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Leading Trends in Retail Innovation by Brian Solis

This document discusses trends in retail innovation based on interviews with executives from leading retailers. It finds that retailers are engaging in five key strategies to stay ahead of disruption: 1) constantly mapping the customer journey to create seamless cross-channel experiences; 2) conducting in-depth consumer research; 3) prioritizing innovations that target connected consumers; 4) investing in formal innovation programs; and 5) cultivating necessary digital skills across the organization. While many retailers struggle to adapt, those that understand changing consumer behavior and make consistent investments in innovation will be better positioned to succeed in the evolving retail landscape.

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LEADING TRENDS IN
RETAIL INNOVATION
Insights from Some of the Most
Progressive Retailers Changing
the Game
MAY 2018
BY BRIAN SOLIS
RESEARCH REPORT
2
Table of Contents
3	 Executive Summary
4 	 Retail in Crisis: “A Day of Reckoning Is Coming”
7	 Changing Consumer Behavior: A Threat and an Opportunity
10	 Why Retailers Struggle to Respond to Changing Consumer Behavior and 		
	Digital Disruptions	
12	 The Intertwined Fates of Malls and Retailers
14	 How Innovative Retailers Stay Ahead
14	 Innovative Retailers Map an Overarching Customer Journey to Create a 			
Consistent Cross Channel Experience
19	 Investing in Rich Customer Data Allows Leading Brands to Zero in on Where 	
	 to Innovate
21	 Successful Retailers Prioritize Connected Customers Over Traditional Ones
26	 Leading Retailers Operate Innovation Labs to Explore Future Retail Strategies	
32	 Acquiring the Right Skillset Allows Successful Retailers to Appeal More Effectively
	 to Evolving Consumers
34	 Conclusion: The Future of Retail is Here and Evolving
35	 Methodology
35	 Ecosystem Input
36	 About Brian Solis, Principal Analyst
36	 About Altimeter, A Prophet company
3
		
Executive Summary
Judging by media headlines reporting
the staggering number of store closures,
the current state and future of the retail
industry is bleak. The shopping habits and
behaviors of consumers have changed
significantly with the rise of e-commerce
and mobile technologies, leading the retail
market to undergo radical transformation
in the relatively short span of 20 years. But
burdened with mounting debt, retailers
have struggled to compete in this new
world. They lack digital expertise. They
lack a deep understanding of the evolving
customer. And they fail to make the
investments necessary to innovate, while
their competitors continuously churn out
new innovations that change the game 	
for everyone.
To understand the state of retail
innovation, we interviewed 12 top retail
executives at some of the industry’s most-
recognized brands. We set out to learn
how leading retailers are responding to
digital disruptions — and staying ahead
of them. We also aimed to uncover the
challenges they face and the strategies
that are making an impact.
Our interviews and third-party research
showed that retailers engage in these
five strategies:
• Constantly map the customer journey 	
to create smooth cross-channel 	
customer experiences;
• Engage in deep consumer research;
• Prioritize innovations that target the 	
connected consumer;
• Invest in formal innovation programs; 	
and
• Cultivate the necessary digital skills 	 	
across the organization.
Retailers today understand that customers
and disruptive technology have changed
the game and continue to do so. While
they know innovation is the answer, how
to innovate, consistently execute, and
evolve continue to elude many of them.
The insights from some of the most-
successful retailers can offer guidance on
how to stave off disruption and keep pace
with an evolving retail landscape.
4
Retail in Crisis: “A Day of Reckoning Is Coming”
Over the past few years, the term “Retail Armageddon” has been frequently invoked to
describe the state and future of retail. The media coverage of bankruptcy and store-
closing announcements, as well as the predictions from experts, have certainly fueled
doomsday hysteria. In 2017, Glen Kacher of Light Street Capital Management hedge
fund warned, “The retailing industry is going to be an apocalypse.” 1
And Charlie O’Shea,
a retail analyst for Moody’s, shared a similar grim outlook for the future of retail in a
Bloomberg report: “A day of reckoning is coming.” 2
To be fair, the number of store closures in the U.S. (and around the world) is staggering
and gives credence to these apocalyptic predictions. In 2017, retailers closed
approximately 9,000 brick-and-mortar stores.3
This was a significant increase from
2016, when only 2,056 stores closed down, and from 2015, when that number had
soared to 5,077, according to a research report published by brokerage firm Credit
Suisse. “Barely a quarter into 2017, year-to-date retail store closings [had] already
surpassed those of 2008,”4
the report stated. In 2018, the number of store closures
is expected to dramatically soar to more than 12,000, according to real estate firm
Cushman & Wakefield.5
But there’s more to the retail-industry story than what these numbers might suggest.
1. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4
2. https://www.bloomberg.com/graphics/2017-retail-debt/
3. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
4. http://money.cnn.com/2017/04/22/news/credit-suisse-retail/index.html
5. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
Major Chain Store Closures
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9
M A J O R C H A I N C L O S U R E S
F O R E C A S T M A J O R C H A I N C L O S U R E S
C U S H M A N & W A K E F I E L D
5
After all, U.S. retailers (not including grocery stores and restaurants) also announced
more than 3,000 store openings in the first three quarters of 2017.6
While the number of
closed-versus-open store signs that will be hung this year represents a jaw-dropping four-
to-one ratio, the number of store openings shows that physical stores still matter.
Eighty-five percent of retail sales are still made in physical stores today. According to
U.S. government data,7
for example, retail and food service sales totaled $4.78 trillion
in the U.S. during the first three quarters of 2017. In September 2017, sales hit $484.4
billion, which represented a monthly record high. And during the first week of November
2017, Walmart and Home Depot shares also hit record highs, with Home Depot raising
its full-year profit and sales forecasts. So long as consumers continue to visit physical
stores, retailers continue to invest in them. Amazon.com’s opening of its Amazon Books
physical bookstore and Amazon Go convenience stores — and its surprising $13.7 billion8
acquisition of Whole Foods in August 2017 — also point to the promise of brick-and-
mortar retail.
6. Source: ICSC Research Team and PNC Real Estate Research, Image: Bloomberg, “America’s ‘Retail Apocalypse’ Is Really Just
Beginning,” https://www.bloomberg.com/graphics/2017-retail-debt/
7. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4
8. http://www.businessinsider.com/amazon-buys-whole-foods-changes-2017-8
Announced Store Openings and Closