news A round-up of the latest industry events and trends from around the world 48 Roundtable A panel of experts give their 12 insight into the changing face of retail marketing solutions 101 Lifestyle Have we seen the final curtain call for America’s favorite movie rental store? 104 Travel How to spend 36 hours in… Las Vegas 34 Branding for the online avenue Next Generation Retail speaks to Saks Fifth 16 Avenue’s AJ Sutera about taking an exclusive brand on to an accessible online platform 44 Blueprint for success Why making the most of your costly retail space can pay dividends in terms of better branding and more active customer engagement 54 Signs of the times The Retail Advertising and Marketing Association’s Mike Gatti reveals how digital signage is going to revolutionize the retail world 68 Taking on the online challenge 101 104 Walgreens’ CTO Abhi Dhar explains how the nation’s favorite bricks-and-mortar drugstore successfully made the transition to online powerhouseCONTENTS.indd 8 08/10/2010 15:29
  • CONTENTS 9 70 Token efforts Bob Griffin outlines the landscape of retailers’ tokenization options 72 Engaging the social consumer Steve Madden’s Andrew Kovan speaks about utilizing the growing social media platforms to interact with customers 90 74 Return of the king According to recent research from IBM, it is consumers rather than stores that are driving the rapidly evolving retail environment 86 A rewarding experience Customer loyalty is consistently touted by retailers across the country as a major area of focus. So why do so few have a rewards program that works for both them and their clients? 88 Asset maximization: selling your brand starts with your talent Jamie Minier, President of The Right Thing, explains why a strong employment brand is 54 68 vital to attract top talent 90 Inside the hit factory What keeps Starbucks’ HR department awake at night? Clue: it’s not just the coffee 94 Energy effectiveness: getting beyond energy efficiency By Andy McMillan 96 Retail goes green Why a growing number of retailers are putting sustainability at the heart of their business models 106 Less is more Liz Claiborne’s Peter Warner speaks to Next 72 00 Generation Retail about keeping up with the industry and how stripping a business back to the bare essentials can provide the much needed facelift to succeed in tough timesCONTENTS.indd 9 08/10/2010 15:29
  • The NG Retail US Summit 17-19th May 2011 Legal Information Scottsdale, Arizona The advertising and articles appearing within this publication reflect the opinions and attitudes of their The NG Retail Summit is a three-day critical information gathering of the respective authors and not necessarily most influential and important executives from the retail industry. those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All The NG Retail Summit is an opportunity to debate, benchmark and learn material within this magazine is from other industry leaders. ©2010 NGR. A Controlled, Professional and Focused Environment Chairman/Publisher Spencer Green Worldwide Sales Director Oliver Smart A Proven Format Finance Director Jamie Cantillon This inspired and professional format has been used by over 100 executives as a rewarding platform for discussion and learning. Editor Ben Thompson Associate Editor Lucy Douglas Contributors Ian Clover, Rebecca Find Out More, Contact NG Retail Goozee, Nicholas Pryke, Julian Rogers, Stacey Sheppard, Marie Shields +212 796 2000 ext. 456 Creative Director Andrew Hobson Design Director Sarah Wilmott Associate Designers Tiffany Farrant, Michael Hall, Crystal Mather, Cliff Newman, Catherine Wilson Online Director James West Online Editor Jana Grune Project Director Robert Fishkin Assistant Project Director Matt Rivoir Sales Executives Chris Burke, Mark Segreto, Gabrielle Hess, JP Wolf, Joe DeForca, Ruth Pender Production Director Lauren Heal Production Coordinators Renata Okrajni, Aimee Whitehead VP North America Jason Green Operations Director Ben Kelly IT Director Karen Boparoy Marketing Director John Funnell Subscription Enquiries: +44 117 9214000, www.ngretailus.com General Enquiries: info@gdsinternational.com (Please put the magazine name in the subject line) Letters to the Editor: letters@gdspublishing.com GDS International GDS Publishing, Queen Square House 18-21 QueenSquare, Bristol, BS1 4NH Tel: +44 117 9214000 E-mail: info@gdsinternational.com www.ngrsummit.comCREDITS.indd 10 08/10/2010 15:29
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  • 12 THE BRIEF ’Tis the season to be spending? By Nick Pryke W ith the obligatory Christmas run-up Beemer, Founder and CEO of ARG. “Never, in the 31 “Pessimism hitting our screens, shops and internet, years I’ve been conducting research, have I seen such you could be excused for thinking that among a pessimism. President Obama has pierced the side of we’re already in December. Fortunately Americans about Lady Liberty, reducing the spirit of hope among con- that’s not the case, but with the side effects of the the upcoming sumers as they wonder when the recession will ever global recession hitting last year’s Christmas period end. Americans see massive government debt, more with some force, researchers, analysts and retail play- Christmas home foreclosures in their neighbourhoods and little ers are keen to do all they can to predict what the 2010 season is off the or no improvement in their local economy – even after festive period holds in store – and early signs indicate charts” $1 trillion spent in government stimulus.” that it could be another tough season for retailers. However, in somewhat of a contrast to Beemer’s A survey recently conducted by America’s Research Britt Beemer, Founder statement, Deloitte has released its 2010 holiday and CEO of ARG Group (ARG) has confirmed that more than 42 percent spending forecast, in which it notes the most modest of consumers plan to spend significantly less during of increases in consumer spending in comparison to the festive season this year, compared with a mere 11.7 2009. Regardless, “sustained weakness in the hous- percent who said they planned to spend more than ing and employment markets continue to restrict they did the year previous. The near four-to-one ratio consumer cash flow,” says Carl Steidmann, Deloitte’s saying they would spend less is above the two-to-one Chief Economist. seen in 2009 – and even higher than the three-to-one “Consumers’ discretionary funds have dwindled seen in the financial downturn that 2008 delivered. as households remain focused on reducing debt and In addition, while 55 percent of people said that they increasing their savings. Should consumers receive were in a better debt position this year than last, it good tidings later this season in the way of falling certainly doesn’t mean that the purse strings have energy prices or additional stock market gains, they been loosened, as credit-card companies have contin- may be able to lend retailers a bit more holiday cheer. ued to tighten credit limits and increase interest rates. However, given the unsteady pace of economic re- “Pessimism among Americans about the upcom- covery, retailers should expect only a small uptick in ing Christmas season is off the charts,” says Britt holiday sales this year.”FRONT SECTION.indd 12 08/10/2010 15:56
  • THE BRIEF 13 In addition to the modest two percent increase in News in pictures spending for 2010, Deloitte’s retail group also expects total holiday sales to reach $852 billion, representing a slight improvement over last year’s one percent gain. But with a change in environment and ever-accelerat- ing advances in technology, non-store selling and e- commerce is set to top the retail charts, with Deloitte highlighting a 15 percent increase in non-store sales, with nearly two-thirds coming from online channels and the remainder from catalogs and interactive TV. “The convenience and functionality that have fu- elled e-commerce gains in previous seasons will con- tinue to draw consumers online to do their shopping this year,” confirms Alison Paul, Vice Chairman and Deloitte’s retail sector leader in the US. “Online activ- ity may also influence in-store shopping this holiday season, as social networks and mobile applications are playing a more prominent role in the shopping Gap is among the brands that have joined the President’s “Skills for America’s process. As such, retailers should seek to deliver tightly Future” partnership, which links large companies with community colleges in integrated and consistent merchandise, inventory and order to boost the job skills of American workers. promotional messages to customers moving between web-based and physical storefronts.” Paul adds that retailers should be out in front of consumers to get their attention and strike a connec- tion with their brand early and often. Furthermore, according to Paul, by reaching out to their consumers via mobile applications, digital marketing and social networks, retailers should be able to enhance brand awareness and build traffic and sales in time for the Christmas period. And with US retailers posting their largest sales gain in five months in August, with strong receipts at gasoline stations and clothing outlets, the presumption would be that spending is on the up. Unfortunately it’s not as clear-cut as that, with retailers and consumers both explicitly aware of the continuing fragility of their A coffee buyer checks a sample of coffee beans at the coffee growers’ collective in San Gil, Colombia, on September 24. Colombian coffee growers may fall short of financial situations. Challenger, Gray & Christmas, re- a 2010 production forecast after output last year fell to a 33 year low, helping to leasing its annual holiday hiring forecast, confirmed sustain a 41 percent rally in New York-traded coffee prices this year. that retailers were more inclined to wait until the last minute before deciding to take on seasonal help in November and December. In addition, the company’s CEO, John Challenger, says that the best opportuni- ties for seasonal job seekers will be at discount stores, which he believes will attract a large majority of cost- conscious consumers during the period. “There’s still a lot of doubt about the sustainability of this economy,” asserts Challenger. “Retailers do not want to be caught with too many workers. There are still nearly 15 million Americans out of work and many have lost their homes or are struggling to hang on to them. This does not bode well for heavy holiday spending.” But it’s not all doom and gloom for the industry, as Toys R Us Inc. has brought some festive cheer to the table by announcing plans to hire 10,000 work- ers to staff its new 600 Toys R Us Express temporary The price of gold reached an all time high, with prices over $1300 an ounce as of stores around the US this coming Christmas. For the the end of September. Pawn shops and cash converters such as this one are proving remainder of the industry, it’s another case of ‘watch popular with consumers looking to make some extra cash. this space’.FRONT SECTION.indd 13 08/10/2010 15:30
  • 14 UPFRONT Retailers look to the environment Consumers across the globe want companies to be greener, a recent survey shows. M ore than 60 percent of consumers want to buy from environmentally responsible companies, but the cost of green products continues to be a hurdle in developed countries, according to a recent international survey. The fifth annual ImagePower Green Brands Survey, conducted by WPP agencies Cohn & Wolfe, Landor Associates and Penn Schoen Berland (PSB), as well as independent strategy consulting firm Esty Environmental Partners, gathered information on the environmental attitudes of 9000 consumers in eight countries. TOP 10 GREEN BRANDS Selection and labelling emerged as the biggest challenges in developing economies. The data also indicate that 70 percent of consumers in China, India and Brazil plan to spend the same or more money on green products in the coming year. 1. BURT’S BEES Reducing toxic and dangerous substances emerged as the most critical activity a company can do to be green – cited by more than two-thirds of 2. WHOLE FOODS respondents in each country – followed by water conservation or recycling. Consumers also said environmental consciousness is 3. TOM’S OF MAINE an important corporate priority, ranking it fourth in importance behind good value, trustworthiness and being caring about customers. 4. TRADER JOE’S Good shop, bad shop 5. GOOGLE T hink buying green makes you a better person? Think again. A research study by Nina Mazar and Chen-Bo Zhong of the 6. AVEENO University of Toronto suggests that those who make green purchases are subsequently more likely to behave in a selfish manner. Half of the study participants were asked to 7. SC JOHNSON shop online from a store stocked with mostly green products, while the other half were given a store containing conventional products. Participants were then asked to carry 8. PUBLIX out one of two tasks. One group was told to allocate $6 between themselves and another participant. The green shoppers kept more for themselves than the others did. 9. MICROSOFT The other group were given a task with a clear incentive to lie about the results to earn more money. The green shoppers earned on average 36¢ more than they should have, showing that they had lied to boost their income. 10. IKEAFRONT SECTION.indd 14 08/10/2010 15:30
  • UPFRONT 15 What Do Countries Think About Green Brands? It would be legitimate to think that with the US coming out of a recession, shoppers would be more pre-occupied with the economic downturn than saving the planet, and according to the fifth annual ImagePower Green Brands Survey that appears to be the case, although there is a growing concern for green practices. Consumers are more concerned about the economy than the environment * 68% UK 58% 25% 67% Germany 35% China 57% 32% 79% France 35% USA More concerned 17% with the economy 59% More concerned India with the environment 72% 37% 51% Brazil 25% 41% Australia Very important 60% of consumers say it is of some importance to buy brands from green companies * Somewhat important Not important 16% 16% 9% 15% 30% 50% 49% 40% 54% 59% 62% 64% 58% 57% 47% 44% 34% 22% 19% 11% 18% 2% 3% 7% USA UK France Germany Australia China India Brazil Source: All figures from 2010 ImagePower - Green Brands Survey * Not showing ‘Don’t know’ Graphic created for NG Retail US | www.ngretailus.com | GDS DigitalFRONT SECTION.indd 15 08/10/2010 15:30
  • 16 GLOBAL NEWS Not everyone shops the same So what’s happening globally in the wonderful world of retail? Orchard Road shopping district, Singapore Venus Fort, Japan NEW HORIZONS GIVE-AND-TAKE Asian markets in a strong position coming out of the Why swapping is the new shopping in Holland downturn The large number of flea markets and second- Some 2.6 million square feet of retail space hand shops dotted around Amsterdam’s city opened to shoppers in Singapore last year. center have long marked the city out as open to Between the bustling Orchard Road shopping the idea of thrift retail. But now the concept is district and several integrated resorts at vari- being taken a step further with the rise in swap-shopping currently ous popular and luxurious destinations such as Sentosa Island, being imported from the US. Instead of getting rid of their clothes, the new developments will provide an extra boost to the city- locals are encouraged to exchange them in private and public nation’s economy. In addition, the integrated resort helped bring events hosted by enterprising third parties. a rise in tourist numbers in Singapore with over 946,000 visitors “Want a whole new wardrobe for a fraction of the price? Ex- welcomed into the country in May, signifying a 30 percent rise change your perfectly good items that you never wear for fabu- year on year. lous fashion finds,” exhorts Amsterdam’s leading swap-shop host Further north, Malaysia is seeing an estimated 4.4 million Swap and the City. Colleen Geske and Tamara Raab, creators of the square feet of retail space coming on to the market this year. event, believe that while the idea of a clothing swap is nothing new, the economic climate means it’s a perfect time to re-examine INTO AFRICA fashion-shopping habits. “I wanted to create a fun afternoon out WalMart to enter into the South African market for women in the Amsterdam area, around the theme of fashion, Retail giant WalMart has put in a bid of $4.2 bil- beauty and charity,” says Geske. lion for South African wholesaler Massmart. As And as the event spawns a host of copycat meetings, expect Africa’s biggest economy, South Africa represents the trend to continue throughout 2010. a crucial market for WalMart’s success on the continent. In addition, Massmart operates 288 stores over 14 LOCATION, LOCATION, LOCATION nations across sub-Saharan Africa, as well as managing some of Themed Hong Kong streets offer bargains the country’s largest retail chains, and the successful acquisition If you want the best deal, shop where the locals of the firm would represent the largest takeover in more than 10 shop. That’s the lesson from Hong Kong, where years for the world’s largest retailer. WalMart failed to be the first consumers in Asia’s retail hotbed have swapped mover into either the South American or the Asian markets, in retail directories and the internet in favor of lo- both instances being beaten by French rival Carrefour group. It cally clustered retail ‘theme’ streets to help them find the largest is now hoping to be the first Western super-retailer to establish selection of goods in town. Kimberley Road is home to dozens of a presence on the African market and is prepared to take on the wedding gown shops; sport shoe shops line Fa Yuen Street; while risks that such a move brings with it. florists (unsurprisingly) pack the units along Flower Market Road.FRONT SECTION.indd 16 08/10/2010 15:30
  • UPFRONT 17 Powerful slate tablet PCs offer enhanced power, performance and integrated features M otion Computing, a global leader in integrated mobile Flower Market Road, Hong Kong computing solutions, has enhanced its entire line of rugged slate tablet PCs with enhanced integrated Hong Kong has many such theme-driven clusters of small busi- features and powerful performance. Now with the Intel Core i7 nesses that defy the conventional retail wisdom of avoiding direct vPro processors, Motion offers new levels of performance, security competition. Economists refer to the phenomenon as the ‘cluster- and manageability. The J3500 and F5v Tablet PCs from Motion are ing effect’, explaining how it acts as a magnet for like-minded significantly impacting point-of-sale computing by providing real- shoppers. In addition, Lam Pun-lee of the department of business time access to customer information, inventory details and more – in studies at Polytechnic University believes grouping similar shops the store, in the field or anywhere else it’s needed. together actually lowers the cost of marketing and creates more By offering the latest in processor technology, Motion is providing choice for consumers. “Hong Kong is a small city,” he says. “The retailers with the ability to equip mobile and in-store workers with presence of a few shops of similar products can grow into a cluster. That in turn attracts spending crowds.” all of the performance they need to improve productivity at the point-of-service, in a highly mobile device designed for users who CHIC ON THE CHEAP stand and compute. Enhanced remote management capabilities, Outlet malls gain in popularity as Japan cuts costs increased security and improved multitasking offer the ability to run As the saying (almost) goes, when in Tokyo, do multiple applications, with the confidence to know that the data, and what the Tokyans do. There is a new wind blow- the device, are protected. ing through Japan’s rising retail market: the Motion’s latest Tablet PC, the J3500, now features capacitive arrival of city-centre outlet malls is upon us. As dual touch technology, enabling users to take advantage of the the uncertain economic climate forces people to become more accuracy of stylus input or the convenience of touch for navigating budget-conscious, outlet malls have become increasingly popular in the land of the rising sun. But with such shops traditionally lo- applications. Both the F5v and J3500 offer a host of features that cated in hard-to-reach, remote suburbs, growth in the sector has, support the mobile worker with a rugged, lightweight design for to date, been limited. all-day computing. Extra-durable Corning Gorilla glass offers display However, one shopping center in Tokyo has brought outlet breakage protection, and combined with the available 128GB solid shopping to the heart of the city. Although it opened in 1999 with state drive, these tablets are built to withstand highly mobile work around 160 boutiques and restaurants, Venus Fort, a shopping environments. complex built to resemble medieval Europe, recently renovated Finally, from the available integrated digital camera to the its entire third floor to accommodate close to 50 outlet shops – a optional Gobi2000 mobile broadband with GPS, available web first for Tokyo. As with other outlet malls, items are heavily dis- camera, hot-swappable battery solutions and barcode scanner, counted, sometimes between 50-70 percent off the retail price. And it is not just the affordability that attracts shoppers, but Motion’s tablet PCs significantly improve how data is used at the choice as well. point of service. For more information, please visit www.motioncomputing.com.FRONT SECTION.indd 17 08/10/2010 15:30
  • 18 UPFRONT B etween the increasing popularity Amazon of devices such as smartphones The Amazon app essentially provides users and tablets among the US con- with the same service as the website, just sumer market, and retailers optimized for the screen size. Customers continuing to look for ways to can browse and purchase products from the expand their operations in order to keep rev- emporium that is the Amazon store, as well enues up in a downturn, a spurge in retail cell as manage an existing cart of products and phone applications seemed only logical. But monitor orders. how many retailers have fully taken advan- Customer rating ½ tage of the new platforms to maximize the experience of the mobile user? Macy’s The iShop from Macy’s was undoubtedly well eBay received by avid fans of the brand, but the The app from the online auction site not departments store’s app is basic compared to only allows users to buy items from their those offered by other retailers. Still it does cellphone, but also lets consumers track the allow users to shop from the Macy’s online status of their bids, sending automatic up- store wherever they are. dates should a higher bid come in. Customer ratings Apple store customer rating Target WalMart This app does what you would hope, given its The superstore’s app, currently available name, boasting the ability to provide its users across platforms of various sizes, boasts a with “the tools to simplify and streamline variety of features, from facilitating such your shopping experience.” Beyond the basic simple tasks as searching for products or functions, this app allows users to set their nearby store locations, to more specific func- store preference in order to see results spe- tions such as determining the correct TV size cific to their local outlet, has a barcode scan- for your room. ning function and helps users search for gifts Customer rating by age, gender or even personality. Customer rating ½FRONT SECTION.indd 18 11/10/2010 11:58
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  • 20 UPFRONT I t has been a hot topic among retail industry professionals for a while now. And indeed, the escalating use of social media among cash rich consumers has been so extreme over the last five years that retailers would be foolish not to jump on board. But the latest social media trend has had retailers at the forefront of the movement. Location- based social media has proved increasingly popular in recent months, with networks such as Gowalla or Loopt and the recent addition of Facebook’s Places application, but most notably with the conception of Foursquare. Some cite it more as a game than a form of virtual socializing, only incorporating a limited amount of a user’s information into the network. However for retailers, it is proving one of the most successful platforms for social media marketing to have emerged out of the recent boom in social technology. Location-based networks provide an experience more closely aligned with reality; while sounding like a cheesy marketing line On location this statement does highlight the primary appeal for retailers in that it deliberately targets consumers when they are out and provides the potential to draw customers physically into a store. With Foursquare now reporting more than three million users round the world, and an estimated Location-based social media is the latest craze for the web- 600,000 more singing up each month, this enabled generation. But how can it benefit today’s retailer? is the fastest growing social medium; and the increasing developments in smartphone technology look set to boost those numbers CardStart win a pair of tickets to the Marc Jacobs show further. Taking their cue from the Starbucks at Fashion Week. So which retailers have been riding initiative, the digital customer loyalty the wave of the location-based social program teamed up with Foursquare Ann Taylor media movement? And more importantly, to improve customer/retailer relations. The women’s fashion retailer launched a how have they used Foursquare to boost CardStart is a digital facility that manages discount incentive for Foursquare users at revenues? a consumer’s club or loyalty cards, with an the end of the summer, offering visitors to iPhone application so users can scan while any of its eight new stores across New York Starbucks at a checkout. Now users can check in on City 15 percent off a purchase on their fifth The global coffee shop chain has often been Foursquare automatically while using their ‘check-in’. ‘Mayors’ can expect to receive 25 cited as a highly engaging brand thanks CardStart for iPhone application. While not percent off their purchases. to its social media presence, and has been offering consumer rewards just yet, this involved in the Foursquare movement a move is another indicator of the integration Tasti D-Lite while, after developing the ‘Barista badge’ of location-based social media and loyalty This program encourages Tasti customers back in March. Then back in May, Starbucks schemes. to sync their loyalty cards with their introduced its temporary Mayor Offer, Foursquare accounts. After registering rewarding frequent visitors of a particular Marc Jacobs the Tasti D-Lite TreatCard online, users store with discount vouchers. The offer was The designer teamed up with Foursquare can enable his or her Foursquare account, only available for a limited time, however during New York Fashion Week back in allowing for automatic ‘check-in’ when Starbucks was confident that this was only February to draw consumers into Marc Jacobs the card is used at the counter as well as the beginning for location-based loyalty stores. Consumers could ‘check-in’ at any receiving loyalty points that can later be schemes. store around the country for the chance to redeemed as goods.FRONT SECTION.indd 20 08/10/2010 15:30
  • Lithuim AD.indd 1 08/07/2010 13:15
  • 22 UPFRONT Reality bytes I magine a world in which small, cartoon- style tags pop up within your field of vision, overlaying real-world objects and buildings to describe what you’re looking at, like Arnie in Terminator 2. It might sound like something straight out of Hollywood, but that is essentially what Japan’s two larg- est cellphone operators are about to offer their millions of customers, using the cam- eras and screens of smartphones – along with vast online databases – to supplement your worldview with everything from product re- views to directions to price comparison data. It’s called ‘augmented reality’, and it’s the next hot feature to hit smartphones in 2010. Japan’s NTT DoCoMo launched ‘chokkan nabi’ (or intuitive navigation) in September to help people find their way around megacities such as Tokyo and Osaka and other places in Japan. “You just need to focus on a street, a building or a particular spot with your camera-equipped cellphone to see if there is visual landmarks and then displays live and called Point & Find, which involves pointing a bank, a restaurant, a supermarket or other past tweets from others as ‘air tags’ in the your camera phone at real-world objects to location,” a DoCoMo official told AFP. “Labels same location. access information and functions. The service or signs indicate, for example, the distance to Internationally, several operators are har- also allows users to scan barcodes to compare a chosen restaurant, schedules, menus, etc. nessing similar technology. Finnish cellphone prices, read reviews or save a product to a With a simple gesture, you can switch back to giant Nokia is offering a free application wish list. a conventional map in two dimensions.” The service has so far registered some 600,000 points of interest throughout Japan, including restaurants, shops and train sta- AR SHOPPING APPS tions, which can be searched through user- defined criteria. The technology, developed An array of programs that will remake everything from roaming the mall with mapmaker Zenrin, uses GPS and sophis- to impulse buying. ticated software to place virtual tags on real- world objects and provide directions to places outside the user’s direct view. It also links with micro-blogging site Twitter, which has been wildly successful in Japan, so that its users can spot each other in real time and real space, and tweet comments about where they are. Meanwhile, Japan’s number two mobile operator KDDI has developed a platform that allows users to scan, for example, a CD advertising poster with their camera phone to gain additional material, such as an extract Finders, keepers Virtual dressing room The most obvious application of augmented Meanwhile for the home shopper, Zugara’s from a song. The service will then offer the reality is location-based services that can tell Webcam Social Shopper uses motion- user the option to buy a download of the if a shop you need is close by. Zagat was first capture technology to create a virtual song with just two clicks, or can guide them to market with NRU, but competitors such dressing room. Your movements allow you to to the nearest real-world CD shop. The appli- as Yelp have released their own AR apps as navigate among selections, and the software cation, which also features virtual characters, well. In addition to ratings and wayfinding, calculates your orientation so that you can is an advanced version of an already popular apps could also include shopping guides. adjust the garment to your body. Japanese application for Apple’s iPhone called Sekai Camera. That program identifiesFRONT SECTION.indd 22 08/10/2010 15:30
  • CEO PERSPECTIVE 23 Looking ahead It’s a marketer’s dream – and a philanderer’s nightmare: glasses that track your eyes’ every movement. T he ability to see exactly what the customer sees, what an advertisement. Comfortable and lightweight, the glasses have no displays, ads or items catch their eye and what they skip over distracting cameras or mirrors in the field of view nor do they require without a second glance has long been the Holy Grail for the user to carry bulky equipment. As a result, the user behaves more marketing departments everywhere. And now the vision is naturally giving the data a much higher level of validity. set to become reality thanks to pioneering technology from Tobii, the You might not win any prizes for style – unless you’re attending global market leader in eye tracking and eye control. an 80s revival – but the potential applications for retail are huge. According to the firm, Tobii Glasses will help researchers in “Never before has it been possible to cost-effectively conduct commercial, scientific and government organizations gain greater quantitative studies in real world environments and automatically levels of insight into the preferences, reactions and personal see the visual attention a product or display received,” says Gill experiences of people in a natural environment. Sounds a bit sci-fi, Aitchison, Global President of Ipsos Shopper and Retail Research, who right? had access to the glasses at a recent demonstration. Now researchers “We believe the product opens up entirely new possibilities can measure actual consumer responses during real shopping trips for our customers to conduct research in a way that previously has – and this can be achieved at the point of purchase where decisions not been possible,” agrees Tom Englund, Executive Vice President are made, instead of in unnatural laboratory environments, online of Analysis Solutions at Tobii Technology AB. “The application of questionnaires or over the phone. this product to provide insight into human behavior can include And the best thing about the technology? It’s available now. anything from understanding buyer preferences, learning about Expect marketers, retailers and jealous spouses everywhere to be gaze in operating mobile devices, playing sports, driving or operating queuing round the block. machinery. In fact, the number of ways you can apply this technology to conduct research is virtually endless.” The new Tobii Glasses look and feel like a regular pair of glasses and allow wearers to walk around freely, making it easy for “The product opens researchers to create a real-world environment in which to capture up entirely new user behavior. This can be while they are browsing in shopping possibilities environments, using a computer, trying out new products or reading for customers to conduct research in a way that previously has not been possible” Seeing is believing Augmented reality isn’t just limited to smartphones. The coolest in-store information kiosk out there comes from Lego: the toy company is test launching a digital box that, when held up to an in-store camera, will superimpose a rendering of the completed Lego model on top of the product box onscreen.FRONT SECTION.indd 23 08/10/2010 15:30
  • 24 UPFRONT Big box solutions IKEA’s journey from Sweden’s best-kept secret to global retail sensation has been founded on slavish devotion to a carefully formulated business plan. Here, CIO Paolo Cinelli explains why he is looking Y to apply similar discipline to the firm’s technology function. By Ben Thompson ou can spot the stores from a mile away: huge, hulking ware- give us everyday, and we see this as a missed opportunity. We’re not houses painted in distinctive blue and yellow, dominating good enough at understanding and capturing feedback in a structured the skyline as their parent company does the home furnish- way so that we can listen to it, interpret it and react more appropriately. ings retail landscape. In a little over half-a-century, IKEA has Take the IKEA family card, as an example. This card is owned by over 30 expanded beyond the boundaries of its native Sweden to become one million people now, and is a potential goldmine of information. But we of the most successful multinational retailers of the modern age, with don’t take advantage of it because of missing links between systems.” global sales of $30 billion last year. It’s a disconnect Cinelli is keen to bridge. After all, IKEA plans its The numbers alone are staggering. Its stores welcomed a total of stores meticulously to ensure customers are best able to help them- 590 million shoppers in 2009, its website attracted 561 million visitors, selves. Each one carries products from a centrally developed range and while its cult catalogue was printed in 27 languages and 56 editions to is carefully designed to have the same look and feel so that the custom- produce a whopping 198 million copies. The IKEA range consists of 9500 er experience is as consistent as possible – whether you’re in Malmo, home furnishing products; the company employs 123,000 co-workers in Minneapolis or Moscow. But surprisingly for a firm that has put consis- 39 countries; suppliers number 1220 in 55 countries. And as of August tency and standardization at the heart of its business model, the same last year, the firm operated 267 stores with a further 34 owned and run rigor has not always been applied to the evolution of its IT architecture. by franchisees outside the IKEA Group. “That consistency in store layout is the result of orderly planning; of But just as impressive as the financial course we have several blueprints we work figures has been the way the company has “The unwritten deal from, but there are a limited number of ver- stamped itself indelibly into the public con- sions and everybody sticks to them,” explains sciousness. IKEA has become a byword for with our customers is Cinelli. “But in contrast, the IT landscape is affordable style and, more importantly, a largely unplanned. It just evolved over the lifestyle choice for an ever-expanding army that ‘you do your part, years to become what it is today. What would of fans who love its clean lines and simple el- we do ours’. That’s happen if our stores suffered from the lack egance. It has also become a common popular of planning that the IT systems suffer from? culture touchstone, referenced in everything in the DNA of the Imagine what they would look like? Badly from The Simpsons to Hollywood movies such as Fight Club. And while some see it as relationship” planned, disorganized, inconsistent – if, as a customer, you were ever able to get out of representing the very height of mass-market that store in the first place, you would never populism and the enemy of individual style, they are far outnumbered come back again.” by those who just want their home to look good and not pay too much In response, Cinelli and his leadership team have drawn up a blue- for the privilege. One way or another, people are passionate about IKEA. print for IT transformation they are calling IT4Business that he hopes will And for its own part, the company is just as passionate about its provide a reference architecture that can drive decisions going forward. customers. “We have a huge attachment to our customers,” says Group “Part of IT4Business is to change our architecture in the direction of CIO Paolo Cinelli. “We really value them and it’s a really deep principle fewer, more integrated systems,” he says. “It’s not a technology priority of the company overall. For us, it’s about fulfilling a contract: the un- per se, it is more of an organizational change in terms of IT governance. written deal with our customers is that ‘you do your part, we do ours’. It’s about bringing the same level of standardization and consistency to That’s in the DNA of the relationship.” Indeed, while the firm’s legendary the IT architectures that we bring to the rest of the organization. It won’t hands-off policy to in-store service may seem like an abdication of con- happen overnight, but what’s important is recognition of the fact that sumer responsibility, scratch beneath the surface and it actually reveals customers now expect there will be no difference between channels of a remarkably grown-up approach to its customers – a “we’re here if you information.” need us but won’t constantly pressure you into buying” style of retail. Of course, IKEA is not alone in facing the challenge of how to deal Customers find it empowering, and it frees IKEA staff up to concentrate with the sprawl of legacy applications while effectively planning for the on the store visitors that genuinely require help. future; it’s a common problem given the pace at which the technology And IT is key to providing that help. “Whatever you want to do, landscape has evolved over the past few decades. The difference is that whether it’s generating new business or opening a new channel or even IKEA is committed to changing the status quo to better reflect the needs driving quality improvements, you need IT investment,” says Cinelli. “So of the 21st century and enable it to serve its customers more efficiently if we increase the probability of success of projects with an IT compo- and effectively. In an environment where the customer is increasingly nent, we actually increase the probability of success of projects in gener- king – and one where the right strategic uses of technology will become al. For instance, customer relationship management is a really big focus a key competitive advantage – that could mean the difference between area for us; we don’t currently make the most of the feedback customers success and failure.FRONT SECTION.indd 24 08/10/2010 15:30
  • UPFRONT 25 ??????FRONT SECTION.indd 25 08/10/2010 15:30
  • 26 UPFRONT Holiday plans B Vending Vikings est Buy Co. Inc., the Richfield-based con- sumer electronics retailer, will hire 29,000 seasonal employees for the holiday shopping season this year. CEO Brian Dunn made the The Minnesota Vikings and Indianapolis-based merchandise company MainGate announcement in a webcast preview of the Christmas Inc have launched the first NFL-branded vending machine in Mall of America. buying season. “With vending machines becoming more and more commonplace, we According to Dunn, smartphones, touchscreen thought we would test the concept with our fans via a location at Mall of tablet computers, new video gaming platforms (includ- America,” said Vikings Vice President of Sales and Marketing/Chief Marketing ing 3D games) and e-readers will drive sales this year. Officer Steve LaCroix. If the machine proves successful, the companies will con- He said the company is currently in talks with smart sider installing more in the Twin Cities area. phone maker Research in Motion to carry its touch- “Consumers are getting very comfortable with self service from a retail screen tablet computer. perspective,” said David Moroknek, President and CEO of MainGate Inc. “We be- He also said Best Buy would open between 44 and lieve that this is a viable method of selling licensed products, and an economical 50 new Mobile Stores before Thanksgiving, and expand way to increase the number of outlets we have to service the core fans. Growing the company’s used game business to 1000 stores from merchandise sales and building the Vikings brand are our goals and we feel this its current presence in 600 stores. program allows us to do both.” Juice row A tlanta-based soft-drink giant Coca-Cola Co. has launched a lawsuit against Aldi Inc., the German discount grocery store chain. The suit alleges that the packaging of Aldi’s ‘Nature’s Nectar’ line of juices infringes on Coke’s patents for its ‘Simply’ family of juices. Coca-Cola filed the suit on September 24 in the US District Court in Atlanta, seeking punitive damages, prof- its Aldi gained from the alleged infringement, attorney’s fees and other damages. Coke is pushing for a jury trial. NJ-based food maker Johanna Foods Inc. is also named in the suit. The company sells ‘Nature’s Nectar’ to Aldi along with a product line called ‘Tree Ripe’ that uses similar packaging. Aldi has more than 1100 US stores located in 31 states, and has plans to open 100 new stores across the country in 2010.FRONT SECTION.indd 26 08/10/2010 15:30
  • UPFRONT 27 Logo wars R etail stalwart Gap recently revealed its new logo – to a bar- rage of criticism and negative response from fans. The new logo, which uses the typeface more often associated with American Apparel, and a basic small square of color, has encouraged a tremendous back- Bigger is better T lash on Twitter and other social mediums. Designers and fans of the brand alike have claimed that the logo is cheap and unsophisticated, and sug- he Bon-Ton Stores, Inc. has an- gest that the move is symp- nounced the signing of an agree- tomatic of a “serious branding ment with Casual Male Retail crisis” for the company. Group, Inc. to provide men’s In response a number of big and tall apparel to Bon-Ton designers have created their customers through Bon-Ton’s own version of the logo, which in turn has e-commerce website and, beginning in the sparked cynical rumours that Gap’s logo was spring of 2011, certain Bon-Ton stores. The only ever a move by the company to crowd product offerings will include sportswear, source a new design, cutting the costs and activewear, clothing and accessories. headaches involved with re-branding. Casual Male Retail Group, based in Canton, Mass., is the largest specialty retailer of big and tall men’s Company Index Q4 2010 “Casual Male Retail Group, apparel, with op- erations throughout the United States, Inc. to provide Companies in this issue are indexed to the first page of the men’s big and tall Canada and Europe. article in which each is mentioned. apparel to Bon- Bud Bergren, Ton customers President and Chief Amazon 34, 60 Macy’s 74 through Bon-Ton’s Executive Officer of eCommerce Bon-Ton, said the America’s Research Group 12 Microsoft 76 website” Anthropologie 60 Motion Computing 6, 17 company is “very Apple Stores 44 National Retail Federation 12, 54, 60 excited about our Best Buy 60 Neiman-Marcus 44 strategic alliance with Casual Male”, and is Best Buy 74 Netflix 101 planning to take advantage of the company’s BIGresearch 12 Nielsen 60 dominant position in big and tall clothing to Blockbuster 60, 101 Office Depot 28 allow Bon-Ton to offer its customers hard-to- Challenger, Gray & Christmas 12 Ovum 60 find sizes in a wide variety of basic casual wear Deloitte 12, 60 Philips Teletrol IFC, 92, 94 and sportswear. Discovery-Based Retail 44 Redbox 101 eBay 34, 60 RSA 70 EnQii 48, 51 Saks Fifth Avenue 34 Environmental Protection 96 SMG 44 Agency Starbucks 90 Facebook 72 Steve Madden 72 Footlocker 60 Tesco 96 Forrester Research 60 The Right Thing 88, 89, IBC Free People 60 Twitter 76 Godiva 86 Urban Outfitters 60 Harris Corp 4, 48, 53 Verdict Research 60 IBM 74, 96 Virgin 76 Intel 2,46, 48 Walgreens 68 Kohl’s Department Stores 96 Walmart 96 Liz Claiborne 106 Zappos 34, 76FRONT SECTION.indd 27 08/10/2010 15:30
  • 28 THE BIG INTERVIEW SurvivalofBig Interview Steve Odland.indd 28 08/10/2010 15:48
  • THE BIG INTERVIEW 29 At one point, the economic crisis of the last two years pushed Office Depot stock down to penny-stock levels and while 2010 has seen the company rally, a full recovery is far from assured. CEO Steve Odland explains how the company weathered the downturn, and looks ahead to a brighter future. ffice Depot’s Steve Odland has endured a tough two years. The financial crisis and subsequent global recession has not been kind to the firm or its CEO: key markets such as Florida and California got ham- mered in the downturn, it lost customers to rival Staples and it was further embarrassed by a series of accounting scandals. Since trading at $38 in early 2007, shares have fallen 89 percent to penny-stock levels. But under Odland’s leadership, the office supplier is staging something of a recovery, continuing a multi-year turnaround strategy that began before the economic mael- strom hit. In 2009 it cut $680 million of operating expenses, mostly by closing 120 stores. It reduced distribution centers from 33 to 12. And now it’s meeting with vendors to review every product it sells. Indeed, just last month Office Depot posted a better-than-expected quarterly loss (driven by cost cuts and profits in its North American stores), while analysts believe remodeled stores and a solid balance sheet put the office supplies retailer in a good position to benefit from an eventual economic recovery when it arrves. So how do you instill confidence in your staff when times are tough? How do you motivate them and keep them believing in the brand? In short, how do you survive a global recession? “Leadership requires followership, and so it requires that you invest time in the people around you and that you make sure that you’re listening and working as a team,” says Odland. Next Generation Retail’s Jonathan Spragg caught up with him to find out more.Big Interview Steve Odland.indd 29 08/10/2010 15:48
  • 30 THE BIG INTERVIEW The economy has been tough over the last 18 months, nimble in the services that we offer. And we have to take care with an obvious impact on both the workforce and cus- of business. That’s our slogan, of course, but it really means tomers as well. What have been the biggest challenges being able to adapt to the needs of these small and medium for Office Depot during that time? sized businesses. Steve Odland. Office Depot provides office products, and so when employment goes down, office product purchases go At one point during the economic crisis, the share price down as a result. We also sell to a lot of small and medium dropped to just 60 cents. How difficult is it to lead within sized businesses that have been disproportionately hurt that environment and instill confidence in employees during this period of time, so we have been working very that things will get better? carefully with our small and medium size business custom- SO. Well, it was an extremely challenging period for every- ers to make sure our offering reflects their needs –  we’re body, and we just determined that we were going to com- changing pack sizes so that they’re smaller, and we’re work- municate, communicate, communicate with our people and ing on private brand products that are lower priced. We’ve make sure that we shared everything that was going on. At approached this period with the idea of ‘value’ uppermost in one point we were having weekly open forums, all-employee our minds; with the idea that we want to take care of these meetings where we would bring people in and we were ex- customers, and that if we do, they will remember us during plaining to them everything we knew about the economy, this period and when they can afford to buy more they will. what was going on in Washington and other world capitals, And I think that’s been a very successful strategy. what was happening with the legislative actions in various countries, and then what we were doing to take care of it. How important is it for you to be flexible and able to And equally as important, we told them what we didn’t adapt to the changing environment? know – that we didn’t know what the future was going to SO. In order to succeed now, every company has to be able hold, that we didn’t know when it was going end, but that we to adapt because the environment changes so rapidly. The were being proactive about getting through it. So we talked economy was terrific through the first part of the decade, to them about cash flow, we talked to them about control- and we were rapidly expanding in terms of sales – we could ling what we could control in terms of how we interact with hardly keep up with the sales growth all the way through the our customers, and we said, “If we do all of this, we will get first half of 2007. But then came the dramatic changes in the through this just fine – and then when the economy recov- economy that affected our small business customers. So we ers, we will recover with it”. And I think it was a very suc- have to be nimble in the products that we offer. We have to be cessful strategy.Big Interview Steve Odland.indd 30 08/10/2010 15:48
  • THE BIG INTERVIEW 31 According to recent surveys for the happiness index, the size of your pay slip is no guarantee of happiness and fulfillment at work. What would you say are your key motivators? SO. We have 41,000 people in 51 countries, and I’m just so proud of this team. There are a lot of people who would have given up during the challenges that we’ve had in the last couple of years, but this team didn’t. This team stayed in there. They fought hard. Our service levels actually in- creased in our stores and in our supply chain, and we are at the highest performing levels that we ever have been as a company as a result of people focusing on what they can control. That is very motivating for me, and it’s been a terrific period of time for our people. Communication is obviously key to any successful busi- ness. Can you give us an example of the way that you communicate to your 41,000 employees that are around Tough times for SMBs the globe? Higher healthcare costs, higher taxes, lack of available credit and continued SO. We do everything we can think of. So, we certainly have economic uncertainty are some of the reasons small-business owners all the forms of electronic communication and we email will not be adding to their payrolls any time soon, according to a newly constantly. We have e-newsletters that go out. But I think released survey conducted by Office Depot. “Small business owners are the most valuable form is the shared leadership notion that being extremely cautious due to the uncertainty of what might happen in we’ve created, which is that we meet with our leadership the future,” Office Depot Chairman and CEO Steve Odland says. “While we team at least once a month, and we ask that everybody meet are seeing that small businesses are somewhat optimistic about their sales with all their teams in that same timeframe. And we share prospects, they are still not feeling comfortable enough to begin spending all of our key message points, and we ask everybody to be and hiring at previous levels.” open and honest, take any question, address everything. If The Boca Raton, Florida-based company surveyed 1000 small business we don’t know the answers, we promise to get back to them customers, 56 percent of whom said they are expecting increased profits in with the answers. And I just think that this openness and the next six months and 59 percent of whom expect an increase in their total honesty and directness is appreciated by everyone. business sales. However, 81 percent said they have no plans to hire within the next six months, citing reasons such as higher healthcare costs (18 percent), You came to Office Depot in 2005, and I believe you said fear of higher taxes in 2011 (15 percent), lack of available credit (14 percent) and it was a dream come true. Have the last five years lived continued economic uncertainty (14 percent). up to your expectations? SO. Well, there are all sorts of dreams, but I think so. This was a company with challenges, and I was looking for a chal- lenge. I was looking for a company that had a great brand by my job title of CEO – customers, employees and owners. name and wonderful people. I was looking for a company And the challenge that I have as a leader is to make sure that that had great geographic reach and lots of different chan- we do the right thing for each of them, and balance those nel opportunities, and Office Depot has been all of that. We needs. So we could do great things for the customer, and give were two or three years into a fabulous turnaround when the it all away for free, right? That’s great customer service, but economic crisis hit, and I think all of us have earned another at the same time it’s not good for the owners. Similarly, if advanced degree in the last two years as we’ve had to learn you just charge the highest prices in order to realize the most how to deal with something that nobody alive today has money for the owners, well, that’s not going to work in the managed through before. It was a learning experience and a long run either. So it’s finding that delicate balance between challenge for all of us, but we were equal to it, we got through customers, employees and owners. it, and now we’re turning our sights to how we can develop Office Depot had come together over time through 30 a growing business again with our small and medium size different mergers and acquisitions. Not all of those had been business customers. integrated that well and we had a high cost structure, and at the end of the day that was risky for the employees because You’ve been regarded as a champion of ethical business it wasn’t going to lead to long-term success, it was bad for practices; Office Depot has a reputation for being a cost the owners, and I’m not sure it was great for the customers cutter. Have your own personal business beliefs affected either. So we had to finish the restructuring process of inte- and changed the culture here at Office Depot? grating all those different businesses. We had to develop a SO. Well, the way that you ask the question it sounds like single go-to-market strategy, and I think all of that has led there’s ethics and then there’s cost cutting and they aren’t the to change. And as human beings, we don’t like change very same, when in fact they are. I remember my responsibilities much, but it’s really important because we always want dif-Big Interview Steve Odland.indd 31 08/10/2010 15:48
  • 32 THE BIG INTERVIEW ferent results. The definition of insanity is doing the same thing over and over again and expecting different results. If we want the business results to change, we have to change the strategies as well. I wanted to focus a little bit more on the environmental sustainability, because I know Office Depot are lead- ers in that field. Why is it so important for you and the company? SO. I’m very proud of our sustainability efforts at Office Depot. We were a little lonely when we began this effort seven or eight years ago, but sustainability is very much on the agenda for all firms now. If you look at the kind of practices. In all the stores we’ve changed the lighting to very Above: Odland attributes Office products we buy and sell, there are a lot of paper products low wattage sustainable lighting, and we’re saving millions Depot’s resilience to loyal employees and ink products and so forth, and so we recognized we of dollars a year in our energy bills and reducing our carbon needed to put a lot of effort into it. Our customers now have footprint. We’re using reusable totes in our supply chain become very engaged in this process and have recognized rather than cardboard boxes that end up in landfill. These the importance of green products and sustainability, and items and these efforts cost a little bit more upfront, but they so I think it’s great for them. Our employees are very proud pay out over the long term. So all of those things come to- of it, and ultimately it’s something that’s very good for our gether, and I think it’s a win-win situation for the company profitability as well. and for the environment. I guess any sustainability effort has to have a focus on Office Depot is built on five key values: integrity, innova- educating the customers. How do you go about doing tion, inclusion, customer focus and accountability. How that? do these values shape the company? SO. We started our efforts with our largest customers, who SO. Well, these values came from countless discussions with don’t need a lot of education but do have a lot of require- our employees, and they are important because they shape ments – they’ve made commitments externally on their a values-based approach to our customers and to engaging environmental efforts and their sustainability efforts, and in the world. We simply can’t write enough rules to govern we provide a unique set of solutions that allow them to be the millions of interactions that we have with our customers able to track their usage of consumable materials and post- every week; there are so many different people, so many dif- consumer content, so that’s a service and a solution that is ferent countries, and so a values-based approach is the only unique for them. For our smaller customers who may be less way that we think that we can engage with our customers engaged in that kind of approach, we provide products that and still keep it very simple. So it’s important to me for all of work well and are high value, but also green. What could us to operate consistently within those values, and I think we be better? work at it every single day. I think our employees and our customers at Office I think all of us start with integrity, with a desire to do Depot are proud that we take this effort seriously. We have the right thing. It’s got to be good for the customer and good paper that is 30 percent post-consumer content. We also sell for Office Depot, and that’s the right thing. And do you know paper that’s 100 percent. We have recycling programs for what? We’re not perfect. As long as we’re employing 41,000 our tech products where we work with other companies to people we’re going to make mistakes, but our commitment is take them apart and recycle the parts. We have ink and toner that if we make a mistake we’re going to fi x it, make it right as products that are refilled and certified. We have trade-in soon as possible, apologize and move on. That’s all you can events where you bring in your old shredder or printer or do, and that’s a great value. whatever and we’ll trade it for a more energy efficient ver- sion. So all these efforts are something that we’re proud of; So what’s next for you? Where do your priorities lie in they also really benefit our customers as well. terms of the next 12-18 months? SO. I came to Office Depot to inspire this team: to get us What are the business advantages of integrating envi- through a restructuring, make sure that we get all of our ronmental sustainability into your business practices various channels and divisions working together and that and commitments? we develop a path for growth for the future, and I think we SO. First of all, there’s the pride in doing the right thing only got partway through that when this economic crisis hit. for our environment. Then there are the solutions that we And so my goals are to get us through this economic crisis, provide for our customers, which differentiate us in the mar- to finish the restructuring, then position ourselves well and ketplace from our competitors who don’t have these kinds of make sure that we’re taking care of our customers, our em- products. And then the third thing is the cost. It’s great to be ployees and our owners. able to offer recycled products to our customers at a much This interview originally appeared on MeetTheBoss.tv, Next Generation lower cost. And we can do that as a direct result of our green Retail’s partner channel.Big Interview Steve Odland.indd 32 08/10/2010 15:48
  • Siemens_AD.indd 1 14/09/2010 16:30
  • 34 LUXURY FOCUS Branding for the online avenue With a new era dawning on the retail industry, how can the traditional businesses keep up? Next Generation Retail speaks to AJ Sutera, VP of Technology at Saks Fifth Avenue, to find out how one of the country’s best-known luxury stores is adapting A to the changing retail landscape. distinctive brand on the New York retail scene, Saks Fift h Avenue is up there with the major players as one of the icons of American shopping. And as a house of high-end apparel, accessories and jewel- lery, the appeal of the store lies just as much in the luxury shopping experience as it does in the turn was difficult to ignore, and high-end e-commerce exclusive products purchased. But the escalating popular- brands, most notably net-a-porter.com, proved that it was ity of internet shopping, the success of the e-commerce perfectly possible to bring that privileged experience to an competition and the economic maelstrom that slashed internet platform. Now the traditional bricks-and-mortar consumer spending have taken their toll, and Saks’ C- retailers that did not develop an e-commerce strategy are suite is now looking to move the beloved brand into the beginning to fi nd themselves left behind. new retail environment. “A lot of the dialogue that we’re having is how do “Some of the challenges that we deal with are how we leverage the different channels effectively,” explains do we evolve our model to cater to the new shopping Sutera. Indeed, making the jump to new retail platforms paradigms that our customers are asking us for,” explains bring a host of challenges, the majority of which will fall Saks’ VP of Technology AJ Sutera. “How we preserve the on the desks of Sutera and his team. He highlights that brand experience across the different touch points and currently Saks is struggling with an outdated infrastruc- channels, and how we work in that new way, is a big thing ture, disparate systems created over the course of the that we’re wrestling with and talking about right now. company’s history to support the different needs of the How do we take advantage of these new marketing chan- different divisions, which need an overhaul. However, at nels in a way that is congruent with our brand?” the other end of system he must make sure that the new That is all easier said than done. A wide spread reluc- platforms are accommodating and user-friendly. tance among the luxury industry – from retailers such as “So how do we put enabling technologies in place Saks or Barneys, to the high fashion houses themselves that will facilitate the way that the customer wants to in- – to embrace the e-commerce platform stemmed from the teract with us?” Sutera asks. “They want to buy through feeling that the exclusivity of a high-end brand or shop- the channel that’s most convenient to them and at the ping experience could not be translated online. However, time that they wish to transact with us. So we’ve got to the resilience of internet retailers throughout the down- give them that flexibility because I think that their expec-AJSutera Saks new.indd 34 08/10/2010 15:04
  • LUXURY FOCUS 35 think that the way that they’ve been able to exploit other technology channels to communicate and interact with their customers has been informative to our strategy as well. So those are some of the things that we pay attention to, that we admire about these companies.” Indeed, competition from the Amazons, eBays and Zapposes of the market has helped to bring about a new way of thinking to the 108 year-old retailer, encouraging a re-think of the business model to incorporate more agility across technology platforms. The unfamiliarity of the processes were a tough hurdle to cross, but Sutera concedes that it has paid dividends to Saks’ online opera- tions. “We’ve learned a lot more about our customers by following some of the methods that we’ve seen some of these other guys do. “The customer’s expectations from Saks online is informed by these guys. Even if you look at them and you think they might not be such an obvious competitor, the fact is that they are. The same person that buys at Saks is buying on Amazon. They are buying at Zappos. They are looking for that same pair of shoes that I sell and if they’re there at Zappos, they’re quite possibly going to get them there. It’s got free shipping and wonderful customer ser- vice, lightening fast delivery. So that’s the expectation.” Challenges ahead While taking inspiration from the best-in-class online retailers is pivotal to the success of Saks as it moves into the new decade, a transformation of the online business model and IT infrastructure is throwing up a host of challenges. Sutera explains that whereas the traditional retail planning cycle is around six months, using a modern system requires significantly more foresight in terms of planning. “You need to set up and start planning for them 12, 18 months out so that the capabilities are there even if you can’t neces- tations are not being informed by the experience, which is sarily envision the use right now,” says Sutera. high-end, luxury retailers. Their expectations are informed “That’s not traditionally the way that Saks has thought with every touch point that they have with retail, and the about IT investment. So the challenge has been changing Zapposes and the eBays and some of the others guys who the investment culture if you would, the portfolio mix, are here have set a different expectation with that.” sort of changing it to facilitate more of these long-range planning projects that might not have a 12 to 18 month Learning from the competition return. We need to broaden that horizon and that’s been “We need to Sutera’s point highlights one of the greatest changes a little difficult because it’s just not the cadence of our that the internet era has brought to the retail industry. organization.” broaden that No longer are brands just having to compete against their And then there’s the issue of the Saks brand. In a horizon and direct rivals in the market, they must now keep up with sector where brand identity is as important as the product, that’s been a the retailers that are dominating the e-commerce para- jeopardizing the reputation could be potentially crippling. digm. But like all the best business minds, he remains “That is the reason we’re moving so slowly to be honest little difficult pragmatic, pointing out that there is much to be learnt with you,” explains Sutera. “We’re looking to maintain a because it’s from the major players in this sector. “Traditionally,” he highly personalized experience that would be congruent just not the explains, “things that you would think people would want with a Saks shopper’s experience in a store. So some of the to touch and feel and try on – they’re comfortable doing things that we focus on, we do so to make sure that we cadence of our that online and they want to work with you that way. don’t forget the person in that experience. That’s a key pri- organization” “They’ve established through technology that there’s ority for us as we think through these things. But I think a lot we can do to provide a tremendous amount of infor- that’s why we have not moved as aggressively in there yet mation to the customer about the product and the way is because we’re trying to make sure that organizationally they see it. Just some of these technologies have been, I we’re comfortable and that there is still exclusivity in that think, very interesting and caused us to raise our game. I channel with the relationship with the customer.”AJSutera Saks new.indd 35 08/10/2010 15:04
  • CISCO AD.indd 2 12/3/10 14:29:55
  • CISCO AD.indd 3 12/3/10 14:29:57
  • 38 RECESSION RETAIL R iding the sion c re esRecession Retail Ed.indd 38 08/10/2010 15:31
  • RECESSION RETAIL 39 It has been cited as the worst financial climate since the Great Depression, and one of the most hostile business environments many retailers have had to face. But still some businesses have flourished, I enjoying record sales growth and international expansion. Lucy Douglas asks how these retailers have managed to arm themselves against the economic maelstrom that brought America to its knees? t needs little introduction. The effects of the infa- remained evident and those retailers not willing to accept mous fi nancial crisis of 2007 to 2009 are still being the fate of bankruptcy have taken the change in economic felt the world over. The worst recession the country climate as an opportunity rather than a threat. The same has seen since the Great Depression brought mass report indicated that sales at the world’s largest retailers unemployment, widespread fi nancial uncertainty had increased by 5.5 percent in fiscal 2008 and total retail and one of the most challenging business climates sales reached the equivalent of $3.8 trillion. While con- known. In October 2009 unemployment levels sumers have undoubtedly tightened their belts in the last reached 10.1 percent, more than double the rates two years, the spending had shifted rather than completely of the summer 2007 and the highest they had been dried up. Following a bad patch in the fall of 2008, last year for over 25 years. consumer spending surged in the third quarter to bring According to the Bureau of Labor Statistics, the nation out of recession, accounting for two the crisis claimed around 4.3 million busi- thirds of America’s economic activity. Cash nesses with less than 20 employees be- spent on fi ne dining, new automobiles or tween Q4 2007 and Q4 2008. Moreover, Household luxury products slowed, however spend- a recent study from the Pew Research wealth dropped ing on groceries and other household Centre has indicated that in the 30 on average necessities, as well as discount prod- months leading up to May 2010, as many as 55 percent of the adult work- 20% ucts flourished. And according to a study by the International Council ing population had reported a spell of between of Shopping Centers (ICSC) of over unemployment, a pay cut or an invol- 2007 and 2009 2500 consumers back in 2009, shoppers untary reduction in working hours. In more commonly attributed a change in the same report, almost a third (62 percent) shopping habits to precautionary measures of the 2967 adults surveyed stated that they had and general concerns than to tangible economic cut back on their spending since the recession took hold in reasons, such as a job loss. For every store that had closed December 2007, and 48 percent say that their households its doors for good, another right around the corner was are in worse shape than now than they were three years booming with business. ago. Government data indicated that household wealth When asked the question, “what are the key things dropped on average 20 percent between 2007 and 2009. retailers must do in order to protect themselves in a re- Indeed, the economy as it is presents a less than entic- cession?” almost every industry player seemed to be full ing environment for any industry, least of all an industry of ideas, ready and willing to give their two cents on the that relies upon the spending of the increasingly frugal situation. “Focus on staff,” claimed many experts; “ensure consumer. A study by Deloitte named 2010 Global Powers customer loyalty,” said others; “improve marketing strat- of Retailing indicated that two thirds of the retailers sur- egies,”; “cut overheads,”; “offer deals.” Advice from the veyed had reported a decline in net profit margin during frontline of the industry was plentiful, though not exactly 2008, with 30 of the 184 retailers operating at a loss. The revolutionary, and seemed to reiterate the tips ordinarily profitability of the largest 250 retailers in the world fell given to retailers going into business in any economic cli- from 3.7 percent in fiscal 2007 (including years ending June mate. But that may be the point. “Bad economic times tend 2008) to 2.4 in fiscal 2008. But while the figures are there to spotlight issues that have been looming in a business for to back up the bleak predictions made for the retail sector a long time,” says Robin Enright, a Visual Merchandising following the crash of Lehman Brothers, signs of hope have Consultant. “Use the opportunity – and I do believe thisRecession Retail Ed.indd 39 08/10/2010 15:31
  • 40 RECESSION RETAIL slow economy presents us with an opportunity – to re- evaluate your business.” CASE STUDY: Urban Outfitters The young women’s apparel sector is not exactly short of competition, Man management however Urban Outfitters Inc, which includes the retailer of the same name, A popular recommendation among the retail industry Anthropologie and Free People, has appealed to the masses with quirky and is to improve relations with the employees, echoing the original designs, naming themselves “specialty lifestyle retailer”. mantras that HR executives have been hailing for decades. Paul Cronin, Director of Retail Strategy at Hughes Decorr, explains that the value of an employee can extend beyond having an extra pair of hands on the shop floor, as they have the potential to improve connections with customers and provide insight into what is relevant to the locality. Bonnie Salzman, a volunteer at an outlet in the not-for- profit sector, agrees. “Your employees are now more than ever your frontline soldiers. Not only should continual coaching be happening but constant communication to include the entire team on the plan.” Indeed, investing in your staff has proved a strong tactic to improving your bottom line, not least because a motivated and engaged workforce will directly impact your customers’ perceptions of the business. Charles Ponzio, a Broker at Conduit Realty Services, says, “the moment a person enters your retail establishment, whether that potential customer realizes it or not, they instantly pick up on how engaged your employees are, and whether your establishment has gone out of its way to make them want to return.” Customer retention has proved a key concern with retailers during the downturn; with profits lower despite NET SALES FOR Q4 increased sales, keeping customers coming through the 2006: $360.8 million doors and encouraging them to buy is more crucial to 2007: $465.4 million business success than ever before. In addition, the increas- 2008: $508.1 million ing popularity of social networking sites has provided the 2009: $588.5 million next generation of word-of-mouth marketing. According to Nielsen research, some 78 percent of consumers would more readily follow a customer recommendation than surveyed were part of a loyalty scheme at some retailer or brand advertising. And with e-commerce sales steadily on the up, a positive reputation within the online consumer shopping center; moreover the main reason cited for be- longing to a loyalty scheme is the extra discounts offered 63% of consumers community is likely to improve revenues across the board. to members, or the rewards that could be earned on pur- would not make “As the right hand to a small business owner that is chases. Free gifts, special access for members or advanced a purchase if a defi nitely feeling the pinch right now, keeping our custom- notice of sales were far less important to consumers. deal was ers happy, shopping and ordering online is my most im- Similarly, with customers looking to spend less and not available portant task,” explains Catherine Rezabeck, a retail worker maximize their value for money retailers, are frequently from Chicago. Grant Hunermund an Account Executive using discount coupons to encourage sales. A survey car- with Artisan Complete advertising agency, agrees. “Offer- ried out by Harris Interactive on behalf of retailmenot. ing a really great retail experience for the consumer will com, an online discount coupon service, back in 2008 keep them coming back and they will tell others,” he says found that 63 percent of consumers would not make a and highlights the potential damage a bad customer expe- purchase if a deal was not available and 37 percent would rience can have upon a retailer’s reputation. increase their use of coupons. Retail professional Michael Many retailers felt that improving the customer expe- Welsh highlights that retailers need to understand that rience could be achieved by returning to retail practices consumers are also trying to save money and will demand often forgotten among the multinational corporations, even more value than ever before, however knowing where hailing back to days when customers could walk into a to increase the value is the key to maximizing success for local store and the retailer would know their names and retailers. “I am seeing my sharper retail clients becoming exactly what they were looking to purchase. Customer more promotion-oriented, rather than price-oriented,” loyalty incentives have frequently been cited as an effective says Robert Piller, an Incentive Marketing Executive. “My method of ensuring customer retention. The 2009 report 25 years of experience has proven to me that it makes more from the ICSC found that more than half of the consumers economic sense to give away something you don’t sell,Recession Retail Ed.indd 40 08/10/2010 15:31
  • RECESSION RETAIL 41 rather than offer one of your existing items as the free gift on the loyalty program.” CASE STUDY: Hautelook Imagine waking up in the morning to an email Quality not just quantity letting you know that there is a sale on your Just as the consumer is becoming increasingly de- favourite brands, lasting only 48 hours but manding with regard to discount offers on products, he or offering a whopping discount on products she is ever more discerning about the quality of the pur- you’ve had you eye on. Alternatively, as a retailer, chase, a fact that retailers must bear in mind if they are imagine being able to get rid of all that excess to successfully ride the wave of the recession. Fred Stern, stock at the end of the season and still make a Retail Financial and Operational Consultant, explains a return on it. Well, that is where flash sale that retailers need to “fully grasp and understand that company Hautelook can help. By promoting flash customers will give up non-essential product purchasing sales on products from retail brands to their first and look to reduce costs on basic necessities through membership base via a daily email, Hautelook has discounters, warehouses or online opportunities. You must established a business model ideal to flourish in limit and reduce such [non-essential] product lines and be the recession. CASE STUDY: very careful to not increase price points.” Varun Sharma, “It definitely helped,” admits CIO Stuart Walmart a retail specialist operating in the Indian market, backs Richman, “because at one point the retailers were Walmart has been up Stern’s point. “I think product mix and assortments suffering, they didn’t have an exhaust form for well positioned to are the key areas that need to be given due emphasis. A some of their inventory except some of the rack take advantage well-thought and managed product mix can help retailers shops like TJ Maxx. So this was another avenue of the downturn. to keep customers coming in to pick the offerings. Reces- where we had a good value proposition as far as With consumers sion definitely impacts the customers’ buying behavior so a the revenue share model for them to get rid of all concentrating retailer needs to understand and come up with better deals that excess of inventory. Probably three years back their spending on for the customer.” when the recession started getting tighter on necessities and the Indeed, the nature of goods sold by a retailer has had a retail, where brands would be buying up a lot of emerging market significant effect upon revenues throughout the recession, stock in anticipation of retail outlets, and then the opportunities and non-essential goods have taken the biggest hit. Leisure demands of the retail outlets starting diminishing flourishing the goods retailers saw their profit margin fall by more than a little so all of a sudden, where they thought they world’s largest half to 3.1 percent in 2008 from 6.9 percent in 2007. Sales were going to move 500,000 units, the retailers retailer has growth for fashion retailers fell into negative territory and were saying ‘well, we’ll only take 200,000 units’ continued to enjoy profits were halved to 4.1 percent in 2008. Food retailers so they were stuck with extra units. So this was impressive growth suffered the smallest shrink, the profits falling from three another platform to help them liquidate their in tough times. to 2.2 percent and sales increasing by 8.6 percent. Discount excess.” retailer Target, who had enjoyed a notably larger profit growth rate than rival Wal-Mart throughout the decade, lost out to the grocery giant when the recession set in, as consumers focused more on essential grocery purchases and less on clothes or home furnishings – even if they were low cost. Spend money to make money “Don’t panic and discount the whole store and destroy your margins,” warns Jonathon Lee Berke, a retail profes- sional from Denmark. “If you are running a solid business, you need to fi nd different activities to drive traffic and demonstrate value to your customers. There are many competitive advantages other than price.” Berke’s asser- tion marks a common error made by retail professionals in tough times, and one that is often potentially crippling to the business. Rob Alexander, National Director of Mar- NET SALES FOR Q4 keting at Pharmasave Drugs Ltd., agrees, highlighting that 2006: $ 98.090 billion struggling retailers have a tendency to clutch at straws, 2007: $ 106.269 billion taking on new product lines, cut costs across the board and 2008: $ 107.966 billion demand more from their staff with any clear direction. 2009: $ 112.8 billion Cutting unnecessary expenditure is an ideal way to save some cash; many retailers suggest carrying out anRecession Retail Ed.indd 41 08/10/2010 15:31
  • 42 RECESSION RETAIL energy audit in order to cut back on utilities bills. “We’re the one they had been operating with before the downturn “Companies doing everything we can to cut down on our overhead set in. “Companies must reinvent themselves, as a recession costs,” offers Catherine Rezabeck. “Whether it’s sacrificing is a shift to a new equilibrium that has nothing to do with must reinvent air conditioning on cooler days, putting window lights on a the past,” explains John Charokopos, a financial controller. themselves, as timer, creating iPod playlists instead of paying for monthly Indeed, this seems to be the salient point for companies in a recession is a music channel subscription fees, however I can save cutting any industry looking to move forward. Rob Reichstein at a check without sacrificing the customer’s shopping efforts.” Ramm Technologies elaborates. “First understand that this shift to a new Similarly, developing a strong in-store security system is not just a recession. It is the end of a free spending era and equilibrium that and loss prevention strategy is helpful towards reducing the dawn of new opportunities. Customers are looking for has nothing to do unnecessary expenditure. “There are a lot of cases of em- value. Adjust your offering to your target customer’s needs ployees misusing the trust of an organization,” warns Erik and wants. Be honest with yourself; evaluate your business.” with the past” Jerker Engstrand, Head of Group Security at Scandinavian The recovering economy has brought a new and altered female fashion retailer AB Lindex. Indeed, according to landscape that all businesses, from nationwide corpora- employee-screening firm TruDiligence, some 30 percent of tions to independent stores, must adapt to in order to regen- small businesses fail as a direct result of employee theft. “I erate. And doing this may require any or all of the measures do believe that a good security and risk awareness culture outlined by retail professionals; as independent retail con- and values will help retailers keep a good profit during a sultant Deb Lohrer says, “the answer is all of the above. The recession,” Jerker adds. business must be ready to change, expand, contract, diver- As Jerker highlights, the benefits of a comprehensive sify and find partnerships that can keep them fluid enough security program are certainly something to think about; to stay successful.” however, implementing such a program can be costly. And in tough times, financial investment in the business is not a luxury many retailers can afford. “In addition to keeping CASE STUDY: Groupon our regular customers engaged, we have to find new, cre- Set up in 2008 to unite the classic coupon with the ative and almost free ways to market,” Rezabeck says, high- dotcom generation, Groupon has flourished on lighting the idea on every retailer’s mind. With consumers the back of consumers looking to spend less and ever more selective about where they choose to spend their retailers looking increase to foot traffic in stores. It dollars, making sure you are first choice is imperative; as works by promoting special offers from retailers, Kimberly Zehlke of Norwex points out, “a company must restaurants or entertainment venues to its stand out from the competition.” consumer subscribers – of which there are currently But how can retailers stand out from the crowd without more than 6 million – who can then sign up to a significant investment in marketing campaigns? “Maxi- particular offer they are interested in. The vendor mizing the new social media marketing opportunities is states how many consumers will need to sign an inexpensive way to keep in touch with customers and up for the offer in order to make it commercially give them a reason to shop,” suggests Jamie Brooks, VP viable; once the prescribed number have signed and President of Sears Outlet Stores, highlighting a grow- up the consumers can receive their coupon, and ing trend among retailers to reach out directly to their retailers can enjoy an easy sales boost. consumers through the increasingly popular online social Groupon had grown from 400 users to networks. Yadira Kellerman, a Web Development profes- over six million in less than two years and it is sional from New York suggests retailers should develop a present in over 70 North American markets, high business exposure online, then build relationships including Chicago, New York, Boston, Los Angeles, with customers through tools and features of the website. Washington DC, Atlanta, San Francisco and Indeed, while it may be tempting for retailers to view Toronto. marketing spend as a non-essential outgoing, cutting the In it’s most popular offer Groupon sold 19,894 budget can have a potentially crippling effect. Retail profes- tickets priced at $12 for a 75 minute Chicago sional David Holdsworth warns against the risks of cutting Architectural Boat Tour . a marketing budget altogether, pointing out that retailers who don’t market cannot effectively communicate with their consumers about new product lines, special offers and price reductions. “Cost cutting should be a focus,” says Holdsworth, “but I believe it’s better to look at retaining and increasing customer loyalty, boosting sales and holding profits first, than going straight to cost cutting, otherwise it is a downward spiral from there.” Ultimately, it seems the most effective way to deal with the recession has been to take stock of the business and carefully devise the best strategy for going forward, which for some retailers may involve a different business plan thanRecession Retail Ed.indd 42 08/10/2010 15:31
  • ATG AD.indd 1 24/5/10 15:02:20
  • 44 STORE DESIGN Blueprint for success Why making the most of your costly retail space can pay dividends in terms of T better branding and more active customer engagement. he thing about retail is that nothing can ever environment without them having to think about it. So we really stay the same for long: the fickle nature create what we call visual hotspots: about every 35-50 feet of today’s shopper means they just won’t put there’s something that’s attracting you. You may or may up with it. Just because something worked not decide to engage in it but your brain and your eyes will last year, it doesn’t mean it will appeal to the subconsciously take you there. And when you get to that customers of today and tomorrow, and this Y in the road, you’ll make a decision. So we navigate you is especially true of store design – in fact, it’s a golden rule through the store.” of retail that you should never underestimate the impact of For Neiman-Marcus, good store design is also about great store design on customer behavior. How many cus- creating a unique experience. In the US, the retailer is well- tomers walk into a retail store only to leave without buying known for its slavish devotion to displaying art in its stores anything? And how many stroll past a drab store entrance in an effort to constantly engage visitors to its locations. with barely a glance in its direction? Good store design “Art is there not just as an enhancement to the space, it is can reduce walkouts, encourage existing customers to visit there as a cultural experience,” explains Gorischek. “We more often and attract new customers. have an art collection that’s over 4000 works strong. We’ve Physical space is important, and the fi rst step is to had it since 1951. And all the CEOs of the company over assess how much you’ve got. Philip Mitchell is a founding the years have supported it because it’s a true differentiator partner of retail consulting company Discovery-Based for our brand. So when you come to our store, we would Retail, which works with retailers both large and small to love for you to purchase something, obviously, but if you’re help enhance profitability by improving their customer coming to enjoy the space and possibly get educated on interfaces. He believes that in terms of store design, bigger possible purchases further down the road then that’s okay – or at least the perception of being bigger – is almost too. The point is that we want you to leave more fulfi lled always better. “Make a store appear larger and people will than when you came in.” perceive that its selection is better,” he says. “You can make The idea of building and sustaining a brand – and a store appear larger by opening up the longest vistas that using elements of the store layout to reinforce those you can create.” His company often uses cascading aisles to strengths and core values – is also critical. “The brand has create the illusion of space, he says. “Cascading aisles are to be created through three-dimensional objects we bring ones that terminate at staggered intervals. By doing this we into it,” says Gorischek. “For instance, we are one of the can expose more merchandise to the store’s customers plus only retailers who consistently uses live flowers. I’ve had create pseudo angles to add interest to the layout. A couple people ask me why we would do that when we could just use of other ways of maximizing the appearance of your store’s synthetic ones. And my typical response is that we want to sales space is by moving the taller things to the outside be a world-renowned brand that stands for luxury; some- walls and widening aisles slightly to give customers more place you wouldn’t think of as synthetic or fake. It also breathing room.” sends a subliminal message that you’re caring for the space Ignaz Gorischek, VP for Store Development at luxury on a daily basis. How many times have you walked into a retailer Neiman-Marcus, feels that creating a journey for store that’s dirty or dusty or something like that? By using “As long as the the customer is also an important part of store design. He live flowers, someone has to tend to that on a daily basis. So customer is leaving believes the possibilities offered by this in terms of cus- all of those little nuances go into sustaining the brand on a with a smile on their tomer engagement are huge. “There are a lot of different daily basis. Keeping it fresh, keeping it beautiful, keeping face and a bag, I call things we do in our environment to create a way into our it entertaining and keeping it educational keeps us ahead that successful” world,” he explains. “You want to lead people through an of the curve.”Store design.indd 44 08/10/2010 15:33
  • STORE DESIGN 45 Gorischek says his stores use a similar principle when thinking about the display. “You have to continually re- fresh and change the space – not only for the customer who “Make a store walks in, but also for the sales associates working there,” appear larger and people will perceive he explains. “It’s important for them to feel excited about that its selection what’s happening in their area or department so that they is better” can then share that excitement with the customers that come in. So moving the environment around is critical, but you don’t want to fl ip the environment to the point that people get frustrated. In other words, you don’t want to take Menswear and move it from the first floor to the third floor, and then next month bring it down to the second floor. That causes confusion and people are turned-off by that. But subtle movement within departments is defi nitely encouraged.” As far as store planners and designers are concerned, it’s all about creating connection points with the customer. Jeremy Michael is Managing Director of Kansas City- headquartered customer insight analysis fi rm SMG, which has worked with retailers such as Foot Locker, JC Penney, Dunkin’ Donuts and Burger King on improving the in- store customer experience. He believes that the store layout needs to cater for all types of customers, from fi rst-time visitors to regular shoppers. “The store layout says a lot about the brand and it is important that the brand messag- ing is reflected in the store,” he says. “The store design sets customer expectations. However, no matter how enhanced the store design is, the customer service absolutely has to reflect it. For instance, Apple stores look cool, and the cus- tomer service from the staff on the shop floor reflects the relaxed and appealing image of the store.” He feels that the main factors that need to be addressed are cleanliness, speed at cashier and ease of locating items. “Don’t underestimate the influence of a queuing system on customers and the impact it can have on store sales,” he advises. “For instance, when standing at the back of the queue, customers can get frustrated with a lack of move- ment and decide to walk out and abandon their possible purchases.” He suggests a so-called ‘snake queue’ – where the line doubles back on itself – can have numerous ben- efits in this regard. “For customers, it gives the perception that it is moving fast and is absolutely fair. And as custom- ers fi nd it harder to walk out of a queue when they have to pass several other customers, it allows retailers to offer additional ‘impulse purchases’, which has an impact on increasing average transaction value.” At the end of the day, measuring the success (or other- wise) of your store design is tough. “The metrics are hard,” concedes Gorischek. “There has to be money in the cash register, and I guess that’s your fi nal metric, and you either meet the metric for the day or not. And if you don’t then you have to go back and figure out what went wrong. Was it the product? Was it the hours? Was it my sales help? Was it the presentation? Maybe it was because the lights weren’t on or the technology wasn’t working properly. So it’s hard, but success is defi ned in many different ways. As long as the customer is leaving with a smile on their face and a bag, I call that successful.”Store design.indd 45 08/10/2010 15:33
  • INTEL DPS AD.indd 1 01/10/2010 16:09
  • INTEL DPS AD.indd 2 01/10/2010 16:09
  • 48 ROUNDTABLEDIGITAL SIGN RT.indd 48 08/10/2010 15:28
  • ROUNDTABLE 49 SIGN LANGUAGE Next Generation Retail speaks to a panel of experts for some insight into the changing face of retailers’ in-store marketing solutions. Digital signage is becoming increasingly popular with Lack of scale across digital out-of-home networks has retailers. What are the greatest challenges facing re- also been a factor in slowing adoption rates for advertising tailers in terms of implementing a successful in-store purchases. For an advertiser to seek out a network, it must marketing/digital signage strategy? be measurable and have enough scale to provide significant Jose Avalos. There are several key challenges for retailers reach and reliability of delivery. today. Some are purely operational and cost-oriented: the Understanding the core differences between static and price of implementation, cost of monitors and other equip- dynamic signage is also key – and a core part of the success ment, installation and ongoing maintenance. A second is of such a deployment. Planning the content so it stays fresh scalability: for retailers with many locations, the ability to and relevant or planning the location of digital signs are tie multiple locations into one system and perhaps create all part of the challenge. There is a significant difference an advertising-supported network to offset these costs. between static content (the historic store signage we are all Jose Avalos is the Director of Retail and Digital Signage at The last is lack of familiarity with the medium and how to used to) and digital signage – which allows endless possi- Intel Corporation. He leads best plan. Many seasoned and national brands use digital bilities when it comes to taking advantage of video content Intel’s worldwide Retail and Digital Signage businesses and and traditional advertising agencies to help them execute to maximize the value of the signage. his organization is responsible DOOH (digital out of home) campaigns, but secondary Finally, understanding and implementing the technol- for delivering Intel’s Intelligent Retail and Digital Signage and tertiary brands that may not have these agency rela- ogy correctly is also key to success. Th is allows the retailer Platforms, as well as initiatives to tionships are often overwhelmed with the options and to ensure they are selecting the right tools and making the fuel the growth of the Industry. logistics of pulling off a campaign on their own. most out of the capabilities of the infrastructure whilst investing wisely with future growth in mind. Ajay Chowdhury. Two areas, context and speed. In-store digital signage can be a simple communications medium designed to enhance the shopping experience, deliver “We all know shopper options targeted promotions and even support staff development; have never been greater. Retailers however, the strategic impact goes well beyond that. To be an that align their in-store shopping effective business driver and deliver sustainable competitive advantages, in-store digital signage needs to be part of the experiences with the expectations of retailer’s multi-channel merchandizing strategy alongside their customers will attract the most loyalty programs, mobile marketing and social networking initiatives. When fully exercised it is a powerful medium to shoppers” Jose Avalos engage the shopper in ways that lead to sticky connections between the retail brand and the shopper. How are digital signage solutions evolving to meet Secondly, retailers need to accelerate their rate of retailers’ marketing demands in a changing retail en- adoption; in speaking with some of the more progressive vironment? retailers they admit to programs taking 18–24 months to JA. There are two parts to this answer. Firstly, from a purely go from internal proposal to the fi rst stage of execution. fiscal and ROI perspective, retailers are increasingly tying Shoppers are changing behavior much faster than that, their DS to their POS systems so that product sales “lift” can therefore retailers have to be more nimble and get new be attributable to various digital signage solutions/adver- ideas to market faster or they will always be “throwing the tising to validate their DS investments. The accountability ball behind the receiver.” of the medium is excellent, if retailers make the investment in creating the right environment with these right metrics Denise MacDonell. One of the main challenges for retail- built in, such as AVA-anonymous video analytics. ers utilizing digital in-store marketing technology is to From a consumer perspective, building brand loy- make sure it is deployed as a part of their overall marketing alty is key for future growth as retailers’ margin pressure campaign and not just as a standalone venture. Thought continues to grow. Creating a compelling, relevant and must be put into defi ning and measuring the success of the enjoyable “shopping experience” is a key competitive dif- solution and using that data to rectify targeting as needed. ferentiator. We all know shopper options have never beenDIGITAL SIGN RT.indd 49 08/10/2010 15:28
  • 50 ROUNDTABLE greater. Retailers that align their in-store shopping experi- and human resources can leverage the medium to deliver ences with the expectations of their customers will attract corporate communications and staff training to improve the most shoppers. Digital signage technology enhances customer satisfaction and lower employee turnover. the retailer’s ability to do this. JA. These tools have to add value to the retailers’ operations DM. The digital signage market is maturing and becoming and to the shopper’s experience. We refer to it as having more flexible with solutions such as fi nancing, managed “Intelligent DS”. What that means is: use the tool in a way services and other alternatives to capital expenditures. The that makes the shopper’s experience more meaningful, technology is becoming increasingly integrated with exist- pleasant, memorable, relevant – or all of the above. It isn’t ing systems such as point-of-sale (POS) technology. enough to have signs flashing content at a consumer when There is also a far greater understanding of all points it is completely off target for who they are and why they of ROI within the business nowadays, and a growing focus are there. Ajay Chowdhury is the CEO of on advertising and campaign management. Tools such as EnQii. He was partner at IDG Harris Punctuate can help understand and maximize the DM. We have seen great demand for digital signage solu- Ventures, a global VC fund. Before that, Chowdhury was return on investment gained from running a dynamic tions from sub-segments such as quick-serve restaurants European CEO of NBCi and CEO of marketing campaign. (QSR) in the US; in Europe from shopping centers, con- LineOne, one of the UK’s largest portals and ISP’s. In 10 years with venience stores, mass merchandizers and increasingly United News and Media he ran AC. In many ways it is changing dramatically. Internet from specialist stores (sports retailers, for example). An its new media division. Before that, he was a manager at Bain & e-commerce, smartphones and social networks all are excellent example of this is our recent installation at Sta- Company. He has an MBA from having huge effects on changing shopping and buying dium, the largest sports retailer in Scandinavia. Over 60 Wharton. routines. However, in another important way technology is million visitors a year visit Stadium sports retail stores enabling retailers to get back to their roots, when the gen- and they are using Harris InfoCaster digital signage eral corner store owner knew every customer along with across their 110 stores to enable dynamic communica- their needs, wants and desires. “Mrs. Jones, since you’ve tion on the shop f loor. been buying items for your daughter’s upcoming wedding In conclusion, retailers who experience national foot- I thought you’d like this lovely Italian lace fabric we just print, high audience count and visit frequency are seen as got in.” At EnQii we are developing the technology link- the ideal candidates for digital signage; advertisers can ages to inventory data, ePOS, social networks and loyalty maximize reach and frequency at the point of purchase, so programs to engage shoppers when they enter the store and direct sales impact can actually be tracked. deliver shopper-specific recommendations that will drive additional sales and loyalty to the retail brand in and out What further developments can we hope to see in the of store. future in the world of digital signage? How do you think the industry will evolve over the next five years? DM. Apart from an increasing ability to measure the effect “Technology is enabling retailers of digital signage content on the behavior of viewers, I to get back to their roots, when the expect to see digital signage become an important compo- general corner store owner knew nent of marketing campaigns, with inventory being sold as part of multi-medium campaigns. every customer along with their IPTV streaming will become more commonplace and needs, wants and desires” take on an important role as a source of content for digital signage displays and smartphone interactivity will expand Ajay Chowdhury and extend the engagement factor. Finally, as digital out-of-home networks mature, ad- Digital signage today can be found in a number of dif- ditional automation in the production, management and ferent forms, from basic digital display to interactive delivery of content will be essential. As with other media digital kiosks. What in your opinion are the best strate- platforms, automation tools for digital signage will en- gies for utilizing these tools and how can they improve hance network ROI not only through the operational a retailer’s revenue? efficiency provided but also by enriching the customer AC. In-store digital signage is more than a communica- experience through improved quality, reliability and auto- As Director and General Manager of the Digital Out-Of-Home tions overlay to the store. When integrated into the retail- mated targeting of content. (DOOH) business for Harris er’s data flows, cloud-based data streams and operations, Broadcast Communications, Denise MacDonell oversees it will deliver huge returns. Supply chain and ePOS data JA. First, greater point-of-sale integration; a number of global strategy and business can automatically trigger what gets promoted where and retailers are already doing this and I think this trend will direction, product development, partnerships and client service/ at what time, thus driving inventory efficiencies and lift- continue to be more the norm than the exception. Second, support. MacDonell directs the growing Harris DOOH enterprise ing sales. Weather, news, local events and social network- merchandizing decisions will be made as a result of DS: in the development of tools ing data (as your retail ‘friends’ opt in to your brand), can retailers will increasingly redesign their digital signage to help businesses leverage compelling content to operate drive more effective, targeted promotions, greater adoption configurations and retail floor plans to better meet the profitable digital out-of-home to loyalty programs, and shopping frequency. Operations needs of their customers and suppliers. Th ird, lower cost networks.DIGITAL SIGN RT.indd 50 08/10/2010 15:28
  • ENQII AD.indd 1 01/10/2010 16:03
  • 52 ROUNDTABLE of ownership, operations and maintenance; with remote tisers to evaluate their purchases in digital signage against manageability technologies such as Intel AMT(R), retailers other mediums. are able to remotely diagnose and troubleshoot technical In terms of how the industry will evolve, I think several issues, as well as reduce overall power consumption. Then things will happen in this time period. You will see massive there’s mobile/social interaction. Smartphones, the social consolidation in the network operator space. The vast ma- web and digital signs are proving a potent combination for jority of current network operators are small, Mom-and- building brands, driving sales and capturing the opt-in Pop sized operations; larger, more fiscally sound players data from interested buyers. will acquire the smaller companies. Then, the scalability issue will begin to resolve itself. It will become far easier to deploy a DS campaign across a city, region or country once “Retailers who experience national that occurs. Also, companies will create turn-key DS solu- footprint, high audience count and tions that smaller retailers and brands will be able to buy and leverage, thus bringing down the cost of deployment as visit frequency are seen as the ideal well as operations and maintenance. Fourthly, intelligent candidates for digital signage” DS solutions enabled with technologies such as Intel AMT Denise MacDonell can reduce ongoing cost of ownership, service, mainte- nance and energy consumption for retailers globally. Also, one-on-one interactive signs or kiosks can pro- AC. We call it Smart Signage. Retailers will be utilizing in- vide the customer with a range of opportunities. Finally, store digital signage to enhance the shopping experience equipping digital signs with anonymous video analytics all the way to delivering staff training. They will integrate sensors (compliant with emerging digital signage industry their retail technologies with an emphasis on customer- standards) makes it possible to provide actual audience facing applications to support transactions in-store and measurement data, such as how many watched, for how out of store, what is commonly referred to as the “endless long, gender, age, time of day, etc. This data enables adver- aisle.”DIGITAL SIGN RT.indd 52 08/10/2010 15:28
  • HARRIS AD.indd 1 01/10/2010 16:03
  • 54 RETAIL FOCUS SIGNS Once the familiar back-drop to sporting events and skylines of major retail cities, digital signage systems OF THE are changing. Bringing quick, direct marketing campaigns right into the store itself, digital signage TIMES is paving the way for the stores of the future. Next Generation Retail spoke to the Retail Advertising and Marketing Association’s Mike Gatti to find out.Digital Signage ed.indd 54 08/10/2010 15:29
  • RETAIL FOCUS 55 W ith its dazzling array of arresting illuminated displays, a vibrant mixture of neon and fluorescent billboards, Times Square has become an iconic beacon of the New York cityscape. Reaching many storeys up the skyscrapers that line the streets, the boldly colored digital advertisements for award-winning musicals or globally recognized commercial brands have come to represent Broadway. As with most advertising tools, digital display systems are nothing new. Consumers have grown used to seeing them at landmark sites, along high streets or at sports games, and in some cases have even come to identify a place with its digital advertising signs. But the notion of retail in-store screen marketing is today revolutionizing the retail world, providing a whole new dimension to the consumer’s shopping experience. “We’ve been seeing an increase in the use of digital dis- play,” says Mike Gatti, the Executive Director of the Retail Advertising and Marketing Association. Indeed, interest in this marketing tool from retailers is beginning to spike after several years of misuse. “It wasn’t really any specific type of retailer [using digital signage],” Gatti explains. “I think it was more retailers who felt that this was something very important to their strategy. But what happened in the first few years was a lot of lessons were learned, and I don’t really think anybody was using digital displays correctly.” Gatti goes on to explain how early in-store digital display marketing was poorly implemented. Some retailers had screens that were hanging from ceilings, out of any customer’s line of sight; others used their screens to play a reel, or a constant repeat of an advertisement that could run as long as two minutes, much longer than any custom- er would be standing still to watch it. Conversely, research conducted back in 2007 indicated that around 75 percent of retail purchasing decisions are made in store, meaning that this is a largely under-utilized marketing opportunity for retailers. Digital advertising company Digicom then carried out a survey in early 2009, fi nding that 64 percent of the consumers asked believed that digital advertising screens could improve a shopping experience and 78 per- cent felt that digital advertising screens can make a brand or product seem more attractive. Only 54 percent, on the other hand, had seen digital signage in stores in the pre- vious twelve months. All evidence stood to suggest that digital signage could be the solution to provide that much needed boost to struggling retailers, providing direct and relevant campaigns direct to their own customers. “They learned a lot of lessons,” says Gatti. “Now what we’re seeing is that retailers are bringing their screens down to shelf level, they’re embedding them with a lot of products, and they’ve really tailored the messages a lot more so they are able to deliver the message quickly and a lot more effectively to the customer.” Th is point is, accord- ing to Gatti, imperative to a successful digital display mar- keting campaign. “They have to be really relevant to the product that’s around,” he explains, “whether it’s a sale, orDigital Signage ed.indd 55 08/10/2010 15:29
  • ADP AD.indd 1 28/06/2010 16:53
  • RETAIL FOCUS 57 whether it’s something that really differentiates the prod- had grown by 56 percent between 2004 and 2006 to become uct such as product information, which really takes having worth $1.1 billion, and was projected to reach $2.59 billion The digital a good understanding of the customer that is shopping in by 2011. In addition, the current success of e-commerce signage market is your store.” Perhaps that product information might be platforms suggests that this sort of real-time self-service predicted to reach its sustainability, or maybe a special offer or another com- retail experience is not far off. “There are going to be many $2.59bn petitive advantage, Gatti outlines. Either way, the direct, more options for shopping and immediate ordering,” ex- by 2011 targeted and timely nature of digital signage marketing is plains Gatti, and suggests that soon customers will be able beginning to provide very real results for today’s retailers. to say, “Well, I don’t have to go shopping. I don’t have to Gatti goes on to outline the many ways that digital run around to three or four different stores to try to find signage can be implemented to enhance the shopping ex- the item I want. I can order it on the kiosk right now, and I perience for the customer, highlighting the vast potential know all about the product that I am buying.” that digital signage has as a marketing tool and just how far it has come from the shiny Coco Cola or MacDon- Digital disputes alds digitalized bill boards at sports games. “Depending Perhaps most pressingly, Gatti points out that retailers on your demographic,” he says, “you might even want to who have digital signage systems already in place are speak- have some games available on them, if say you have kids ing positively about the effects they have upon the business, shopping. But retailers are making [their digital display saying that they now consider it part of the brand presenta- content] more experiential, where you are able to interact tion they make to the customer. “At the same time, the re- with customers, or they can learn about products.” tailers are really learning a lot,” he adds, “and as they apply Th is new, interactive level of digital signage is a major more of this technology into their stores, they’re learning development in the world of retail, and one that retail- a lot more about how the customer shops. Th is will evolve ers still have yet to fully utilize. In addition to product into a more mobile presence, so it’s possible that digital marketing, retailers are now beginning to use interactive signage could peak a little bit, and then you could start to digital signage systems to take over some see a decline as mobile picks up and people basic customer service responsibilities, “Product start to use their phones to learn more about therefore allowing customers a faster, more products that they’re buying.” empowered shopping experience, as well as knowledge and Th is last point raises the salient issue for freeing up staff to deal with more serious comparison both the marketing industry and the retail issues. “Maybe a retailer has a certain line shopping has sector. With the increasing popularity of of products,” says Gatti by way of an ex- ample, “say a certain type of furniture, and come from behind smart phones and thegoingamounts ofApple nology development vast into both tech- the retailer doesn’t have every product on the scenes to and Android operating systems, all evi- display in the store. [The customer] can go the forefront dence points to the fact that mobile technol- to the kiosk, or the digital monitor, and look when you go into ogy is set to revolutionize these industries, at what else is available. Product knowledge just as the internet did before it. “There are and comparison shopping has come from a store now” companies now who are saying that they are behind the scenes to the forefront when you monitoring tweets in their stores, so they go into a store now. Where you used to ask a customer- can fi nd out what customers are saying, such as ‘is the cash service representative to ‘tell me about these two different register line too long?’” products’, now there is a digital screen that you can go to Using social media in this way provides a glimpse of do the comparison yourself.” the future of retailer-consumer interaction. Such tools will These developments in the function of digital signage take responsibility away from in-store personnel, in theory marketing tools in a retail environment are increasing the placing it under the control of a single person with a com- interest in digital solutions among businesses. “I think we puter, who need not be any where near the store. Gatti sug- will see an increase in its use,” explains Gatti. “It is becom- gests that soon, customers will be able to tweet questions. ing a much more essential tool.” He goes on to predict the “‘Where are the light bulbs?’” “‘What aisle is the butter kind of shopping experience that consumers can expect in?’” Customers will be able to ask such straightforward to have in the future. “In addition to trying out a game or questions with their cell phone, and get a swift response learning some in-depth product knowledge, I think you’ll without having to track down a store attendent. “It’s going literally be able to walk into a store and say, “well they don’t to expand the capabilities of the one-to-one relationship,” have my size or color”, and you’ll be able to pop it up on a he says, pointing out that one day, customers will not even kiosk and order it right there and then and have it shipped need to be in a store to interact with retailers in this way. directly to your home.” However, Gatti explains, these developments still While Gatti’s assertion might be a little way off at the could be as far off as five to 10 years. The imminent progress moment, the speed at which the digital signage sector has of digital display technology systems looks set to signifi- escalated over the last few years suggests that such a system cantly shake up the retail sector, from the fundamentals of is only just around the corner. A report carried out by In- brand advertising to providing next generation platforms frotrends found that in the US, the digital signage market for customer engagement and in-store interaction.Digital Signage ed.indd 57 08/10/2010 15:29
  • GOOD TECHNO AD.indd 2 08/07/2010 13:11
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  • 60 MOBILE RETAIL With mobile commerce set to revolutionize the retail environment in the next few years, both traditional bricks-and-mortar stores and pure-play etailers are scrambling to develop effective mobile strategies. But are they ready for the next wave of change? I By Ben Thompson t’s a common sight: customers in stores on their cell phones. But today, those shoppers are just as likely to be using those devices to search for price compari- sons, product reviews or in-store inventory levels as they are to be making calls; they might be sharing photos of items taken with their camera phones on social networking sites rather than texting; or they might be utilizing geo-location soft- ware to fi nd out where your nearest competitor is before making a purchasing decision. The way consumers are using mobile technology is changing – and as a result, so is the way they expect to be able to interact with retailers. Indeed, a trio of new reports released this summer confi rm the growing strategic importance of mobility to both consumers and retailers alike. The fi rst, from Pew In- ternet, suggests that 40 percent of mobile subscribers go online on their cell phones, with 55 percent going online at least once a day and 43 percent accessing the mobile internet several times a day. The next, from research firm Compete, shows that one in three smartphone owners has called or stopped into a local business after fi nding it using a local search application. In Q1 alone, close to a third of Android and iPhone owners discovered at least two new businesses that they were not previously aware of as a result of using local search applications. Meanwhile, the survey also found that 76 percent of Android owners and 63 percent of iPhone owners have downloaded at least one type of retail-related application, with the most popular types being retailer-spe- cific apps, barcode scanning apps and coupon apps. Finally, Insight Express published data showing that consumers are increasingly using their phones while shopping, with 82 percent using their phones for product/price research in stores.CHANGE FACE RETAIL.indd 60 08/10/2010 15:11
  • MOBILE RETAIL 61CHANGE FACE RETAIL.indd 61 08/10/2010 15:11
  • 62 MOBILE RETAIL The overwhelming trend running through all three Whether to increase customer satisfaction, grow their reports is that while most retailers are still experimenting brand, or drive traffic and sales, online retailers are in this with how to make mobile commerce work for them, a huge game to stay.” 74% number of consumers are getting there already. Without Patti Freeman Evans, Vice President at Forrester, be- of online retailers doubt, m-commerce is here to stay. What is less certain, lieves that online commerce will remain resilient during either already have or are developing a though, is how exactly the emerging channel will shape the the coming quarters as retail e-business and channel strat- mobile strategy industry. egy executives focus on retaining customers and increas- ing efficiency in 2010. “In this environment, we expect that Etail therapy e-business and channel strategy professionals will promote Most retailers predict that the advent of m-commerce online self-service to decrease costs, improve the multi- will only serve to accelerate the growth of online retail- channel customer experience, and keep their customers ing – a view many experts agree with. After all, even in engaged,” she explains. “Retailers will primarily focus on the current tough economic climate, online retailing is keeping costs under control and will continue to track and one of the fastest growing market segments. Earlier this test emerging technologies like mobile devices and social year, Forrester forecast US online retail sales to total $173 media.” billion in 2010, and while mobile currently makes up a Like e-commerce, mobile retail is a fairly broad church somewhat modest chunk of that figure – retailers reported and includes everything from buying and downloading that their mobile browsers at this juncture are generating apps and content (a wildly successful space thanks to the a little less than three percent of overall site traffic and just emergence of the iPhone) to the concept of using your two percent of revenue – there’s no doubt that the chan- phone as a payment option at the retail counter (a segment nel is very much on the radar for retailers everywhere: 74 that has yet to grow legs despite plenty of investment). percent of online retailers either already have or are devel- Then, of course, there is selling physical goods to consum- oping a mobile strategy, while one-in-five boasts having ers over the mobile web – a potentially huge industry. Auc- a fully implemented mobile strategy in place already. tion giant eBay is gunning for a whopping $1.5 billion in “It’s imperative for online retailers to stay on top of what mobile sales this year, and Amazon’s mobile site traffic is their customers want, and these days it’s all mobile all second only to eBay among vendors of real-world stuff, ac- the time,” says Scott Silverman, Executive Director of the cording to figures from Nielsen; the retailer notched up $1 NRF’s Shop.org industry group. “Mobile commerce has billion in mobile sales in the 12 months to June this year. tremendous potential and will no doubt grow to become Meanwhile, a survey from Deloitte last year found that one a significant part of overall sales volume in years to come. in five consumers planned to use their mobile phones to MOBILE SHOPPING: A SCENARIO How mobile technology might transform the retail experience. A shopper enters the store and launches a mobile The application might allow them to assemble a bundle of items – phone application provided by that retailer. The for instance, an HDTV and its accessories, or a set of skis, boots and application automatically logs on, retrieves customer bindings – alerting them to product compatibility factors and bundle information (including loyalty program information) pricing that’s available. and, based on their preferences and loyalty At any time, the customer could use a function on the application program tier (or customer segment), may alert store to call for a sales support agent in the store, or call a call center. Many employees to the customer’s presence in the store. other features might be available, such as product return rates and The customer can check the application for any messages, information from product review services (to augment customer alerts or offers of importance. It may tell them that their favorite ratings and reviews), or the most popular accessories sold with a salesperson is on duty (or not), that they have a $20 rewards particular item, or the amount the customer must spend to get to the certificate available and/or that purchases in a particular next tier or rewards level in the loyalty program. department are earning double rewards points today. If the Because mobile devices store our contacts, this application could customer has been browsing online, it would enable them to retrieve take advantage of social networking behaviors. Shopping is a social products they were interested in, and direct them to where in the activity. What if the application allowed the customer to share with store to find them. selected friends what they’re browsing, or what’s in their wish list? When the customer is looking at a particular category or What if a customer could text or chat with a friend from within the product, they are able to use the phone’s camera to scan barcode application, sharing images and other product info, to ask which color information and retrieve product details, ratings and reviews, check or style or brand they like? compatibility with other items they’ve purchased in the past, or get And, of course, this becomes a powerful real-time platform more detailed product information than is available on the shelf tag. for presenting relevant offers and on-the-spot pricing deals toCHANGE FACE RETAIL.indd 62 08/10/2010 15:11
  • MOBILE RETAIL 63 shop during the 2009 holiday season, 25 percent of whom said they intended to make purchases on their phones. But performing mobile transactions – the physical act of buying goods via a smartphone – is just the tip of the iceberg for m-commerce. Instead, rather than shop, it is clear that consumers are increasingly using their mobiles to enhance the shopping experience by comparing prices, researching products and interacting with retailers. “Con- sumers are not spending significant amounts via mobiles and, for now, we believe the true potential for m-commerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction,” confi rms Malcolm Pinkerton, Senior Analyst at Verdict Research. He believes that though m-commerce will still take some years to become a significant channel in its own right, its effectiveness as a marketing tool and way of interacting with customers will increase substantially over the short- term – providing a massive boost to sales growth across the multichannel environment. “If correctly implemented, m-commerce will not only ensure the needs of tomorrow’s shoppers are met today, but also that growth is maximized across all channels.” Christine Bardwell, retail analyst at Ovum, thinks that retailers are at a crossroads similar to that presented by the emergence of e-commerce in the 1990s. “As consumer affi liation with m-commerce increases, retailers will need to decide if they’re going to be pioneers in the market and meet consumer expectations, or wait and risk being behind the curve,” she says. Already, a significant portion of con- sumers are leveraging the power of mobile technology to customers. Backend real-time analytics can utilize factors such as would see who the customer is, what they’re browsing, and a basic customer lifetime value, customer segment tendencies, inventory ‘dossier’ summarizing the customer’s past activity, preferences and stock levels, available manufacturer promotions, prior purchase loyalty program status. behaviors, sales labor availability, the customer’s self-reported Furthermore, retail organizations are under constant pressure preferences and interests, and even social media information, to reduce labor costs. The availability of sales labor is shrinking to formulate highly relevant offers in real-time. Further, these as retailers cut costs. These mobile applications would enable messages and offers can be woven into a user-experience design in customers to self-serve much more effectively, and to request which they are relevant and timely in a way that traditional media service exactly where and when they need it (or for the retailer to and direct marketing – even banner ads and paid search – can anticipate when it is most needed). Further, utilization of call center never be. personnel is enabled, providing retailers with a more efficient labor As the customer completes their decision-making process, the model. Access to call center employees may also provide customers mobile application can save their selected purchases under their with a better experience, as these agents can be more specialized, be mobile account or loyalty program account. At point-of-sale, all of more consistently trained, and have more tools at their disposal to the purchase details and customer offers are retrieved electronically answer questions and assist customers. and applied to the purchase. There is no need to present offers Finally, not only will these mobile shopping applications leverage during the checkout process – which is too late and often annoying customer data much more effectively than current marketing to customers. In addition, this type of application could create an systems and tools, they will generate massive amounts of rich expedited checkout, in which the customer has already scanned customer data as well. Imagine having both web browsing detail data everything they’re buying and approved the credit card transaction. and store browsing detail data, an order of magnitude increase in the The cashier only verifies that all items are correct, bags their number of offers presented and responses observed, and permission purchases, removes or deactivates any security tagging, and the from the customer to join (appropriately and responsibly) their social customer is ready to go. networks? This type of application could help employees and employers Extracted from “Transforming Retail Customer Shopping Experiences Using Mobile Devices, as well. Every customer using the application will be known to the Open Architectures and Operational Business Intelligence,” an HP Laboratories paper by retailer’s systems and could be used to alert store employees – they Chuck Densinger, Mohamed Dekhil, Riddhiman Ghosh, Jhilmil Jain and Meichun Hsu.CHANGE FACE RETAIL.indd 63 08/10/2010 15:11
  • 64 MOBILE RETAIL inform their shopping habits, with many using smart- Indeed, any way in which a retailer can reduce the fric- phones to do research before making a purchase as well as tion of transactions, the better sales will be for that retailer. using them to research, engage and interact with retailers Senk believes that once NFC/RFID technology becomes while out shopping; clearly, the race is already on. “The more commonplace in handsets and at the point of sale, opportunities are there for the most proficient multichan- the mobile channel will offer fantastic opportunities to nel retailers to claim a share of the growing cross-channel close the loop between marketing and CRM and reduce the expenditure by exploiting the possibilities provided by friction of closing the sale. “If someone can check out in mobiles to seamlessly link the online and in-store environ- a nanosecond online, why shouldn’t they be able to check ments,” adds Bardwell. out in store using their handset in a nanosecond?” he said. “Our motto is to give customers access to our brands how- Embracing change ever and wherever they want it.” And there are signs that a growing number of retail- In the current retail environment, it is imperative for ers are embracing the enabling power of mobile technolo- multichannel retailers to manage all aspects of their busi- gies as they look to build better relationships with their ness well and become more channel-agnostic, balancing customers. At the recent Mobile Marketing Forum in Los in-store, online, social and mobile. Urban Outfitters, for Angeles, Tiffany Gerhard, Senior Manager of Marketing instance, was using SMS for its brands long before the and Emerging Capabilities at Best Buy, suggested that iPhone existed, currently has smartphone applications for mobile enables the shopping experience to be more social its brands and envisions increasingly integrating mobile than ever before. “The right information at the point of into its in-store experience. “We’re testing mobile technol- impulse increases desired consumer behavior, sales, profits ogy in Free People and Anthropologie, and I think we’ll and customer satisfaction,” she said. “We view mobile as have some form of mobile technology in-store by the end less of a tactic and more of an integrated effort to build a of the year, maybe Q1 next year,” Senk says, “and a really relationship and drive consumers into our retail locations.” neat mobile technology within 18 months or so.” Glen Senk, CEO of Philadelphia-based URBN – a $2.5 Forrester fi nds that retailers have adopted mobile com- billion company incorporating brands such as Urban Out- merce strategy by three main routes: developing smart- fitters, Anthropologie and Free People – sees great potential phone apps, optimizing their website for mobile traffic for mobile technologies to play a key role in transforming and using mobile as an in-store tool. Such a wide range of traditional bricks-and-mortar retailing into a radically differing approaches to mobile adoption suggests that the different experience for the consumer. “As we study the majority of retailers are still very much in an exploratory mobile opportunity, we believe these devices might impact phase with regards to strategy development right now, but the in-store experience more than they impact the online experience,” an immaculately turned-out Senk told at- tendees at the National Retail Foundation’s annual Shop. org Summit in Dallas last month. “We think we’re just a Field of vision few short years away from customers walking into a store, Near field communication (NFC) is a short-range high frequency wireless scanning a product to learn about it and locate a size or communication technology that enables the exchange of data between color, perhaps sharing the product with a friend or read devices over a 10-centimetre distance. In other words, if you have an NFC reviews, and if desired, walking out of the store with the enabled phone and opt-in, your mobile phone will be able to communicate product in-hand, with it being automatically charged to with another proximate electronic device automatically. the account that’s linked with the mobile device. The cash And with NFC chip shipments predicted to reach 785 million units in registers will be gone. It’s amazing.” 2015, according to a new report from IMS Research, Senk believes mobile offers traditional retailers an the types of applications for NFC on cell phones opportunity to make up much of the ground conceded to are numerous: e-commerce in recent years, and streamline the in-store purchasing experience. “Just yesterday we were asking • Electronic payments: swipe your phone and ourselves how to make our websites as good as our stores; make a payment without a credit card; NFC now we’re working hard to get parts of our stores as good technology is already being used in Japan in more as our websites,” he said. “I absolutely believe that mobile than 30,000 stores technology will impact the e-commerce business in a very • Mobile ticketing: swipe your phone on readers meaningful way, but I think it’s going to revolutionize the placed in buses, airlines, trains, stadiums and retail business. A lot of pure-play etailers have written the other entry points bricks-and-mortar business off, but I believe there is a tre- • Electronic keys: swipe your phone and open hotel mendous synergy between the two. Ultimately, you have doors or your house door to think about the brand and the customer. The checkout • Smart posters: use your phone to read RFID process in stores today is so miserable relative to what it is tags on billboards and other signs to receive online that we have to catch up in the bricks-and-mortar additional information and to let the billboard environment, and I think that’s where the real payback know you are there with mobile will be.”CHANGE FACE RETAIL.indd 64 08/10/2010 15:11
  • MOBILE RETAIL 65 “It’s early days but it’s changing fast,” says Mark Mason, founder of leading app development agency Muba- loo, adding that apps for smartphones and iPads are in exactly the same place as websites were 10 years ago. “You couldn’t imagine a company functioning without a website today; it will be the same for apps within a year. They’ll be everywhere: in phones, TVs, cars – even fridges, to tell you when to buy more milk.” Mason believes the app revolution will be sudden, explosive and everywhere‚ rather than following a slower growth curve like the web. “Smart companies have imme- diately stuck their toe in the water and are making their presence well and truly felt at this land-grab time,” he says. “Companies have already started to provide smartphones to all of their employees, across the enterprise, with apps that will do everything from improving employee collabo- ration, extending their brands and simplifying business processes. Apps are the exciting new channel to market, and companies that understand this have the opportunity to forge ahead of their competitors.” Much of the initial attention has been focused on re- tailers embracing new digital marketing techniques aimed at mobile users, such as sending text messages, using digital money-off coupons and on steps to make their ex- isting websites function on mobile browsers. But retailers are also facing a world that is more profoundly altered by commentators insist that the fact they are doing so at all is the fact that shoppers will now increasingly be online, via encouraging, as it shows a willingness to get onboard at an their phones, even as they visit a physical store. They will early stage and that progress is being made. “Mobile is defi- expect a unified shopping experience. “Mobile has great nitely a big deal,” confi rms Sri Shivananda, Senior Director promise for bringing major, positive changes to the shop- of Platform Development at eBay. “We have to look at what ping experience, payments, marketing and other aspects consumer behavior is – where and when people are spend- of retail,” says National Retail Federation President Tracy ing their time and money – and make sure that we leverage Mullin. Her colleague Silverman agrees. “People are going consumer behavior in building the right retail experiences. to be making decisions on what to buy in the store with “The Mobile and social networks can certainly help, and are their mobile phones,” he says. “What’s going on will affect opportunities defi nitely here to stay.” the mothership – the store – and all of a sudden the store are there for the experience is going to completely change.” The next generation consumer The mobile device is changing the way consumers pay most proficient And here is where the biggest driver for the further for content, goods and services, and m-commerce essential- multichannel adoption of mobile technologies within the retail environ- ly provides retailers a wealth of opportunities to motivate retailers to ment comes into play: it is being driven not by the retailers and enable their customers to purchase goods and services themselves, but by consumers. As more consumers switch whenever and wherever. “We have to be able to know where claim a share to smartphone technology and the increased features and the customer is, be able to predict where the customer is of the growing functionality such devices offer, expectations will rise as going and respond to that proactively and quickly,” sug- cross-channel to what retailers need to offer – and those that fail to adapt gests Mike Hazell, VP of IT at Footlocker. “Anybody can will quickly be left behind. create a website that sells somebody something, but I think expenditure by “Mobile commerce is beginning to change the mobile customers are looking for more of an engagement point. exploiting the retail landscape,” says Dr. Peter Johnson, VP of Market That’s the bottom line: the customer rules.” Intelligence for the Mobile Marketing Association. “Rapid And this is perhaps the most pertinent point about possibilities adoption of smartphones and use of app stores has pro- mobile: that it is merely the latest development in the provided by vided fertile ground for mobile commerce growth to date movement towards greater personalization of the retail mobiles” and this will only accelerate in the coming years. Our re- experience. The best retailers are already well on their way search provides a clear indication of how the convenience to embracing the mobile revolution – whether it be through of mobile commerce is gaining traction. As consumers shopping apps, marketing messages, location-based pro- become increasingly comfortable and confident with motions, mobile-optimized websites or other modes of paying for goods and services through their mobile it is interaction – as a means of delivering a more targeted and possible to see m-commerce becoming mainstream or relevant shopping experience. And this, after all, is surely perhaps even the dominant form of transactions.” the aim of retailers everywhere.CHANGE FACE RETAIL.indd 65 08/10/2010 15:11
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  • 68 E-COMMERCE FOCUS Taking on the online challenge Walgreens’ CTO Abhi Dhar explains how the nation’s favorite bricks-and- I mortar drugstore successfully made the transition to online powerhouse. t’s an American institution. With more than 7500 presence is consistent both online and in-store has been stores across all 50 states, Walgreens is the nation’s a major challenge – as has identifying the unique selling favorite drugstore, a popularity that helped the points of the two channels. “Our business is based on the Deerfield, Illinois, headquartered fi rm to $63 billion premise that people want to go to the store,” he says. “I see in sales last year. And if you’re talking main street more than five million of them walk through our stores ubiquity, then how about this: 58 million US house- every day. And so the understanding that we really want holds visit a Walgreens each year, the fi rm has 63 million to get at this point is this: what it is that they want to do retail pharmacy patients annually, while over 75 percent of outside of the store with us? That’s the challenge. Stores are Americans live within five minutes of a Walgreens store. not going anywhere. So the challenge, really, is how do we Starbucks eat your heart out. take that store experience and make it more sticky? But what is less well known is that the fi rm was also one “Online retailing is growing at a disproportionate rate of the fi rst bricks-and-mortar retailers to go online back in relative to traditional retailing,” he continues. “That share 1995. Indeed, Walgreens has a long history of pharmacy of wallet is moving and our business challenge is how to technology innovation. In the early 1980s, the company capture more of that wallet and continue to have that en- was the first retail pharmacy chain to computerize all of its gagement with our brand in any channel that the customer pharmacies nationwide and link them via satellite. In 1992, wishes to engage.” Walgreens invented the electronic prescription, which is Given his responsibility for end-to-end delivery, seen today as one of the leading ways to enhance pharmacy development and innovation of the online platform, it is safety and lower prescription costs. More recently, Wal- unsurprising that Dhar is passionate about building up the greens was the fi rst pharmacy to fully integrate its online chain’s digital presence. However, he explains that a key pharmacy with its retail pharmacies. part of Walgreens’ strategy is to develop the multichannel For Abhi Dhar, Chief Technology Officer within the element of the business in a coherent, synergistic way. “We company’s e-commerce division, ensuring that the brand want to know what merchandise people are looking for, so Expanding online With 20 percent of Walgreens 7500-plus pharmacies open 24 hours daily, Walgreens patients nationwide rely on the round-the-clock convenience and accessibility of Walgreens pharmacy. Now, Walgreens is making its trusted pharmacy staff even more accessible – available any time online – with Walgreens Pharmacy Chat, a service offering a live, one-on-one, online chat with a pharmacy staff member available 24/7 through the Walgreens website. “Pharmacists are among the most trusted healthcare professionals, and Pharmacy Chat gives our patients and customers another way to reach out to Walgreens pharmacy when it’s most convenient for them,” says Kermit R. Crawford, Walgreens Executive Vice President of Pharmacy. “Our pharmacy staff is always here to help, and we continue to introduce innovative technologies that bring our pharmacy services to our patients wherever they are, whenever they need us.” Pharmacy Chat is available to registered users on Walgreens.com. Registration is free. The service makes Walgreens pharmacists and pharmacy technicians available 24 hours daily to answer questions regarding prescription medications, over-the-counter medications, pricing inquiries, prescription status and more, and provides another way for patients to readily get in touch with Walgreens pharmacy staff. Pharmacy Chat is the latest extension of Walgreens online pharmacy, and one of many ways in which Walgreens is connecting the web to its neighborhood stores and pharmacies throughout the US. The company recently introduced prescription text alerts, which notify cell phone users via SMS when their prescriptions are ready, or if there are any status changes. In addition, Walgreens.com offers Express Refills, which enable customers to enter a prescription number online for in-store pickup at their preferred Walgreens location, as well as refill reminders, e-mail alerts, the ability to look up health records online and more. Many of Walgreens other pharmacy, photo and product services are also available through Walgreens mobile application for iPhone, Blackberry and Android users.WALGREENS.indd 68 08/10/2010 15:26
  • E-COMMERCE FOCUS 69 we have good metrics around search. We look at customer engagement in terms of the navigation. We look at the results of the surveys that we do on the website. But then we look at all that data, internalize that and reflect those fi ndings either back into the store experience or into the online experience accordingly.” Such an approach reflects the retailer’s desire to synergize across its various channels. “For us, the store is both a pick- up point and also a fulfillment point,” explains Dhar. “The pharmacist is a licensed healthcare professional, and there is a significant amount of value that the pharmacist brings to the health and wellness experience for our consumers. So the interaction with the pharmacist is a significant part of the store experience. But a significant part of that transac- tion – whether it’s research, comparison, whatever – is already happening on mobile devices, it’s already happening online, either before they walk into the store or even while they’re in the store itself. And we’re trying to make sure that a lot of that interaction is happening in our brand context, thus extending the experience from one channel to the other.” “Online retailing is growing at a disproportionate rate relative to traditional retailing, that share of wallet is moving and our business challenge is how to capture more of that wallet” In response to these changing user expectations and habits, Walgreens also recently launched a new mobile site and iPhone application that lets consumers order prescrip- tions and photos while on the go. The mobile site and applica- tion feature Walgreens’ inventory broken down by category; each product has user ratings, a brief overview, a full descrip- tion, listed price and images, as well as warnings and ingredi- ents where applicable. “The iPhone has really been a shot in the arm regarding what mobile devices can do,” Dhar says. “It really changed the game. And with Android and the other developments in that space, it’s been a paradigm shift in what we can do. We need to develop offerings for our best custom- ers that are richer in the mobile context, and the app and the mobile website really speak to that.” In fact, mobile will be taking up a good deal of Dhar’s attention over the next 12-18 months as Walgreens looks to extend its offerings and provide a richer, more personal- ized experience for its customers. “Our focus will be based around the three pillars of more mobile, more multichan- nel initiatives and looking at our experience in certain core categories and making that best in class. It’s really a circle. How do we get more folks engaging with us when they’re not in the store? How do we get them back in the store? And how do we get those folks engaging with us on a much more intimate level when they are in the store itself? So that goes back and forth, online and in the store, and a big part of our focus will be looking at what mobile does to support both of those conversations.”WALGREENS.indd 69 08/10/2010 15:26
  • 70 ASK THE EXPERT Token efforts In order to address PCI compliance requirements, many businesses are considering tokenization to protect cardholder data. But what should they consider before deciding on whether to select a hosted versus on-premise solution? By Bob Griffin T okenization has recently emerged as one of the merchants need to weigh what they would be giving up in hottest data security technologies for merchants favor of selecting one over the other. However, for those and payment processors. With tokenization, a that have already decided that a hosted solution meets random string of characters, or token values, is their needs, there are some questions that merchants generated to substitute the data to be protected. The non- should consider asking when evaluating prospective ser- mathematical, non-cryptographic nature of tokenization vice providers. makes it uniquely suited for securing data such as credit For instance, does the solution provider have a track card numbers and social security numbers. record you can trust? Because tokenization is so new, many Many organizations are trying to understand what service providers probably only have a few implementa- they need to consider between selecting a hosted and on- tions to speak of, but merchants should still question premise solution. One of the biggest advantages of a hosted the ability of the service provider to protect against data solution is that it can drastically reduce PCI scope, as the breaches, system failures and other quality lapses. Bob Griffin is Director of databases and systems that store the card data reside out- What steps has the solution provider taken to ensure Technical Marketing at RSA, side the merchant’s environment. Therefore, the service reliability and high availability? A good service provider The Security Division of EMC. He has been involved with the provider bears the burden of compliance and proving will specify a guaranteed level of service availability and PCI DSS scoping committee on adequate security for those systems. In a recent case study, offer relief to merchants if they fail to meet those perfor- tokenization, has served as the lead architect on numerous one organization reduced its compliance requirements mance requirements. tokenization and encryption from addressing the full set of 226 questions laid out in Is the technology used to secure the payment service projects and currently serves as co-chair of the OASIS Key PCI DSS to just 11 questions. Th is can generate huge cost reliable? Because of the high value of the information at Management Interoperability savings, as according to the National Retail Federation, stake, merchants should trust the security technology Protocol Technical Committee. businesses have spent more than $1 billion on PCI DSS being used to by the service provider to safeguard the data compliance to date. and ensure that all commercial solutions have been sub- Another advantage of a hosted solution is that it allows jected to an external security review. organizations to allocate IT resources more efficiently. And fi nally, does the service provider’s approach help Beyond the time and cost expended to prove compliance ease my PCI compliance burden? Reducing PCI scope is on an annual basis, there is the day-to-day management of an important consideration and will also help in justify- the infrastructure. For example, by eliminating the need ing whether the cost makes sense. The value equation will to encrypt data and rotate and manage keys, internal IT vary for each merchant and will depend on unique factors, resources can be redirected from compliance tasks to more such as the merchant’s POS infrastructure and transaction strategic activities that align with the business. volume. By selecting an on-premise solution, organizations can protect multiple types of data with tokenization, beyond just credit card data, through a single system (most hosted solutions are designed for specific use cases). Th is can reduce the time and cost spent on compliance as merchants can address the requirements of multiple regulations that call for securing various types of data simultaneously. In addition, by maintaining control over cardholder data, merchants can reap the benefits derived by using it in tandem with CRM systems to gain insight into their customer base. For example, when a merchant wants to understand the buying patterns of their customers, they can move transaction data into a data warehouse for analysis. There are defi nitely many factors to consider in making a selection, and while both have their advantages,RSA.indd 70 08/10/2010 15:27
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  • 72 HEADING SOCIAL MEDIA FOCUS Engaging the social consumer Steve Madden’s Andrew Kovan speaks to Next Generation Retail about utilizing the growing social media platforms to interact with customers and boost the bottom line. Social media is bringing a wealth of marketing opportunities for retailers. Next Generation Retail speaks to Andrew Kovan at footwear company A Steve Madden to find out how an effective social media strategy can boost revenues and improve customer relations. ccording to recent statistics, seven percent “The key priorities for retail and for technology inno- of online retail sales are driven directly vation are understanding how to properly prioritize where from social networking sites in the UK. we should be spending time and money,” explains Andrew More people It accounts only for sales generated from Kovan, CIO and Head of Customer Engagement at Steve now visit a customer clicking through to a brand’s Madden. “Mobile is a tremendous game changer for us. So online store from their social media page, we’ve built a mobile website, and now we’re trying to figure Facebook but considering that social media marketing is a relatively out how we can develop that to drive more store traffic and than Google modern concept in the history of retail advertising strat- how we can utilize that to help our wholesale partners be egy, that seven percent is a difficult figure to ignore. Factor more effective and develop the best business practice.” in the evidence that in the US Facebook generates more The ‘best business practices’ for Kovan include using traffic than any other site including Google, and it’s clear the social networking paradigm to communicate directly that social media is a potential marketing gold mine. and effectively with his customers, so as to fully under- With e-commerce proving resilient to the effects of stand what it is they want and be able to give it to them. the economic downturn that devastated so many other “So we can maintain a more significant relationship or a retailers and social media sites attracting escalating num- more personal relationship,” he explains, “which has been bers of users across America and worldwide, this platform proposed as a Holy Grail of any business for a very long presents a logical outlet for marketing. The widespread use time. I think the challenge now is that consumers are more of smartphone technology, with consumers now accessing piped in to what can be done and they have access to a lot Facebook or Twitter accounts from wherever they are, has more information, which is raising the bar.” brought yet another dimension, and one that has been Kovan reveals that he is currently involved in gain- proven to significantly improve a retailer’s bottom line. ing a better understanding of how Steve Madden’s onlineSteve Madden ed.indd 72 08/10/2010 15:33
  • SOCIAL MEDIA FOCUS 73 brand is marketed out to consumers, and the speed and says, “a lot of product development ideas, a lot of marketing complexity with which this social media marketing sector strategy ideas will come out of it. Maybe things that were is evolving means he constantly needs to keep abreast of not originally discussed – probably contemplated but not the innovations in this field. “We’re really taking a longer as aggressively discussed.” range perspective,” he explains, “because the speed of the Asking questions such as “What do you think of this?”; game has changed so much and the challenge will be for “Would you choose this shoe or this shoe?”; “If you could us to keep up with the changing nature of the business. It’s have a gift with purchase what would it be?,” and “What’s the consumer that’s driving it. I mean we’ve got to face that your favorite color of nail polish?” allows Kovan and his fact. The balance of power has shifted dramatically over team to glean some insight into how the customers are be- the last couple of years, where the retailer or the brand or having and how they could create more compelling market- the service provider or whoever it may be has to respond to ing campaigns to drive consumers into the store. the demands of the customer, the consumer of your media, “I think that my perspective has evolved as I’ve started whatever it may be.” to recognize the engagement factor. I look at brands like By way of a warning, Kovan cites the publications in- Sephora and Starbucks and I see how tapped in and how dustry as an example, pointing out that the recent, huge engaged their followers are with their brands. I think our shift in the magazine trade caught many businesses that brand historically was more talking at consumers on Face- had not moved with the times “sleeping at the wheel”. In book, telling them what we thought empathetically, not as order to prevent this from happening in his organization, much asking them to tell us and that’s the shift . We’ll start and to encourage a collaborative culture, he explains how the conversation.” he stays in contact with the whole staff base, emailing up- dates of his fi ndings every couple of days and engaging in “The balance of power has shifted meetings so as “to encourage others to take the opportuni- dramatically over the last couple ties as they see fit.” of years where the retailer has to One to group respond to the demands of the “We’re doing a lot of testing right now with Facebook,” Kovan reveals when discussing Steve Madden’s social consumer of your media, whatever it media strategy. “We’re trying out a whole variety of dif- may be” ferent strategies with Twitter, marketing and promotional messages versus informational. One thing that we’re find- Loyalty ing, especially with social media, is there’s a lot of byprod- “I think for us, we see social media and everything we uct that’s incredibly valuable, more so than how many do in that space as being a continuum to gather informa- followers you have.” tion to get closer to who our customers are and what it is Indeed, Kovan seems to be embracing the dual powers that they want,” Kovan continues. Th is mentality is begin- of a social media following: a way of gleaning informa- ning to pay dividends with the company’s loyalty schemes. tion about your consumers, as well as a direct marketing Using the information gathered through social media in- line to them. He is in a position to utilize the high levels teraction, notably the Facebook polls, also helped Kovan’s of data that can be gained about his consumers and then teams to roll out the most appropriate loyalty rewards. “It begin to create a marketing strategy accordingly, as well started out by asking some questions, “What would you as distributing the information around the organization. like as a gift for purchase?”” he explains. “That was one But he hastens to add that it is a gradual process, and Steve of the questions and ironically the number one answer Madden still has a way to go. “I call it crawl, walk, run, and was, “Something to store my shoes in,” like a shoe rack or I think we are between crawling and walking right now. a canvas shoe bag you can put over your door. So we’re “I think there’s tremendous potential moving down defi nitely going to run promotions, promote it via social the road for much better segmentation and much better media.” utilization of data to more effectively create direct one to The numbers are encouraging. Kovan explains that group, not one-to-one marketing. I’ve heard for 15 years generally the loyalty schemes invite customers to make a and it still hasn’t come to pass, even with billions of dol- purchase with Steve Madden, and any customer that makes lars of investment. But I think one to segment is achievable a purchase within a certain week will be eligible to win a today. I think some of us are already doing it, and I think prize for their loyalty; typically around 25 customers will one-to-segment is probably something that will be the receive a prize each week. Kovan says that in just over a standard within the next 24 or 36 months for marketing week following the initial promotion, Steve Madden’s Face- communications.” book fan base increased 24 percent. Growing from 16,900 He goes on to explain that engaging with your follow- user to 21,000 users, he believes 100,000 can be reached ers is the most effective way of utilizing the social media without much difficulty. “I’ve mandated that we’ll get to paradigm to market your products, and to that end is test- 100,000 followers in an engaging way within 12 months, ing polls and questions and contests to interact with con- and I made that announcement two weeks ago. So I’ve got sumers. “Our hope is that in talking with the consumer,” he 50 weeks left to get there.”Steve Madden ed.indd 73 08/10/2010 15:33
  • 74 SMART CONSUMERS According to recent research from IBM, it is consumers rather than stores that are driving the rapidly evolving retail environment. C “The customer onsumers are transforming the retail environ- sonalized awareness – the feeling that the retailer knows ment by leveraging the latest technologies to who they are, and is working to show them new products receive instant access to product details and wants to or improved ways of shopping. As much as promotions, the price information. That’s the view of Melissa see retailers customer wants to see retailers addressing the following Schaefer, Global Retail Research and Strategy Leader at question: ‘People like me buy other things in this store; IBM’s Institute of Business Value, who recently conducted addressing what do they buy?’” a global survey into shopping trends with over 30,000 the following The key to responding to this need lies in the emer- global consumers. According to her fi ndings, consumers question: ‘People gence of a number of new technology tools – what IBM is are spending their money on merchandise and services calling the greater ‘instrumentation’ of the shopping expe- they value most and stipulating how they want to interact like me buy other rience. “In the mature markets we surveyed, only very few with retailers; increasingly, they know which retailers have things in this people – approximately a quarter of a percent – have no the best prices and products, what matters most to them as store; what do wish to use technology to help them shop,” says Schaefer. they decide where to shop, where retailers need to improve “The proliferation of smart devices – and the interaction and how they want to spend their money. they buy” between them – is really driving the revolution we are It all points to the advent of what IBM is calling seeing in shopping right now.” ‘smarter consumers’ – shoppers whose expectations of the For Schaefer, it’s all about enabling a better under- shopping experience are being informed by greater access standing of who we are as consumers. “It’s having a single to information and new technology developments, as well view of the customer,” she says. “By having a single view, as exposure to multiple retail channels. “We know that retailers can understand who the customer is and how they they are smarter,” says Schaefer. “They’re more informed are using that technology – when they cross different chan- and enabled, and it’s really about them. They want person- nels, if they’re online or if they’re using mobiles or kiosks, alized discounts and promotions, and it’s also about per- what type of media are they using to do their research. BySmart Consumers 74 08/10/2010 15:26
  • SMART CONSUMERS 75 having that single view of the customer, retailers are able or adult children, which changes their shopping habits.” to take the art out of the interaction and make it more of a Retailers lose For example, if you don’t know who your customer is, science through the use of analytics.” $93 billion in missed you’re not going to know that they have a mother in Ohio She cites Macy’s and its ‘My Macy’s’ strategy as a good sales every year, simply that they buy electronics for. You’re not going to know that example of a retailer that is using analytics to its advan- because they don’t they pay someone to go and install it for her because she’d tage. Launched about 18 months ago, the pilot program have the right fi nd going into a Best Buy too overwhelming. You’re also allows the company to better respond to customer demand products in not going to know that they have adult children living with by allowing buyers to spot trends in different parts of the stock them, or that they’re buying for their grandchildren on a country and customize the merchandise assortment ac- regular basis. So I believe there is a whole market out there cordingly. Schaefer’s home city of Salt Lake City is one of that is being missed.” the markets in which the program is being trialled. “Salt “Consumers For Schaefer and IBM, such an approach is part and Lake City is a predominantly Latter-Day Saint religion say the number parcel of creating greater engagement between the store population, and because of those religious beliefs there are and the consumer – what many have termed an ‘immer- certain clothing types that they cannot wear; they’re very one thing sive’ experience. The immersive retail experience is more conservative,” she explains. “Th rough the use of analytics, they want is about involving the customer than it is about merchan- they were able to provide feedback on customer preferences personalization. dise and merchandising. But while for some this means and localized offerings to the stores, and as a result those athletics stores that provide simulated tracks and trails for stores began outperforming their peers. The My Macy’s So if you can testing equipment, or appliance stores with test kitchens stores have become the highest performers by delivering understand where customers can feel what it’s like to actually use the right mix of products and being very relevant to the local communities.” and add value products, the Macy’s example proves that a simple focus on delivering an experience that is tightly mapped to cus- According to recent IBM research, retailers lose a to them by tomer needs can be just as effective. staggering $93 billion in missed sales every year, simply communicating Indeed, there is a fi ne line between an immersive ex- because they don’t have the right products in stock to perience and an invasive one, so how do retailers success- meet customer demand. And that demand is greater and that you know fully strike that balance? “The best retailers are balancing immediate than ever before: in the US, over 92 percent them, it’s no it by listening to what consumers want,” explains Schaefer. of adults conduct research online and seek the opin- longer invasive “Consumers say the number one thing they want is per- ions of others before they ever purchase a product from sonalization. So if you can understand and add value to a store. because you’re them by communicating that you know them, it’s no longer Such findings indicate retailers will need to get closer responding to invasive because you’re responding to their needs. Retailers to their customers than ever before in order to successfully their need” follow their processes but consumers change them, so it’s identify the right opportunities. For instance, Schaefer be- about meeting those changing needs. lieves current demographic developments mean that tradi- “Those retailers that understand that the consumer tional ideas about what products appeal to which age group has to be an even more integral part of their whole organi- may no longer be relevant. She explains how many people zation are outperforming their peers,” she concludes. “And in their 40s and 50s are increasingly taking care of parents they’ll continue to do so long into the future.” The changing face of retail According to new IBM research, the advent of smarter consumers reveals three fundamental realities of the new marketplace. Get up close and personal: Consumers shopping experience. For example, this want personalized discounts and want to generation of consumers are interested in engage with retailers to develop products using their remote controls to buy items catered to their preferences and needs. advertised on television. In fact, 78 percent of consumers say they It’s not just about price: It’s about the right are likely to co-create – helping retailers offer at the right time. And that requires develop new products and services that intelligence. Using analytics to spot trends they prefer. early and proactively structure planning Generation Y will change the retail world: and inventory efforts will allow retailers Gen Yers are eager to forge ahead with to shape demand, rather than react to new channels – and they most likely use demand. Retailers have to narrow down two or more technologies to shop. They the assortment to map tightly to consumer feel that retailers can improve most by preferences and make sure the product is building technologies into the overall available.Smart Consumers 75 08/10/2010 15:26
  • sole 76 GAME CHANGER Heart and sole In the 11 years since its launch, online shoe seller Zappos has leapfrogged traditional stores to become one of America’s favorite shopping destinations. How? By focusing relentlessly on customer service and I building a company culture based on fun. n 1999, entrepreneur Nick Swinmurn was walking around a mall in San two months after the company started,” recalls Hsieh. “I started off as an Francisco looking for a pair of shoes – some Airwalk desert boots, to investor and part-time advisor, and was actually involved in 20 or so differ- be precise. It was a trying experience. One store had the right style, but ent internet companies at the time. Over time it became clear that Zappos not the right color; another had the right color, but not the right size. was both the most fun and the most interesting, so within a year I ended Swinmurn spent the next hour in the mall, walking from store to store, up joining full time.” and finally went home both empty-handed and frustrated. Things were no better when he turned to the internet for help back in the comfort of Experience is everything his living room; although there were lots of stores selling shoes online, there Since becoming CEO in 2000, the entrepreneur has taken the company was no major online retailer that specialized in footwear. from just $1.6 million in annual turnover in 1999 to over $1 billion in less So, in the spirit of the age, he decided to quit his day job and start than a decade, as well as leading the firm into a lucrative acquisition by a dotcom business catering to the needs of the disillusioned shoe shop- Amazon.com in an all-stock deal worth nearly $1.2 billion. And the secret per. To hardened shoe industry veterans, the idea seemed crazy; accepted to the firm’s successful transformation from dotcom also-ran to retail phe- wisdom said customers only bought shoes once they’d tried them on. But nomenon in just 11 years is a relentless focus on great customer experience. Swinmurn was nothing if not persistent, and with the support of friends For one thing, Hsieh only hires people who are passionate about what and family – along with longtime industry buyer Fred Mossler, formerly of Zappos is passionate about – namely, great service. Anyone who comes Nordstrom – he pushed ahead with his plans. into the company – be it an accountant, lawyer or call center rep – is put The original idea was to create a website that offered the absolute best through two sets of interviews. The first is with the hiring manager to make selection in shoes in terms of brands, styles, colors, sizes and widths, and sure that the individual fits within the team, has the correct technical abil- over the past decade the Zappos.com brand has expanded to include other ity and the relevant experience. Then the HR department does a separate products like handbags, apparel and sunglasses; aspirations have also set of interviews, purely for culture fit, which consist of some wacky inter- evolved, and in addition to offering the best selection, the company now view techniques (sample questions include, ‘On a scale of 1 to 10, how weird wants to provide the absolute best service online – not just in shoes, but in are you?’ and ‘What’s your theme song?’) in order to fi lter out egomaniacs any category. as well as wallflowers. The individual has to pass both in order to be hired. The catalyst for this escalation in ambition was the addition of Tony “We’ve actually passed on a lot of experienced and talented people that we Hsieh to the role of CEO. In 1999, fresh out of college and aged just 24, know could make an immediate impact on our bottom line; if they’re not a Hsieh had recently sold his fi rst business – the ad company LinkExchange, culture fit, then we won’t hire them. One of the things we’re looking for is formed with friends – to Microsoft for $265 million. Swinmurn approached people who are actually passionate about the company’s vision, which is to Hsieh to invest in an idea nobody else would touch. “I got involved around be about the very best customer service,” says Hsieh.ZAPPOS.indd 76 08/10/2010 15:25
  • GAME CHANGER 77 “We are of the philosophy that you can do a lot more if you get the culture right; most of the other stuff will then take care of itself”ZAPPOS.indd 77 08/10/2010 15:25
  • 78 GAME CHANGER Indeed, Zappos employees (or Zapponians as they are called by those in the know) are required to be just a little bit crazy; but they also need to be open-minded and creative when dealing with customers. Rather than using a script, they treat each consumer as an individual case, and will be encouraged to order multiple pairs of shoes to ensure they find the right pair as well as take advantage of the free shipping in both directions. And, if Zappos runs out of a particular style, call center reps will actively point out competitors who have the style in stock. There are many stories about service reps going beyond what would normally be expected from them: for example, a recently widowed woman Clockwise from left: The Zappos headquarters; a customer takes a called to see if it would be possible to return some shoes that had been or- tour of the offices in Henderson, Nevada; Hsieh and Jen Lin at the dered for her husband, who died a short time after receiving them; the rep Delivering Happiness Bus Tour 2010 Kick-Off in Las Vegas, NV. accepted the shoes and also sent the customer some flowers. In fact, a large part of Zappos’ appeal is the hassle-free returns policy, free shipping both ways and the fact that 90 percent of orders arrive the The reason Hsieh and his team succeed where others struggle is part following business day. In order to accommodate the high volume return cultural mindset, part technological invention. “Anytime we look at any- rate it was imperative that warehouse and customer service operations thing from the technology perspective, we do that with the customer in were able to handle it. “Our return rate can be anywhere from 20 to 40 mind,” explains Zappos’ Chief Technology Officer Arun Rajan. “For us, percent depending on the brand, so we had to ensure that we would expect it’s all about the end-user experience in terms of being able to fi nd things this level of return, and also encourage it,” says Hsieh. Having a warehouse quickly on the website, being able to return stuff easily, and being able with around four million pairs of shoes is just part of the business for to easily locate tools for customer service. So for example, if you ordered Hsieh, but while there are costs associated with that and extra steps around something but change your mind you can cancel it right up until the time making sure they haven’t been worn and so on, it is all part of the service. it actually drops into the truck. The customer service agents have that “While there is more labor involved, it’s what makes people keep coming capability.” back to us – because it’s so easy to return items to us.” Such a customer-driven focus guides every decision made at the com- pany, including technology deployment. “Our processes are very integrat- Raising the bar ed,” says Rajan. “From merchandising, to customer service, to fulfi llment, It’s a policy that is winning the company a devoted following. Indeed, they’re all linked and very transparent. They’re not different systems. Often such attention to detail is raising customer expectations of what other re- what will happen is that companies will implement point solutions for dif- tailers should be able to offer across the board. After all, reason shoppers, if ferent things and not really integrate them; or the connectivity, the data Zappos can do it why can’t everyone else? exchange between those systems, is not done in real-time. For us, however,ZAPPOS.indd 78 08/10/2010 15:25
  • GAME CHANGER 79 everything is real-time, all the time, so our customer service agents know do a lot more if you get the culture right; most of the other stuff will then exactly where the product is at any given moment. It creates transparency take care of itself in terms of great customer service,” he explains. “We’re for everyone across the organization.” extreme in trying to inspire people through the larger vision and living the core values.” Empowering employees He goes on to explain that he is very much aware of the importance of “Our perspective is that customer service is number one,” continues letting your employees hear the applause of the consumers. “A lot of it for Rajan. “It means everyone in the company – not just customer service as- us is instant,” says Hsieh. “The customer will be on the phone and when you sociates, but the whole company – goes through customer service training. wow them you can hear the feedback instantly from the customer them- I go through a month of training; Tony goes through a month of training; selves.” A weekly newsletter also goes out to the whole company letting em- everybody in the company goes through a month of training. It means all ployees know whenever someone emails or calls to tell the company about our employees are very aware of the importance of the customer. And it’s a great experience. “At Zappos we believe in the importance of forming a a completely different approach to service, really. For instance, many com- personal and emotional connection with as many customers as possible. panies will have an IVR system designed to prevent callers from getting That’s why we put our 1-800 number on the top of every page of our web- through to a customer service rep; but we have metrics where we try to get site, because we actually want to talk to our customers,” explains Hsieh. 98 percent of customer calls to a customer service agent in less than seven seconds on average. And once they answer, the customer service agent is Marketing the brand then empowered to make the customer happy, whatever that takes. They’re But for Hsieh, offering great customer service is about much more empowered to use their judgment.” than just keeping clients happy; it’s about marketing the brand. With 75 In order to manage touch-points and the behavior of his employees, percent of sales from repeat customers, he knows that good customer Hsieh uses a net promoter score, but on the whole he prefers to inspire them experience not only generates repeat sales but also encourages custom- rather than try to manage them. “We are of the philosophy that you can ers themselves to become promoters, recommending the brand to others. “We’ve grown from no sales in 1999 to a little over $1 billion in gross mer- chandise sales in 2009,” he says. “The number one driver of that is repeat customers and word of mouth – promoters have become an extremely Zappos’ 10 core commandments important thing for us.” 1. Deliver WOW through service – do something beyond what’s expected “We have metrics where we try to get 98 2. Embrace and drive change – in order to stay percent of customer calls to a customer ahead of your competition service agent in less than seven seconds 3. Create fun and a little weirdness – one of the on average” side effects is innovation 4. Be adventurous, creative and open-minded – Indeed, the use of customers-as-promoters has meant that Zappos spends less on paid advertising, and in turn that money is plowed back in develop and improve decision-making skills to improving the customer experience. Free shipping both ways, a 365-day return policy and a 24-hour call center are all huge expenses for the com- 5. Pursue growth and learning – stretch yourself pany, but by viewing these as marketing outgoings Zappos is able to justify 10 the costs and more easily see the returns. “Any costs that we’ve put into 6. Build open and honest relationships – investing in the customer experience end up driving that repeat customer communication is key behavior and word of mouth, so it is very much an indirect marketing cost,” explains Hsieh. 7. Build a positive team and family spirit – go The Zappos story is one of seamlessly integrating customer service and marketing programs, and the reason for its success is that it has suc- beyond the typical ‘co-worker’ relationship cessfully taken much of the money other companies spend on ads – the 8. Do more with less – constantly raise the bar commercials, the billboards, the truck wrapping, the sponsorships – and poured it into creating a company that customers love and want to do busi- 9. Be passionate and determined – have a positive ness with over and over again. On developing innovative ways to delight the customer at each and every touchpoint. On building the right infra- but realistic attitude structure to support that. And on fi nding the right people to help deliver that great service. 10. Be humble – treat others how you wish to be The bottom line is, treat your customers to exceptional service and treated yourself they will brag about you to everyone within earshot. They will Twitter about you, blog about you, and laugh your competition to derision. They will become the best marketing tool you’ve ever had.ZAPPOS.indd 79 08/10/2010 15:25
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  • 82 TECHNOLOGY MATTERS to find ways in which your customers can be more efficient at what they Kindling customer engagementAmazon ed.indd 82 08/10/2010 15:06
  • TECHNOLOGY MATTERS 83 Amazon’s Chief Technology Officer Werner Vogels is focused on transforming the internet behemoth into the world’s most customer-centric organization – and is using innovation to help him get there. T By Ben Thompson he Amazon rainforest contains the largest collection of living market decide what’s hot and what’s not has played a key role in helping plant and animal species on the planet – and like its jungle to make the company such a trusted seller – even non-customers admit namesake, the world’s largest ecommerce platform holds a to checking out the user reviews before eventually buying elsewhere. But similar wealth of weird and wonderful specimens just wait- as other retailers jumped on the user review bandwagon, Vogels and his ing to be discovered. As well as everyday items such as cloth- team decided to take the concept a stage further. By adding a simple button ing, music and consumer electronics, the internet explorer asking ‘Was this review helpful to you?’, Amazon prioritized the most can also find a huge range of rarer treasures. Want to reduce your carbon relevant reviews – those that had helped customers make a decision over footprint? How about a 400W self-assembly wind turbine to help get you whether or not to buy a particular product, both positive and negative – started. Looking for that unusual gift? Check out the original Andy Warhol and provided a simple way for customers themselves to regulate the quality screenprints in the ‘Everything Else’ department. Fancy getting married? of the reviews. A recent article in Business Insider suggests the move has Try the 10x18-foot wooden wedding chapel, complete with front porch and had significant business benefits. In 2008, Amazon brought in $19 billion, steeple (sorry, bride not included). Shopping has never been this easy. of which 70 percent came from media products such as books, movies and Yet while some may still think of Amazon as music – products that also make the best use of simply an online retailer, the reality is very differ- the reviews feature. The study suggests that pro- ent. From its bookseller origins, the company has Amazon.com fast facts moting the most helpful reviews has increased grown to become one of the world’s biggest tech- FOUNDED: 1994 sales in these categories by 20 percent (one out nology organizations, a platform that attracted of every five customers decides to complete the HEADQUARTERS: Seattle, Washington over 615 million visitors last year and on which purchase because of the strength of the reviews) more than one million active retail partners do AREA SERVED: Worldwide – adding a projected $2.7 billion to Amazon’s business worldwide. An increasing number of CEO/CHAIRMAN: Jeffrey Bezos top line. diverse businesses are built on the Amazon.com REVENUE: US$19.16 billion It is often said that the best innovations platform – including the online operations for are the ones that seem so obvious. And while OPERATING INCOME: US$842 million Target, Lacoste, Marks & Spencer and Timex Vogels is at pains to stress that such develop- Corporation – and the company’s relentless focus NET INCOME: US$645 million ments don’t just happen without a considerable on innovation helps Amazon maintain its status EMPLOYEES: 20,500 degree of effort, he does concede that all Ama- as a high-tech pioneer. From new hardware devel- zon’s technology improvements start from a very WEBSITE: Amazon.com opment to the definition of new business models, uncomplicated concept. “You have to fi nd ways from building ultra-reliable storage services to a in which your customers can be more efficient at massively scalable computing cloud, from pervasive monitoring and perfor- what they want to do,” he explains. “We have a number of high-level goals mance control to revolutionary efficient soft ware architectures, Amazon is around how quickly customers can fi nd items, how easily they can browse, recognized as being on the bleeding edge of technology development. how they can check out and how they can purchase things, and making “We have three different businesses,” explains the company’s CTO that as efficient as possible for our customers is key for us.” Werner Vogels. “One is the retail business, and that’s the one that people If you focus on the customer, continues Vogel, you take the long-term are most familiar with. Then there’s the seller business, which consists of view. “You’re not looking at the next quarterly success; you’re looking at three major streams – the seller-only Amazon website, the enterprise ser- how you can make sure that Amazon is the world’s most customer-centric vices business where companies launch ecommerce operations on top of our company over the long-term, and how you can innovate on behalf of the platform, and services such as Fulfillment by Amazon that enable businesses customer to make sure that the things you do really matter. In this sense, to take advantage of one of the most advanced fulfillment networks in the everything from reviews to web services can be thought of as supporting world. And then there’s the developer business. For all of those, we take the tools for doing the right thing for the customer. In terms of technology, it same approach: we want to be the world’s most customer-centric company.” means seeing whether we can take a more cost-effective approach or have For Vogels, this means focusing on continuous interaction with the better scalability and better reliability, or whether can we help our custom- customer-base – generating what he calls a ‘feedback loop’ – to ensure that ers make sure they make the right purchasing decisions.” the services Amazon provides are the right fit for its customers. “We have a Of course, efficiency is one measurement of success, but there is also a process that we call ‘working from the customer backwards’ to develop new more intangible quality that must be achieved for such a platform to be loved technologies, where we start with what the customer needs and then work by its user-base: ultimately, it must also provide an enjoyable experience. backwards from that point to make sure that the technology we implement “Customers are very vocal with what they appreciate and what they don’t,” really does what we want it to from a customer standpoint,” he explains. he continues. “So while our customer service is known for being excellent, customers also have the power and the tools to actually give feedback directly Plotting a path to the technology teams. In terms of innovation, we make sure that all these Take Amazon’s popular and much-copied product review system, for small experiments that are going on all the time with new technologies, with example. The site had reviews from the outset, and the idea of letting the new customer-facing functionality, can be continuously measured.”Amazon ed.indd 83 08/10/2010 15:06
  • 84 TECHNOLOGY MATTERS Measuring value contains a further link to provide additional feedback. If you respond ‘no’ Amazon has taken a number of steps to ensure any improvements to to the original question, you are taken to a similar page to rephrase the the platform add real, measurable customer value, and has built a large question. Th is simple feedback mechanism provides a number of impor- infrastructure to ensure it can monitor and assess the impact of changes tant benefits. First, it demonstrates Amazon actually cares whether the to the site. For instance, all Vogel’s teams have been given the instruction user’s problem is resolved satisfactorily; it allows the customer to easily to innovate continuously on behalf of the customer, constantly looking at submit another question if not satisfactorily resolved; it allows Amazon where improvements can be made. What makes a particular service a best to quantify the performance of the service department; it identifies areas seller? Is it better information, better presentation or different sources? where better answers are needed; and fi nally it helps identify tricky prob- “Our goal for customers is that they can fi nd what they are looking for lems that can be corrected. as fast as possible, in the most efficient way, in the minimum number of Such attention to the minutiae of customer service interactions helps steps,” he explains. the company refi ne its offerings and continuously improve. And while conceding that the management team makes most of the long-term big “In terms of our personnel, we look for technology bets, Vogels insists that many of the ideas actually come up through the organization. “Amazon is very flat in terms of its organiza- a very particular individual: they need tional structure and we have a tremendous focus on innovation, so we’ve got all sorts of paths in which key information and ideas can travel to those to be able to think in the way that the who actually make the decisions,” he says. “I think most of the technologies customer thinks” as you see them in Amazon – whether it is reviews, whether it is Listmania, whether it is Gold Box – have come out of the grassroots.” Such a meritocratic hierarchy, where the best ideas rise to the top, is Vogels maintains that this is only possible via constant monitoring essential to the company’s reputation as an innovator. Encouraging ideas of the customer experience. Consider the following example. A customer that add value is a philosophy that is nurtured right through the company wishes to download a movie to watch on the long Seattle-NYC fl ight, and culture, from the C-suite down to the recruitment of new hires, as Vogel sends Amazon an email with a question about its video-on-demand ser- elaborates. “In terms of our personnel, we look for a very particular indi- vice. Not only does the service team answer within the hour, they also vidual: they need to be able to think in the way that the customer thinks,” include a link to indicate whether the answer solves the question or not. he says. “It’s very important to have a culture where everybody understands Choosing ‘yes’ takes the customer to a ‘Th anks for your feedback’ mes- what the core values of the company are. New starters are often surprised at sage, which not coincidently puts them back onto the Amazon site and how important focusing on the customer is to us and how good Amazon is Amazon’s logotype is an arrow leading from A to Z, representing customer satisfaction (it forms a smile) and the goal is to have every product in the alphabet. “If your catalogue becomes larger, more customers will come to your site, which makes it more interesting for sellers,” explains Vogels. “That means more sellers come to your site, which means your catalogue grows. It’s what we call a flywheel, and the more energy you put into innovation in the flywheel, the better you’re actually able to execute.”Amazon ed.indd 84 08/10/2010 15:06
  • TECHNOLOGY MATTERS 85 at doing that. So having a core value throughout the company that every- It is a challenge Vogels relishes. “I think you can have brilliant ideas, body signs up to is essential.” but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated The importance of teamwork when I was still in academia,” he continues. “I did some start-up work The other essential trait that Amazon tries to instil in all staff is the alongside my academic work, but even so the path going from idea to actual ability to collaborate effectively – something that is particularly impor- implementation is a long journey, and when you have to operate at the scale tant in the technology function, which by its nature involves small teams of Amazon that’s a whole different story again. Suddenly, issues like reli- focused on specific projects. “Our development teams talk to each other ability, performance, availability and cost-effectiveness play a major role in all the time,” says Vogels. “Even though we work in very small teams, all of the decisions you make along the way.” Amazon itself is a very large technology operation and it is essen- And in contrast to Google, which famously encourages tial that everyone cooperates and collaborates all the time.” developers to spend 20 percent of their time on individual According to Vogels, teamwork is key to delivering projects outside their day-to-day responsibilities, the team Target, fully rounded ideas that really work for the customer – ethos rules at Amazon. The motivation comes out of the whether that customer is internal or external. Coming Marks and Spencer idea that the things that you do have a direct impact on from a background in academia (prior to joining and Lacoste use the customer. “Doing things that matter to people is Amazon in 2004, he spent a decade as a research scientist the Amazon.com tremendously motivating, and so most of our engineers in the Computer Science Department at Cornell Univer- platform and program managers – and indeed everyone else that sity looking at scalable reliable enterprise systems), Vogels is working on our products – fi nd tremendous reward in admits to being energised by the way business organizations making sure that our customers have a better experience. We approach the issue of R&D. “In academia there’s a real focus on often have meetings where we start off with a ‘customer voice’ – a individual achievement,” he says. “Although there is some collaboration success story, even sometimes a negative story, of a customer’s experi- among faculty and there are student teams working together, the work ence of buying on Amazon – and use those stories to drive our services to is still rather individual, as is the reward structure. In industry, however, become better.” building real technology is a multi-disciplinary activity. First of all, you Once again, it all comes back to the customer. “We don’t just want need good engineers and program managers to build something that to be the most customer-centric company on the web; we want to be the really works. But there are also legal implications, there’s an impact on most customer-centric company on the planet, period,” concludes Vogels. tax, there’s impact on PR, on marketing – all of those functions make up “I think that if you look 10 years from now, you’ll see that many of the a team, and you can only build and deliver a product to your customers innovations Amazon has implemented have had a tremendous impact on as a team.” how customer-centricity is viewed.”Amazon ed.indd 85 08/10/2010 15:06
  • 86 CUSTOMER LOYALTY A REWARDING EXPERIENCE I Customer loyalty n uncertain times, customers increasingly turn to the the barrage of irrelevant messages, low-value rewards retailer they know and believe they can count on – for a and impersonal engagement don’t particularly engender is consistently quality product, dependable service and an experience loyalty. The bottom line, according to the report Leaders touted by they will want to repeat. In theory it’s a win-win for in Loyalty: Feeling the Love from the Loyalty Club, is that retailers across all concerned: the customer gets a retail experience they deeper engagement and personalized contact drive loyalty, the country as are comfortable with and trust, while customer loyalty provides a major revenue boost to retailers, especially in not mass blast communications and gimmicks. One company to have embraced the concept of giving a major area of an industry where statistics suggest it costs between four the customer what they want in order to retain their busi- focus. So why do and six times more to attract new customers than it does to ness is luxury chocolatier Godiva. The company had been so few have a retain existing ones. trying to implement a loyalty scheme for a number of years, Indeed, encouraging loyalty “in good times and but had struggled to fully engage its customer base. For rewards program bad”  has long been a major challenge for retailers of all years, it had offered one-off perks to customers via e-mail that works for creeds. Yet despite the obvious benefits repeat business and blasts and postcard mailings, through contact details col- both them and (to take it a stage further) brand evangelism can bring to lected in-store. But tracking the results of such promotions both store and consumer, many companies still struggle proved challenging, and although the company gathered a their clients? with how to get their loyalty programs right. According lot of information, much of it was not usable or useful. It to recent research from the CMO Council, even as more was time for a new strategy. marketers adopt loyalty and rewards programs to improve “Two years ago we put together a cross-functional sales, many are failing to fully engage their customers, team, and IT was well represented within that, to dis- with over half of the consumers surveyed believing that cuss what our program should be,” explains Don Gould,Customer Loyalty.indd 86 08/10/2010 15:29
  • CUSTOMER LOYALTY 87 Director of IT at Godiva. “We worked with a couple of “The acceptance Joining the social club companies to fi nd out what our options were, and just as importantly we polled our consumer base through a rate by U group called CommuniSpace, which is an online com- consumers is munity of Godiva loyalists. We asked them about a points S companies that use social media primarily everything that program, we asked them about a percentage program, to deepen customer loyalty spend almost but what we found they actually wanted was really quite twice as much on this emerging channel as we could’ve simple: it was free chocolate.” competitors who use it for brand awareness, customer hoped for, acquisition and other core marketing purposes, As such, the program team resolved to come up with a it’s just been way to give loyal customers what they wanted – free choco- according to national survey results jointly released by late – that would at the same time drive people back into Colloquy and the Direct Marketing Association (DMA). awesome” the store. “Our aim was that when they came in to pick up Specifically, the survey results show the average their chocolate, maybe they would buy something else too. social media spend for marketers whose primary And that’s exactly what we saw happen,” says Gould. objective is to obtain customer loyalty was $88,000 The end product was the Godiva Chocolate Rewards last year, compared to $53,000 for brand awareness Club, a voluntary sign-up scheme that offers consumers and $30,000 for customer acquisition, the objectives perks including free chocolate – customers get a free piece that attracted the next highest spending levels. each month and an extra gift (worth at least $2.95) when Additionally, the survey shows that the amount of they spend $10 or more in the previous month – free ship- social media budget marketers allocated to loyalty ping and a monthly e-newsletter featuring special offers objectives increased by 293 percent over the past 12 and new product announcements. Godiva worked with months, easily surpassing allocation increases for all loyalty program consultants Brieley & Partners, as well other social media-related marketing objectives. as web design and consulting fi rm Fry Inc. and marketing “Social media budgets for loyalty objectives technology company Acxiom Inc., to shape the program, experienced the most growth last year and, in fact, the which consumers can sign up for in-store at any one of last three years,” says Colloquy Managing Partner Kelly Godiva’s 270 North American boutiques, as well as at the Hlavinka. “Savvy social media marketers recognize company’s website. they must turn first to their best customers and apply The program certainly boasts some impressive stats. the same principles inherent to loyalty, which are Over two million shoppers have signed up for the program combining economic incentives with social capital.” since May 2009, and more than half of the company’s sales The survey results suggest that the use of are tied to the Godiva Chocolate Rewards Club; even more social media as a marketing tool is still in the early impressive is that on average, sales associated with the club experimental stage. “Marketers across all sectors bring in 20 percent more revenue. “The acceptance rate are involved in social media,” says DMA Research by consumers is everything that we could’ve hoped for; Manager Yoram Wurmser. “However, after five or six it’s just been awesome,” says Gould. “In fact, the number years in the space, and growing social media budgets, of people that we’ve gotten involved in the program has marketers are still testing the waters to figure out far exceeded what we planned for. The other thing we are what works, with the incentive to accelerate their seeing is that those that come in to redeem their free piece efforts being driven by consumers’ rapid adoption of of chocolate are also buying something else, which is what this trend.” In fact, research from Nielsen released this we wanted to happen.” week shows that consumers are spending 43 percent Beyond the figures, Godiva has also focused on train- more time on social media than a year ago, making ing employees to execute the program successfully. One of social networking and blogs the top online activity, the most important keys to a successful loyalty program followed by online games and email. is having employees who not only know how the program works, but also see the benefits and can help customers get excited about signing up. For Gould, such thinking is all part of building a successful program. “You have to have address, so there are folks out there who don’t have them engagement,” he says. “From the customers, of course, but who are just not a part of our program.” from your workforce too.” But nonetheless, overall the scheme has been a huge Indeed, Godiva is already looking ahead to the next success, and recently resulted in the fi rm being named phase of its program and how it can be improved. “We amongst the winners of the inaugural Colloquy Loyalty know it has to change,” says Gould. “The free chocolate is Awards, a contest that salutes the most transformative, nice, but to keep customers engaged there’s going to have customer-focused loyalty initiatives in North America. The to be something new there. We’re also thinking about a panel praised Godiva for “creating a sensible loyalty initia- premium program for our most dedicated shoppers, and tive that is integrated and highly data driven, yet simple are looking at how to leverage social and mobile technolo- and straightforward”. For Gould, that represents the gies too.” He is also aware of the current limitations of the essence of a good rewards scheme. “The key is to keep it scheme. “One of the downsides is that it requires an email simple,” he concludes.Customer Loyalty.indd 87 08/10/2010 15:29
  • 88 ASK THE EXPERT Asset maximization: selling your brand starts with your talent Jamie Minier, President of The RightThing, explains why a strong employment brand is vital to attract top talent. I n an environment characterized by intense competi- the job description and fully immersing themselves in the tion, retailers wrote the book on how to sell. With an day-to-day duties of specific jobs for hire. As a growing abundance of outlets vying to win customer loyalty, trend, this dedicated research helps retailers gain a better marketing and performance is everything. Yet many understanding of the true day-to-day responsibilities and retail organizations have failed to maximize their greatest culture of the position, which in turn helps to find the right asset when it comes to recruiting. candidate. Historically, basic hiring practices for retailers have Studies show employers who boast a strong employ- not kept pace with actual performance environments. ment brand experience a higher quality talent pool, lower Plagued by inefficient processes and inconsistent selection rates of rejection, lower turnover, a greater number of techniques, many have missed the mark in attracting the employee referrals, decreased time-to-fi ll, decreased cost- highest achievers into their organization, which has led to per-hire ratios, and higher levels of employee engagement. Jamie Minier is President of The high turnover and a nick in the bottom line. Given the benefits, the case for a strong employment brand RightThing, the industry-leading As an industry largely focused on the latest data points, becomes clear. RPO provider. Recently named ‘Best Executive’ in the Sixth retailers should consider the following: To maximize employment brand and align it with suc- Annual Stevie Awards for Women cessful talent acquisition solutions, today’s best-in-class in Business and ‘HRO Superstar’ by HRO Today magazine, she is • According to the US Bureau of Labor Statistics, growth retailers are turning to recruitment process outsourcing regularly featured at industry of the US workforce has continuously slowed over the (RPO) fi rms as a viable way to build and maintain a cut- conferences and seminars. past four decades and is only predicted to expand by four ting-edge solution. For instance, when one of the world’s percent in the next 10 years. largest beverage companies wanted to maximize recruit- • Over the next decade, over a quarter of US employees will exit the workforce due to baby boomer retirements. • Research shows one bad hire can cost a company up to “Retailers should view $300,000 in lost time, productivity and money. candidates not only as potential With workforce competition growing and supply and talent but as savvy consumers” demand in jeopardy, the ability for retailers to successfully attract the best and brightest over a competitor will ulti- mately impact the future success of their business. ment effectiveness, they partnered with The RightTh ing In the past, many organizations equated employ- to evaluate their current process and assist in developing ment branding to winning awards such as a great place to a robust employment branding solution. One key com- work, securing mentions in the media, building a robust ponent to that included a number of streaming videos website and attending industry events. While these are embedded throughout the application process to help the effective corporate branding tools, they’re minimally ef- jobseeker truly understand the job at hand. One illustrated fective at grabbing the attention of potential active and a ‘day-in-the-life’ of the specific position; another intro- passive talent. Utilizing their greatest asset, retailers duced the candidate to the current team and supervisors. should view candidates not only as potential talent but With 12 videos throughout the process, the client saw a as savvy consumers. significant increase in quality and candidate satisfaction, Using sales techniques parallel to corporate strategy, which in turn enabled them to successfully staff their peak a strong employment brand begins with a closer look at seasons – historically a major pain point. the target audience. Who are we trying to attract? What As the talent market grows increasingly competitive, environments do they interact in? Once established, em- it is vital for today’s leading retail execs to revisit their ployment branding and recruitment strategy should align recruiting initiatives and ensure their candidate sales accordingly and could include the use of mobile technol- strategy is utilized to its fullest potential. Regardless of ex- ogy, social media, e-marketing and other online channels. ecution, retailers who maximize their employment brand Similar to market research, hiring managers engaged in will significantly benefit when it comes to attracting high retail hiring can also tremendously benefit by going beyond quality, long lasting talent.THE RIGHT THING.indd 88 08/10/2010 15:26
  • THE RIGHT THING AD.indd 1 01/10/2010 16:11
  • 90 RETAIL WORKFORCE Inside the hit factory B What keeps Starbucks’ HR department awake at night? Clue: it’s not just the coffee. y any measure of success, Starbucks is a retail rience,” explains Elizabeth King, Vice President for Global 2009 phenomenon. Over 17,000 stores in 49 coun- HR Solutions and Services at the coffee giant. “So for us, tries (including upwards of 12,000 in North building trust and connection to the folks in the store is America alone) and 2009 revenues of nearly really critical.” revenues $9.8 billion are testament to the company’s It was a value that was sorely tested back in 2008 when approximately winning formula, while its pleasing blend of coffee beans and comfy sofas have made it the primo des- a leaked memo from CEO Howard Schultz – the man behind the chain’s rapid rise – confi rmed what critics had $9.8 tination for web-surfi ng students, stressed-out executives been suggesting for a while: that in its push for greater billion and thirsty shoppers looking for a place to relax between revenues and global coffee house dominance, the firm had work and home. The Th ird Place, as it has become known, become somewhat disconnected from its core customers has become the 21st century’s communal space of choice and, just as importantly, its employees. “We have had to and a high street ubiquity. make a series of decisions that, in retrospect, have led to A large part of that success is down to the skills and the watering down of the Starbucks experience,” Schultz dedication of Starbucks’ thousands of staff members. wrote, lamenting more “sterile, cookie-cutter” store envi- Traditionally there’s been a very strong bond between the ronments, their loss of coffee aroma since the adoption of company’s leadership and its employees (or ‘partners’, as flavor-lock bags, and the diminished service theatrics that the firm is keen to have them known), and company values came with a switch to robotic espresso machines. dictate that a motivated and engaged workforce leads For many customers, Starbucks was about selling an seamlessly to a better customer experience – which in turn, experience as much as selling coffee, and over the past few of course, leads to growth. “We’ve done a lot of research years the company has been working hard to rebuild that on the connection between an employee that feels really experience; clearly, its partners play a huge role in that satisfied and their ability to provide a great customer expe- going forward. “Re-establishing the trust relationship weRetail Workforce.indd 90 08/10/2010 15:33
  • RETAIL WORKFORCE 91 had before with our existing partners is critical,” says King. processes for people. We’ve really tried hard to address the “Then as business improves and we start growing again, issue of manually intensive work that doesn’t add a lot of acquiring, building and developing the right talent will be value and, if we’re not able to eliminate it completely, at critical too.” least simplify it to the point where it’s not driving people As such, the company has taken a number of steps crazy. We take a lot of pride in the intelligence and skillsets to re-engage with its employee-base, including an orga- of the people that we hire, and we certainly don’t want to nization-wide poll of opinions, comments and ideas for encumber them. So the downturn has given us a chance to improvement. “I think that the biggest thing we’ve done look at some of these things as well.” is implement this across-the-company employee survey in Of course, we shouldn’t be surprised to see a fi rm which the questions allow for a fairly significant amount looking after the customer by looking after its employ- of non-check-the-box answers,” says King. “There’s a lot ees; after all, that goes to the heart of what retail should of scope for people to express themselves. And I think be about. But it is refreshing to see a company refusing because of that ability to express themselves, a couple of to take its continued success for granted. “I think what things happened: we’ve now got the richest data we’ve ever we learned through the downturn is that the expectation had around what our employees are thinking and how we of the service experience has increased,” concludes King. can improve their experience of working here; and it also “And when you have a high-end product, the expectation gave people a chance to have their say on things that they’ve of the service that goes along with that product is even been concerned about.” higher. What it’s also done is put us in a situation where The next step, says King, is to really use that informa- we’re trying to figure out more innovation for the cus- tion to improve what the firm calls its ‘perks’ – benefits, tomer as well.” pay and recognition. “When you have 150,000 partners those programs are really expensive, so to do something that doesn’t meet the needs of our partners doesn’t make sense,” she explains. “First you spend money that you could’ve spent in a better way, and second you don’t really get the results you want.” Such a collaborative approach to improvement – in- cluding ensuring that channels of communication are both open and effective – is key to the firm’s ongoing suc- cess. And in a company as diverse as Starbucks, ensuring the multitude of voices are all heard is a major priority. “There’s a big challenge in communicating effectively in a timely way, and in a way that’s relevant to the partners “It’s about in the company, regardless of what generation they may fall into,” confi rms King. “We have something called the having funds to ‘partner experience’ happening right now, where there’s invest in things lots of cross-functional involvement across the company, with leaders working with partners to help us figure out that are more areas that could be improved. And we’ve also extended important to the our customer-focused My Starbucks Idea program to the customer, more partner side as well, to harness the many great ideas and important to our suggestions our partners have on a daily basis.” Train to win King also feels that Starbucks’ focus on employee en- On February 26,2008, Starbucks underwent partners and gagement has helped it weather the downturn better than a dramatic training exercise. For three-and-a- more important many others. For instance, the firm recently shuttered half-hours, every one of the almost 7100 US around 600 of its most underperforming stores in order stores closed as more than 135,000 partners to the long- to reinvest the money in employee training, new products worked to transform the customer experience term interest of and other partner programs. “It’s about having funds to and work towards ‘Espresso Excellence’. For Starbucks” invest in things that are more important to the customer, that short period, coffee fans were forced to more important to our partners and more important to look elsewhere for refreshment. The risk of the long-term interest of Starbucks,” she says. “I think the inconveniencing consumers was deemed worth downturn has given us a chance to understand the things it to ensure the long-term goal of pleasing every that have made us successful and re-evaluate those things consumer, every time. The training forms part of that were troublesome. CEO Howard Schultz’s new focus on innovation “We’ve also taken an active look at lean process- and customer experience, so don’t rule out more ing – not only in our stores, but in a lot of the corporate eye-catching educational efforts in the future. functions as well – to try to not only take cost out of the equation, but also to create better, more fulfi lling workingRetail Workforce.indd 91 08/10/2010 15:33
  • PHILIPS DPS.indd 1 01/10/2010 16:11
  • PHILIPS DPS.indd 2 01/10/2010 16:11
  • 94 NEXT BIG THING Energy effectiveness: getting beyond energy efficiency Emerging opportunities for retailers extend energy management concepts and tools beyond just energy efficiency to consider the potential for improving the shopper experience and driving sales increases. By Andy McMillan E nergy efficiency has been a hallmark of energy progress in retail design, materials and equipment in much policy in the US and around the world for de- the same way that energy efficiency has in the past. cades, and the focus on energy efficiency has yielded substantial improvements in retail build- Only part of the story ing design, materials and equipment, as well as It is a self-evident truth in quality management circles new rating systems for buildings. To complement these that you get what you measure. With that in mind, we gains, great strides have been made in operational energy should look at how we measure energy efficiency. Most efficiency through the integration of building controls measures of retail building efficiency are related to energy with enterprise information systems. Without question, used or energy dollars spent per square foot of retail space. energy efficiency concerns have driven these gains – but Th is leads to a focus on energy efficient building design, they have also limited the discussion of energy utiliza- temperature setpoint management and lighting schedules, tion in retail environments to the cost side of the bottom as well as making use of natural resources (daylight har- line. Dramatic advances in controls technology, coupled vesting, building orientation, etc). At some point, though, with dynamic lighting technologies, are going to enable trade-offs must be made between the amount of energy a more comprehensive measure of energy utilization that used and the amount of value created. After all, in theory takes into account the impact of energy use on the shop- it is easy to save energy in retail buildings – just lower the ping environment. That new measure, energy effectiveness, space temperature in the winter, increase the space tem- incorporates traditional energy efficiency but also captures perature in the summer and reduce the amount of artificial the impact of energy utilization on top line revenue. Over lighting all the time. But while it is simple in principle, the the next 10 years, energy effectiveness will drive dramatic reality is complicated by the inconvenient fact that savingPHILIPS NBT.indd 94 08/10/2010 15:28
  • NEXT BIG THING 95 “Trade-offs must energy is not the primary objective of retail facilities man- the course of a day or the change of seasons, would sales agement. The primary objective is providing an environ- increase? If holiday themes in a store were complemented be made between ment conducive to maximizing customer buying behavior by corresponding color changes in lighting for targeted the amount of – and at some point that objective is at odds with reducing aisles, would sales increase? These are all questions that energy used and energy consumption. are perhaps mere curiosities in the current world because The balance between minimizing energy use and pro- dynamic control of light color and intensity is expensive. the amount of viding a positive shopper experience is frequently an infor- But the world is changing. As we rapidly shift to solid-state value created” mal compromise managed around anecdotal data. Chains lighting for improved efficiency, it becomes cost-effective often evolve to ‘standard’ settings for temperature, lighting to include dynamic lighting control. And at that point, levels and other parameters through industry norms, cus- these kinds of questions become very relevant for retailers tomer complaints, store manager observations and man- who expand their objectives beyond energy efficiency to agement’s prior experience. A focus on energy efficiency include energy effectiveness. brings into question the specific standards used and also Another set of questions related to energy effective- drives consistency in the use of those standards through- ness arises when dynamic control of the environment is out a chain’s portfolio of stores. The recent development extended to customer interactivity. Would giving custom- of enterprise energy management systems for chain stores ers (collectively) some influence over the temperature in enables cost-effective analysis of energy efficiency across a store increase sales? What if customers could adjust the stores and enables enforcement of whatever standards lighting in focused areas of the fashion department to view evolve in an organization. These systems can also provide a clothes in different settings? Would sales increase? platform for exploring and managing energy effectiveness. New answers, even more questions Calculating energy effectiveness Many of the questions regarding energy effectiveness The measure of energy effectiveness is ‘value created’ are hard to answer because there has been little focus on divided by the ‘energy used’. For a store, energy effective- them. The drive for energy efficiency has fully occupied ness can be defi ned as the amount of energy consumed per our attention and even where some thought was given to revenue dollar, or the amount of energy consumed per cus- energy effectiveness, the technology for addressing it has tomer served. Both measures lead to interesting questions not been cost-effective. But that is changing. Equipment about how stores are operated and what level of control and that goes into stores is rapidly becoming more intelligent information will be needed to optimize energy effective- and connected. Whether you look at HVAC, lighting or re- ness. For example, both revenue per hour and customers frigeration you fi nd that standard network interfaces (such served per hour varies substantially over the course of a as BACnet) provide far greater levels of dynamic control at day. Given that, could we consider tailoring energy use little or no extra cost. The emergence of solid-state lighting more specifically to the daily revenue profi le as opposed with its wide range of options for dynamic intensity and to having constant temperatures and lighting levels? Or, in color will provide another rationale for exploring these another vein, would it make sense to have different tem- questions. perature zones in a store that correspond to the placement Another obstacle to answering – or even asking – these of specific merchandise (e.g. less heat where sweaters are questions has been the limited availability of information displayed)? links between energy management systems and other en- The major energy-consuming devices in retail stores terprise applications (for example, shopper tracking and are HVAC, lighting and refrigeration (where it is present). POS). To automatically measure and report on energy ef- All are relevant in considering energy effectiveness, but fectiveness, these systems have to exchange information. the one that holds the greatest potential for improving Historically that would have required custom application energy effectiveness over the next fi ve to 10 years is light- soft ware development. Fortunately, the rapidly growing so- ing. With the widespread adoption of solid-state light- phistication of enterprise energy information and control ing, retailers will be able to reduce energy use while at systems is simplifying that interface with an open systems the same time getting far more control over the intensity approach and is lowering the overall cost of implementing and color of light in their stores. How (or if) retailers meaningful energy effectiveness measures. utilize enhanced control of light may have little impact For the most part, retailers have made impressive gains on energy efficiency, but could have substantial impact on in energy efficiency over the last 10 years. Leading retailers Andy McMillan is the General Manager of Philips Teletrol, energy effectiveness. recognize, though, that energy efficiency is not enough. a leading supplier of energy It is well known that light levels and the color of light They are starting to look at energy use more critically and information and control systems for chain stores. He impact buying behavior. What is less clear is the impact of asking themselves, “what comes next?” Knowing they have is also president of BACnet changes in light intensity and/or color on buying behav- achieved a high level of energy efficiency they are now International. His background includes broad open systems ior. For example, in a women’s department, each season starting to consider how to further optimize their energy marketing and industry will bring shift s in merchandise colors. If a retailer could utilization. The promise of dynamic control for solid-state development experience, as well as strong technical knowledge easily change the color of the light in that department ac- lighting, coupled with flexible, enterprise energy informa- of distributed automation and information management cordingly, would sales increase? If the overall lighting of tion and control systems-suggests the next big thing might systems. a store varied between cool white and warm white over well be energy effectiveness.PHILIPS NBT.indd 95 08/10/2010 15:28
  • 96 SUSTAINABLE STORES RETAIL GOES GREEN Why a growing number of retailers are putting sustainability at the heart of their business models. F rom building stores out of recycled materials to installing low-flow water faucets and investing in solar power, an increasing number of retailers are embracing the green ethos – and not just out of a desire to save the planet. Many are realizing sig- nificant fi nancial benefits, and claim that going green will eventually become the only feasible route as energy costs skyrocket and regulators – both federal and local – take a hard look at businesses’ environmental efforts. Tapping its two million employees, 100,000 global suppliers and a consortium of NGOs, scientists and other businesses, Walmart has rapidly grown into the world’s greenest retailer and believes that being an efficient and profitable business goes hand-in-hand with being a good steward of the environment. “We’ve shown as a company that our sustainability efforts are really good for our busi- takes into account the supply chain, the products it sells, Contractors install 1248 ness,” confirms Matt Kistler, SVP for Sustainability at the store associates and the communities in which it oper- photo voltaic modules on top of a Kohl’s Walmart. “We’re reducing costs, we’re improving efficien- ates, and has three key goals: to be supplied 100 percent by Department Store roof cies, we’re eliminating waste, and all those things represent renewable energy, to create zero waste, and to sell products in Hamilton Township, cost savings that we can then pass along to the consumer.” that sustain people and resources. New Jersey. The project Th rough an approach it calls Sustainability 360, Walmart is using a number of technologies around the is part of a SunEdison Walmart is taking a holistic view of its business in order world to make progress towards its goal of being supplied Corporation contract to develop goals that both reduce its own environmental by 100 percent renewable energy. For example, in the US, with Kohl’s, in which footprint and engage suppliers, associates and customers Walmart purchases wind energy in Texas, and is testing electricity generated by the solar modules in sustainability efforts to achieve even greater results. “It fuel cells and small wind turbines. In Mexico, Walmart is will cut Kohl’s usage on takes all of us working together – collaborating with our buying energy from a local wind farm for 348 facilities and average by 25-30% suppliers, with NGOs, with the government and working has installed solar panels on two facilities. And in Canada, together on common solutions – to allow us to make the Walmart is testing geothermal, fuel cells, solar and wind, progress that we need to make to attain those large goals and is the largest corporate purchaser of low-emission we have set at the company,” says Kistler. The initiative power through a local provider of clean, renewable energy.SustainableStores.indd 96 08/10/2010 15:34
  • SUSTAINABLE STORES 97 annually (equal to taking more than 3000 vehicles off the Business benefits of going green road for a year) and add to the 31 current solar installations Walmart has in California and Hawaii. “By leveraging our According to IBM, green retail is a major driver for delivering overall global scale to become a more efficient company, we are business sustainability. It’s a way to demonstrate corporate social able to lower our expenses and help develop markets for responsibility by reducing the environmental impact of an enterprise while new technologies,” says Kim Saylors Laster, Walmart Vice simultaneously delivering significant financial benefits. In short, what President of Energy. “Developing and incorporating new re- began as an initiative to improve the health of the planet has evolved into newable energy sources, like thin fi lm, reduces energy price a means of boosting profit margins. These efforts can offer significant risk and aligns very well with our commitment to solving benefits to businesses by: business challenges through technology.” To help meet its waste reduction targets, the company • Reducing the amount of energy used by data centers and point of sale has committed to eliminating landfi ll waste at its US stores terminals, lowering carbon emissions and slashing operating costs and Sam’s Club facilities by 2025, and between February • Optimizing the supply chain, which helps reduce waste, increase 2008 and January 2009 alone, it redirected more than 57 flexibility and tighten control of product delivery and demand-response percent of the waste generated by stores and Sam’s Club time facilities, exceeding the national recycling rate. This suc- • Migrating to green infrastructure, which provides an opportunity to cess was in part due to the success of its ‘super sandwich’ re-evaluate operations for improved efficiency and to help locate surplus baling process, which involves compressing 32 recyclable expenses items between layers of cardboard, creating bales that are • Implementing green operations that can improve compliance with then sent to certified recyclers. So far, Walmart has diverted government regulations – now and in the future 182 million pounds of loose plastic, 18.9 million pounds of plastic hangers, 12.4 million pounds of office paper and 1.3 million pounds of aluminum from going to landfi lls, and has also sent 25 billion pounds of cardboard to paper mills But it is the company’s use of solar power that is at- to be processed into new products. tracting the greatest attention. On top of existing efforts, Meanwhile, the company’s Sustainability Index – a far- September saw the firm expand its renewable energy efforts reaching program designed to meticulously measure the through lighter, lower cost, thin fi lm solar technology. The environmental impact of every single item it stocks – aims company plans to add solar generating systems to another to establish a single source of data for evaluating the sus- 20-30 sites in California and Arizona, and the majority of tainability of products. “Customers want products that are these locations will feature the new technology; when com- more efficient, that last longer and perform better,” explains plete, this project is expected to supply up to 20-30 percent Mike Duke, Walmart’s President and CEO. “And increas- of the total energy needs for each location, produce up to ingly they want information about the entire lifecycle of a 22.5 million kilowatt hours of clean energy per year (enough product so they can feel good about buying it. They want to to power more than 1750 homes annually), avoid producing know that the materials in the product are safe, that it was more than 11,650 metric tons of carbon dioxide equivalent made well and that it was produced in a responsible way. The energy efficient refrigerated freezer section of a WalmartSustainableStores.indd 97 08/10/2010 15:34
  • 98 SUSTAINABLE STORES We do not see this as a trend that will fade. Higher customer The use of central energy management systems has also “By leveraging expectations are a permanent part of the future.” significantly reduced emissions at Kohl’s facilities. As of 2008, all Kohl’s locations are operated by a system that con- our global scale Carbon copy trols most interior and exterior lighting, as well as heating to become a Consequently, Walmart is not the only big-box re- and cooling systems. In the first year alone, the company more efficient tailer to embrace the concept of sustainability. Wiscon- reduced its greenhouse gas emissions by 12 percent – even sin-headquartered retailer Kohl’s Department Stores is while adding more than one million square feet of retail company, we are another high-profile retailer to jump on the carbon neutral space through new and existing store expansion. But the able to lower our bandwagon, having announced its intention to achieve initiative has also had an additional benefit: that of generat- net zero greenhouse gas emissions as part of its participa- ing considerable cost savings. Kohl’s estimates that energy expenses and tion in the Environmental Protection Agency’s Climate management programs have helped prevent nearly $50 mil- help develop Leader program. EPA Climate Leaders comprises a group lion in electricity costs, and over the past four years have markets for new of companies committed to reducing their impact on the improved the company’s energy efficiency by more than 20 environment by analyzing and reporting aggressive GHG percent, primarily in stores. technologies” reduction goals; Kohl’s, for instance, wants to achieve net Energy efficiency initiatives such as replacing 75-watt Kim Saylors Laster, zero status by the end of 2010. That goal accounts for emis- incandescent bulbs with 24-watt metal halide bulbs, imple- Walmart Vice President sions at all Kohl’s facilities, including stores, distribution menting building automation systems and better control- of Energy centers and corporate offices, as well as emissions resulting ling variable speed fans on commercial rooftop HVAC from business travel. Kohl’s currently operates 1089 stores units have all helped the retailer achieve ENERGY STAR in 49 states, and if it is achieved, the company says it will ratings for 500 of its stores – the latest being its Menomonee be equivalent to removing more than 130,842 vehicles from Falls location in Wisconsin, announced in July. Commer- the road for a year or offsetting the annual emissions from cial buildings that earn the ENERGY STAR label rate in the electricity used by more than 99,084 homes. top 25 percent of facilities in the nation for energy efficiency “We recognize the importance of encouraging envi- and performance, use an average of 35 percent less energy ronmentally smart energy practices, and we aim to set a than typical buildings and release 35 percent less carbon positive example in how we operate our buildings and run dioxide. “Reaching the milestone of our 500th ENERGY our business,” explains Ken Bonning, Kohl’s Executive Vice STAR store is exciting for our company and our associ- President of Store Planning and Logistics. Initiatives cen- ates. We are building on our commitment to drive energy tral to Kohl’s achievement of its net zero GHG goal include a efficiency companywide as we continue to near our goal of continuation of five environmental strategies: maximizing being carbon neutral,” says Bonning. energy efficiency, minimizing waste, improving new build- As of spring 2011, all newly constructed stores will ing design, reducing emissions and encouraging environ- pursue ‘Designed to Earn the ENERGY STAR’ designation, mental values. In addition, the company is committed to which is awarded for building designs with an estimated using green power and renewable energy. Kohl’s ranks as energy performance that meets ENERGY STAR criteria. the number one retailer on EPA’s list of Green Power Pur- Designed to Earn the ENERGY STAR-designated buildings chasers, and in 2009 purchased 851 million kilowatt-hours will be eligible for the ENERGY STAR after maintaining su- in renewable energy credits – enough to meet 71 percent of perior performance – rating 75 percent or better on a scale the company’s purchased electricity use. It plans to reach of 100 – for one year in operation. Five Kohl’s stores in 2010 100 percent green power by the end of this year. have already received the designation. “Energy manage- And not content with just purchasing green power, ment is an ongoing effort, and the ‘Designed to Earn’ desig- the company is also producing its own. It currently has nation for newly constructed stores will help us continue to solar panels at select stores and distribution centers in achieve the high environmental standards we have in place California, Wisconsin, Connecticut, New Jersey, Mary- for our facilities,” says Bonning. “Our 100 solar locations, land, Oregon and Colorado, and last month reached a commitment to build 73 LEED-certified locations and 500 milestone in its solar program by activating solar panels ENERGY STAR stores demonstrate our ongoing commit- at its 100th solar location in Mays Landing, New Jersey ment to sustainability with meaningful results.” and announcing plans to expand the solar program into Pennsylvania. Kohl’s began construction of its solar arrays Competitive advantage on the rooftops of seven Pennsylvania stores in August, It’s a rallying cry that is increasingly being taken up by which is expected to be completed by March 2011. The many of the biggest firms in the industry. Tesco – the world’s eight locations combined are expected to generate more third-largest retailer, best-known in the US for its small than 2.3 megawatts of power annually. On average, the format Fresh & Easy grocery stores – is another major player 1400 panels per location will supply nearly half of each with designs on saving money whilst saving the planet. But store’s energy, preventing the emissions of more than nine interestingly, the supermarket giant also sees sustainability million pounds of carbon dioxide over 20 years. “Solar is as a significant competitive differentiator. “The battle to win an integral component of our environmental efforts and customers in the 21st century will increasingly be fought contributes toward our goal of being carbon neutral by the not just on value for money, range and convenience, but on end of this year,” says Bonning. being good neighbors, behaving responsibly and seizing theSustainableStores.indd 98 08/10/2010 16:09
  • SUSTAINABLE STORES 99 environmental challenges,” said Tesco Chief Executive Sir It’s a big commitment and, as Yorwerth explains, IT Terry Leahy in a 2007 speech in which he set out a number has a big role to play in meeting those targets. “If you look In Mexico, of green goals for his company, the most notable of which at IT as a proportion of the carbon footprint of Tesco as a Walmart is buying was a 50 percent reduction in emissions from 2006 levels whole, IT is quite a small proportion,” he says. “It’s only energy from a local by 2020. And with the chain already achieving a 13 percent somewhere in the order of 2-3 percent of the overall carbon wind farm for reduction in the two financial years since that initial pro- footprint. However, it plays a critical role in reducing the 348 jection, Tesco has now upped the ante and is committed to carbon footprint of the other 98 percent.” As a result, facilities becoming a zero-carbon business by 2050. Yorwerth’s team – alongside meeting its own 50 percent State-of-the-art technology, energy-saving lighting and reduction targets – is also focused on what it can do to help a big team of so-called ‘Energy Champions’ means Tesco is Tesco reduce its carbon footprint across the organization saving thousands of tons of CO2 a year. The company has as a whole. The opportunities are numerous, as he ex- revolutionized the way it designs and builds its stores so plains. “Technology can play a role right the way through that they are as green as possible: combined cooling, heat the supply chain, whether it’s providing better forecasting and power plants are helping stores generate their own information to suppliers so that they produce less and thus electricity, while an advanced metering system helps keep ship less so that we store less, or whether it’s in the distribu- a close eye on how much energy and water is being used. tion end of things so that we get better transportation and Elsewhere, refrigeration systems are cooled with carbon routing and things like that.” dioxide, which is thousands of times less damaging to It also plays a crucial role in store, too. Yorwerth says the climate than traditional refrigeration gases, while the that the biggest energy users in stores are systems such as new store template has been designed with a more energy- refrigeration and HVAC. But by looking at those physical efficient heating, lighting and air-conditioning system at its assets as IT systems – and by implementing similar moni- core. Changes are being made right across the store envi- toring and measuring tools usually associated with the ronment, and extend back through the supply chain, too. management of IT – Yorwerth believes his team is better But it is in the firm’s approach to its IT architecture able to understand where the inefficiencies lie. “We can see that some of the greatest strides are being made. Tesco’s where they’re working out of tolerance, when they’re using technology infrastructure consumes about 75 percent of more energy than they should be, whether somebody has the company’s total energy use – and Mike Yorwerth, Head left the lights on and things like that,” he says. “There’s lots of Global Technology and Architecture, is the man charged of work we can do to reduce the carbon footprint of Tesco with bringing that figure down. “In 30 or 40 years time, by using IT. We look from a design, an architectural and people will need to live on possibly a fift h of the carbon they an infrastructure point-of-view at how we can minimize use today,” he explains. “We’ve got to be leaders in climate the carbon footprint of a particular project or program, change and help drive the move to a low carbon economy. and then we measure it once it’s gone in and set a carbon We’re reducing our carbon emissions on a like-for-like budget for the year for the department based on those basis by 50 percent compared to 2006 figures. That means measurements.” for every single store, we need to reduce the emissions in It’s yet more evidence of the potential returns that are that location – whether from energy, from lighting, from possible from green investments. And as technologies im- heating, from refrigeration, or from transportation – by 50 prove to help retailers build eco-friendly stores and prod- percent. We also said we’d reduce emissions on every case ucts, many will fi nd it’s going to be economically inefficient of goods that we ship by 50 percent as well.” not to be green.SustainableStores.indd 99 08/10/2010 15:34
  • iStrategy AD_B2B.indd 1 30/09/2010 14:27
  • Travel | Gadgets | Leisure | Money 101 36 hours in... Less is more Objects of desire Agenda Photo finish Las Vegas, Restructuring Liz Tech for today’s Upcoming Fashion’s big Nevada Claiborne executive events in Q4 night out Details. P104 P106 P108 P110 P112 The final curtain call? As the industry’s most iconic stores fi les for bankruptcy, Next Generation Retail takes a look at the changing face of the movie rental sector. By Nicholas PrykeBack Section new.indd 101 08/10/2010 15:07
  • 102 DETAILS. OPINION B ack in the glory days when mobile “This variety of of more than 125,000 titles and our position as the phones were just phones and pixellated only operator that provides access across multiple monkeys ruled cutting-edge games delivery channels delivery channels, stores, kiosks, by-mail and digital. consoles, renting a film consisted of provides This variety of delivery channels provides unrivalled little more than taking a drive down unrivalled convenience, service and value for our customers.” to your local, and most probably only, Unfortunately, someone forgot to tell Keyes that home entertainment retailer; choosing from a shelf convenience, the reason Blockbuster has found itself in this position of staff-decided VHS titles and leaving with a bag of service and is because they have been pushed out by competition something overly sugary – completely content with that provides access across multiple delivery channels: value for our the lack of choice and simplicity of decision. These were stores, kiosks, by-mail and – you guessed it – digital. In the days of unbridled success for the Blockbusters and customers” fact, writing for the Dallas Observer Dallas is home to Movie Gallerys that indulged our need for escapism Jim Keyes, Blockbuster headquarters, Niko Celentano even called and entertainment. for Keyes to hand in his resignation, claiming that he But those days are long gone now. They’ve Blockbuster “failed all shareholders in the fiduciary responsibilities been replaced by the world of binary we call the due to them. [He] is the main reason Blockbuster is internet and the phenomenal pace of technological in this position today due to his denial of being in a advancements that surround us. Where the home Redbox offers an business model that did not work anymore. Had he of entertainment retailers of yesteryear dictated what estimated 27,000 rental seen the changes that were evolving in this industry in we could watch and for how much – not forgetting kiosks round America the past few years, Blockbuster would not have been the dreaded incurring of late fees upon delayed arrival with rates of just $1 a in the courts filing Chapter 11 protection.” – twenty-first century technology and lateral thinking night has introduced the industry to its next generation of pioneers. Unfortunately for the ‘old timers’, that means an introduction to a market they have little control of. Such is the recent case with global home entertainment retailer Blockbuster who, following in the footsteps of former competitors Movie Gallery, filed for bankruptcy at the end of September. While the company will continue to operate and intends to be back in business once it has completed Chapter 11 proceedings, it goes without saying that to do so, it will need to shed at least 1000 of its 3000 US stores – and with it wave goodbye to a significant chunk of its customers. According to Blockbuster’s “pre-arranged” plan, the company will cut its $1 billion debt down to a more sizeable $100 million. The proceedings include securing a $125 million “debtor-in-possession” (DIP) financed from its Senior Noteholders to help meet its obligations to customers, suppliers and employees in the ordinary course of the recapitalization process. With poor understanding of a failing business model and an inability to adapt, the majority of the company’s debt is to major film studios: Fox is owed $21.6 million; Warner Brothers, $20 million; Sony Pictures, $13.3 million; and the list burrows further into the independents. Jim Keyes, Chairman and CEO, commented at the announcement of the bankruptcy: “After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers”. According to the optimistic Keyes, the recapitalized Blockbuster will “move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional libraryBack Section new.indd 102 08/10/2010 15:07
  • OPINION. DETAILS 103 putting kiosks in, all it does is to help them cannabalize their own business”. For the Dallas-based former movie giant, it seems as though technology and innovative thinking have proved stronger than having a brand stretching back to 1985 that hasn’t moved with the times. But perhaps they should have already learnt their lesson before now. After all, their closest competitor, Movie Gallery, A sign up outside a also fell victim to changing movie-watching habits Blockbuster and filed for bankruptcy protection back in February store last – its second trip through bankruptcy court – before year. The biting the bullet and liquidating in August. However, company it’s this idea of changing movie-watching habits that will need to has affected Blockbuster most. With almost anyone lose at least anywhere able to download or stream movies online, 1000 of its 3000 stores customers aren’t prepared to wait for a movie they across can watch immediately, nor are they understanding America of being charged a late fee for something they could have got pro bono on the web. The inherent nature of the internet has played a major hand in the decline of Blockbuster too, allowing the streaming and downloading of movies that in years gone by would only have been released through DVD. Netflix And while retrospective advice is about as helpful Online rental company specifically has made sure a large part of its business as setting off a fire alarm in a burnt-out building, Netflix offers customers model includes its online business, with members being Celentano does well to epitomize precisely where the unlimited movie able to go to their website and stream movies on a whim, rentals for just $8.99 but more importantly at no extra cost. specialty retail giant went wrong. For starters, with a month. Shares in the DVD-mailing service and 24-hour kiosk companies So what does all this mean for the future of firm have risen steadily such as Netflix and Coinstar’s Redbox leading the film in recent years, but Blockbuster? Well, with shares of Netflix hitting an rental industry, Blockbuster simply can’t compete soared following the all-time high the day Blockbuster filed for bankruptcy in terms of flexibility, availability, variety of choice Blockbuster’s Chapter 11 protection, it would seem that there is little confidence and ultimately, price. When you compare Netflix, filling behind the former king of movie rentals. With 36 which offers you a simple $8.99 monthly plan for percent of the $6 billion US rental market compared unlimited DVDs, two at a time, delivered straight to with Blockbuster’s 22 percent going to Netflix, and your door – with no late fees – Blockbuster was always with Blockbuster’s shares being de-listed from the in the danger zone. Combine that with the fact the NYSE after it closed at $.011. Tony Wible, an analyst Blockbuster charges and relies upon extortionate late with Janney Montgomery Scott, summed up the future fee rates, and you can see where their business model for Blockbuster by affirming that “Netflix is operating started to crack. in an environment with limited competition.” On the DVD-rental kiosk front, Blockbuster did Regardless of how the crumbling company reforms actually realize the potential to grow into the market, itself, the chances are that, even if it does come back but by that time Coinstar-run Redbox kiosks had fighting, the market will have moved on again from already sped away with the prize, with Wedbush what it is now. With Netflix and Coinstar not only Morgan analyst Michael Pachter noting that Redbox having a finger on the pulse of the industry, but literally had 26,900 kiosks as of the end of June 2010 – and progressing it, the only way Blockbuster can reverse predicted that number to exceed 28,000 by the end of their fortune is by reinstating trust in their now former October. And Pachter doesn’t have much applause for customers and leaning on new innovation to play a Blockbuster’s kiosk tactics either, saying: “The most phenomenal part in its future. But for the moment at they are getting out of this is a five percent royalty. By least, it would seem as though the Block has busted.Back Section new.indd 103 08/10/2010 15:07
  • 104 DETAILS. TRAVEL 36 hours in... Las Vegas TIME : -8HRS GMT | STATE : NEVADA | POPUL ATION : 1.8 MILLION ‘Bodies…The Exhibition’ at the Luxor Hotel Perhaps not one to visit immediately after the Stratosphere rides, ‘Bodies…The Exhibition’ will easily trump any science lab dissection The sparkly lights of Sin City lure hardened gamblers and those who you did at school. With an intricate, 3-D vision just fancy a flutter from all over the world. However, it’s also the of the human form, convention capital of the world and a popular business destination, as visitors get to see real bodies preserved along NGR discovers. T with their inner organs. Showcasing 13 whole- body specimens from he city that never sleeps – and it truly The Stratosphere Las Vegas Hotel and China and more than 260 never does – is without doubt the Casino organs and partial body world’s largest adult playground; Two types of people walk through the doors at specimens, each piece exchange the climbing-frames for the Stratosphere – those there to relax, which is goes through a method blackjack tables and swings for slot completely understandable for a hotel, and those there known as polymer machines and you get the idea. But for an adrenaline rush. If you’d consider yourself one preservation where all nothing can replace the moment when you realize of the latter, then this is a must. Standing at a chilling the tissue and water is you’ve just walked past two pyramids and a sphinx 1149 feet high in the Vegas skyline, the Stratosphere replaced with silicone in the middle of the Nevada Desert while the skyline Tower boasts of being the tallest observation tower rubber. There are sections illuminates everything behind you. Fortunately, Las in the US. Not that exciting? Well, add three roller dedicated to bodily Vegas is a hub of events and conferences, spanning coasters and a controlled free fall, all outside the roof decay, wonders and across hotels, arenas, and incredible customized of the tower, and you have your answer. The ‘X-Scream’ anomalies that will leave venues that have been serving the industry’s propels you 27 feet over the edge of the tower while you with a completely biggest and brightest for a good few years, so if you look 866 feet below you, while ‘Insanity’ extends different perspective on you haven’t had the privilege of having your jaw- you 64 feet out from the tower on a huge mechanical the human body – after dropped recently, NGR has the answer in its own arm and spins you with a force of 3G for a truly all, it’s not everyday you version of Las Vegas tourist information. Take our memorable experience. Just don’t try to take your get to see what makes word for it. drink up with you. you tick.Back Section new.indd 104 08/10/2010 15:07
  • TRAVEL. DETAILS 105 Top five hotels 1. Wynn Las Vegas: The newest hotel to hit the strip, the Wynn holds original Van Gogh and Picasso pieces strewn around Louis Vuitton and Chanel shops – if you didn’t feel luxurious enough already. 2. Four Seasons: A hotel The Freemont Street Experience within a hotel, based Legendary casinos, free entertainment, old-fashioned on floors 35-39 of the gambling hospitality – this is the vintage Vegas of the Mandalay Bay hotel. Freemont Street Experience. On any given night you Say no more. could bump into famous bands, strolling showgirls or be privileged enough to witness an amazing 3. The Bellagio: saxophone performance. The first paved street in Remember Ocean’s Vegas, Freemont Street boasts a seven-block, open-air Eleven with the pedestrian mall underneath a 90-foot LED canopy that amazing hotel projects a myriad of eye-popping colour combinations, fountains and the while 12.5 million bulbs ramp up the resolution to angry boss? This is literally blow your mind. To cut a long story short, no The Bellagio conservatory that hotel – minus the visit to Vegas is complete without a walk down this With over 100 cast and crew members, this could very angry boss. legendary street. well be Vegas’ biggest free gig. With over five million visitors each year, the conservatory lets the seasons 4. THEhotel at Mandalay dictate its contents and, just like a Broadway show, Bay: If you’re looking the floral theatrical productions take months of work for the biggest rooms and an army of talented people. From giant ants to in Vegas, look no dragons throughout the walk, you can’t help but further. become a small cog in the imagination of the Bellagio – inspired, of course, by Mother Nature herself. Last 5. The Venetian: Italian year’s summer event was witness to a 40-foot tall opulence, complete ferris wheel and an assault of 16-foot tall poppies, and with marble baths in the word on the grapevine is that this year’s event every room, provides promises to surpass any other they’ve ever done. The a truly relaxing stay best bit about it all – it stays open 24 hours a day so away. there’s no need to interrupt your luck at the tables. Siegfried and Roy’s secret garden and dolphin habitat at The Mirage hotel Gondolas at The Venetian Not only is The Mirage hotel an icon in Vegas, but I’m sure everyone is aware of the gondola rides in many of the attractions it holds are too – and Siegfried Vegas, but how many people have actually been and Roy are no exception. Their secret garden and there? For those of you who haven’t –shame on you. dolphin habitat lets you come face-to-face with white But you can make it up by taking a stroll down to The lions and tigers, panthers, leopards and a family of Venetian hotel and casino at the intersection of Las bottlenose dolphins; if looking at them isn’t enough Vegas Boulevard and Spring Mountain Road to witness for you, or indeed your little ones, then you can the surreal for yourself. With opera singers, a strolling indulge your fantasy and become a dolphin trainer juggler and various violinists all under a painted fresco for the day. Working with their dolphin specialists, overhead, a visit is sure to entice your Italian side out you’ll participate in plenty of activities including to play. If shopping is your thing – or your other half’s playing with, training and getting in the water with thing – then the Grand Canal Shoppes has everything the dolphins. When you finally tire of your aquatic to offer, including exceptionally high-quality blown shenanigans, there’s a three-course gourmet lunch glass and unique Venetian masks. Of course, you waiting for you. Didn’t think you could do that in the could just use it as an excuse to lose someone and go Wynn Las Vegas desert did you. gambling. The choice, as they say, is entirely yours.Back Section new.indd 105 08/10/2010 15:08
  • 106 DETAILS. LIZ CLAIBORNE Less is more Liz Claiborne’s Peter Warner speaks to Next Generation Retail about keeping up with the industry and how stripping a business back to the bare I essentials can give the much needed facelift to succeed in tough times. n the retail world, it is generally considered that were Liz were outlet stores. So, we still have those but more sales is good, fewer sales bad. For apparel we’ve done a big deal with JCPenney. Now JCPenney brand company Liz Claiborne however, cutting is the exclusive retailer for Liz Claiborne. We’re co-de- revenues from $5.5 billion annually to $3 billion signing with them and sourcing it and moving into that annually has been part of a major restructuring model, so it’s a much more profit-rich model, there’s of the business. “The previous CEO had been a better profit pool. We also don’t have people fight- buying brands and building them onto the platform,” ing over it in different markets, and so they’re taking explains the firm’s COO Peter Warner. “That was care of the brand. We’re taking care of it because we’re a trend that happened in the nineties and early designing it with them. They’re happy because they’re 2000s. Instead of growing your earnings naturally, getting a higher revenue and margin off of it, and you were buying it, integrating it into the com- we’re happy to share in that, as well.” pany and institutionalizing these brands. We did that Warner explains that in order to succeed, he and pretty well with several brands, but many of them were his colleagues have had to recognize their short- not very good and so they were not profitable. Over the comings as an organization. “We were not retailers,” last three years, we’ve been shedding those brands and he concedes. “We didn’t understand how to do the moving out of businesses that were just not institu- retail market.” Learning from others in the market has tionalizing the business very well.” become a priority for Warner, as he highlights that As part of this corporate weeding strategy, Liz Clai- going forward he will be examining various elements borne has almost halved its turnover but, according to of retailing, such as how the retail experience works, Warner, has significantly increased its profits. And for a how a product sells in stores and creating a better un- company that dealt in women’s fashion to the whole- derstanding of inventory. “Our sales per square foot sale market, selling to department stores that were are anaemic when you compare it to everybody struggling in the economy, shedding the under- else that’s out there, so that’s going to be the big- performing brands and concentrating efforts and gest thing over the next couple of years,” he says. resources on the established and popular lines Still, it is not all an uphill struggle. As a well- was simply a logical business strategy. “Had we established brand, Liz Claiborne still has a loyal stayed the same, we wouldn’t be here right following of consumers. “People still love the now,” Warner says. “We would have caved in product,” Warner says. They come into the stores and not made it; it was basically a house of and they love the experience. But we’re not nec- cards.” essarily good at converting that customer, and He goes on to explain that as part of the so they’re enjoying the brand and they love Jack business strategy, Liz Claiborne is moving Spade, and they love buying our suits and they away from the exclusively wholesale model love buying our denim, but we’re not maximiz- it had operated with for so many years, and ing the profitability of that, and so what we looking to a much more retail based model. have to do now is get very efficient at how we With department stores taking the hit of the operate those stores.” economic downturn, slashing their prices and or cast- ing off brands altogether, the wholesale market was Omni-channel proving all the more risky for firms such as Liz Clai- Warner explains that the new bricks-and-mortar borne. side of the business will hopefully be part of a multi- The company is now looking to open up brand channel approach to the market. “We have a new leader stores for some divisions, namely Lucky jeans and at Lucky brand jeans,” he reveals. “He believes that his Juicy Couture, and establish an exclusive relation- internet business could be $200 million of the sales, ship with a retailer to sell all Liz Claiborne brands. which would be about 45 percent of his current sales And Warner highlights that finding a strong retail right now, and so he’s putting a lot of energy into that partner will pay dividends to the business. “We did business. I think it’s the right thing to do, personally. I not have Liz Claiborne stores. There were zero Liz Clai- think in some ways the bricks-and-mortar part of this borne stores,” Warner reiterates. “The only stores that industry is sort of like the Model-T. It’s like the horse-Back Section new.indd 106 08/10/2010 15:08
  • LIZ CLAIBORNE. DETAILS 107 and-buggy carriage. You know, there are still forms of “The design side and and by the time it gets to a store and somebody is transportation but we’re moving on to the next thing the development side of buying a handbag, or whatever, that’s not efficient. right now.” the businesses, they’re The amount of gasoline and energy and work put into still the same. It’s still For the more traditional retail companies in the that, and then a woman or a man buys it and they put people reinventing a market, embracing the technological advances of the different version of a it in their 4,000-pound car and drive it five miles back industry was not something that happened too easily. different recipe, but to their house. It’s quite sad, actually, when you think Warner highlights his feeling that many long-term the retail and supply about it. There’s got to be a better way to do this, and I players were fearful of technology during the original chain sides are gonna think a lot of it just comes down to breaking down the dotcom boom. “I think now the technology is mature be big investments for paradigms, so it’s going to be an interesting ten years. and it’s safe,” he says. “It’s sort of like the nuclear in- us, especially the virtual I also think it’s more cost-effective.” retail side, where it’s dustry. The reality is it’s actually a pretty good industry As far as Warner is concerned, technology will be social or applications or if it is truly safe, and that’s the thing that you have to phone” a key area of development for the business as it looks figure out.” He acknowledges that the forthcoming to move forward. “A lot of it comes down to the speed generation are becoming acclimatized to the current technologies, the ones that link our supply chain into retail landscape, explaining that there is little “capacity our distribution and our retail channel needs,” he ex- for patience”, and convenient, mobile or online retailing plains. “The design side and the development side of will continue to flourish. the businesses, they’re still the same. It’s still people “Also,” he adds, “I don’t think the world can sustain reinventing a different version of a different recipe, but this.” Indeed, the environmental impact of traditional the retail and supply chain sides are gonna be big invest- retail is becoming increasingly under scrutiny. “We ments for us, especially the virtual retail side, where were talking this morning about just the amount of it’s social or applications or phone. I think there’s a big touches that a product needs to get into its channels, future for that.”Back Section new.indd 107 08/10/2010 15:08
  • 108 DETAILS GADGETS Technology for today’s executive Sony DR-GA500 headphones Polaroid 300 Instant Camera Sony has officially unleashed their After being dropped for a few years, brand new gaming headphones, Polaroid instant cameras have been with 7.1ch 3D surround sound rejuvenated by a new creative direc- effects. With a separate signal- tor, Lady Gaga, and a new flagship processing unit, which decodes and instant snapper in the shape of a delivers Dolby Pro Logic llx audio, Polaroid 300 Instant Camera. While Sony has also ensured that the pretty chunky, the Polaroid 300 is also headphones themselves are created surprisingly lightweight. An instant with ‘triple enfolding’ padding, so flash is now built in and there are they’ll sit on your ears for hours four scene-settings to get the most without the least bit of irritation. out of the straight-to-shot prints. Apple 12-core Mac Pro Packing a punch, the 12-core Mac pro desktop beast is now available from Apple, with prices starting at a whopping $4999. But for that price tag you get a lot of machine. Entry models feature two 2.66GHz six-core Intel Xeon Westmere processors, a 1TB hard drive and 6GB of RAM with an ATI Radeon HD 5770 in charge of graphics duties. Splash the cash further and the 12-core Mac Pro offers even more. Sanyo Xacti VPC-PD2 Sanyo have finally delivered what we’ve all been waiting for: a high-def pocket camcorder with optical zoom lens. The VPc-PD2 offers a 3X optical zoom lens that ranges from 38mm wide angle to a 114mm telephoto, along with stereo microphones on the sides of the camera. The price fits the rest of the market at only $170 and it measures a slinky 2.48 x 0.87 x 4.36, weighing 3.7 ounces – that’s positively pocketable. Good work Sanyo.GADGETS 2.indd 108 08/10/2010 15:28
  • Your World. COVERED From the people you hire to the products you sell, if you’re in business, we’ve got it covered... Next Generation Retail NGR provides an impartial, invaluable perspective on key industry issues by bringing together key executives from the most innovative and successful extended retail companies. Our readers learn from them and other extended retail industry experts, to advance the reputation of the retail industry as a whole. EU Edition ALSO AVAILABLE FOR: EUROPE Find out more: www.ngretailus.com Next Generation Pharmaceutical Business Management Approximately 50% of new drug development fails in What business processes work? What are the proven, the late stages of phase 3 – while the cost of getting successful strategies for taking advantage of domestic a drug to market continues to rise. NGP is written by and international markets? Business Management pharmaceutical experts from the discovery, technology, is a targeted blend of leadership and learning for key business, outsourcing, and manufacturing sectors. decision-makers in government and private enterprise. Available for: US, EU Available for: US, EU, MENA Find out more: Find out more: www.ngpharma.com www.busmanagement.com Financial Services Technology Infrastructure Providing for its customer’s needs and demands is the Infrastructure provides insight on how developers can goal of financial institutions now more than ever. But achieve critical objectives by integrating leading- it is a tricky remit to fulfill. Your customers want it all edge solutions across their operations – helping – security, cost-efficiency, speed, added functionality them to make informed decisions about technology and, most of all, convenience. Can it be done? Read and operations solutions for all of their areas of FST to find out… responsibility. Available for: US, EU Available for: US, EU, MENA Find out more: Find out more: www.usfst.com www.americainfra.comCATALOGUE PAGE.indd 109 08/10/2010 15:41
  • 110 DETAILS. AGENDA Coming up… Oct. 30-31 West Hollywood Halloween Carnival One of the world’s most creative, outrageous and original Halloween celebrations will begin early in the City of West Hollywood, as several events get underway over Halloween weekend. Get the festivities started at the Halloween Youth Carnival or the Annual Doggy Costume Contest, before ending the week at the 2010 West Hollywood Halloween Carnival where a special celebration of the 35th Anniversary of the Rocky Horror Picture Show will take place. Nov. 04 Kinect for Xbox 360 Launch The launch of Microsoft’s long- awaited Kinect gaming system will be the biggest one in the history of consoles, surpassing the one of the PlayStation 3, Nintendo Wii or even Microsoft’s own Xbox 360. In North America alone, Nov. 11 over 7000 retailers Harry Potter 7 are doing midnight The world premiere for Harry Potter & The Deathly events to celebrate the Hallows: Part 1 will be held in London’s Leicester launch and pre-order Square on 11 November 2010, with the US premiere momentum looks huge. taking place in New York four days later before the “This is going to be the film is released nationwide. The associated sales number one consumer should prove a boost for retailers in the run-up to electronics purchase Christmas. “We definitely feel like customers are this holiday,” claims responding to entertainment-driven merchandise,” Phil Spencer, Head of says Laura Phillips, VP of Toys in the US for Walmart Microsoft Studios. Stores Inc.Back Section new.indd 110 08/10/2010 15:08
  • AGENDA. DETAILS 111 Nov. 21 Nov. 25 NASCAR Sprint Macy’s Thanksgiving Day Parade Cup Series Finale An annual calendar favorite presented by Macy’s, the The Ford 400 at tradition started in 1924 and is held in New York City Homestead-Miami starting at 9am EST on Thanksgiving Day. In addition Speedway is the final to the well-known balloons and floats, the parade race of the NASCAR also features live music and other performances – Sprint Cup season; for such as college and high school marching bands from the drivers involved, the across the country – participating in the parade. More whole season comes than 44 million people watch the parade on television down to this one critical each year. race. One of the most viewed professional sports in terms of television ratings in the United States, last year NASCAR fans generated $3 billion in annual licensed product sales. And with many marketers considering NASCAR fans the most brand-loyal of all sports, it’s no wonder Fortune 500 companies sponsor NASCAR more than any other motor sport. Nov. 30 Rockefeller Center Christmas Tree Lights Industry experts may cite Black Friday as the start of the Holiday Season, but for most New Yorkers Christmas doesn’t kick-off until the first Wednesday in December when the Rockefeller Christmas Tree Lights get switched on. For the best view, enter Rockefeller Center from 5th Avenue and walk through the horn-blowing Angels toward the tree. Entering from the side, 47th or 50th streets is just not the same view or experience. Dec. 02-11 National Finals Rodeo Organized by the Professional Rodeo Cowboys Association, the National Finals Rodeo, held at the Thomas & Mack Center at the University of Nevada in Las Vegas, is the grand finale of the modern professional rodeo circuit. It has been held in Las Vegas since 1984. Known as the Super Bowl of Rodeo, this 10-day event puts the talents of the nation’s top 15 money-winners to the test and they compete for championship titles.Back Section new.indd 111 08/10/2010 15:08
  • 112 DETAILS PHOTOFINISH A night of retail revelry On September 10th, shoppers gathered in major retail cities across the world to celebrate the second annual Fashion’s Night Out. The high fashion houses, department stores and mid-range retailers of New York City opened their doors late, rolled out the red carpets and played host to hundreds of excited shoppers looking to soak up the atmosphere and perhaps bag themselves a designer item at a reduced rate. The event, organized by Vogue, debuted last year in an attempt to keep interest and revenues high in the luxury apparel sector, and was met again this year with the same enthusiasm.PHOTOFINISH.indd 112 08/10/2010 15:27
  • THE RIGHT THING AD.indd 1 01/10/2010 16:11
  • RETALIX AD.indd 1 16/08/2010 11:25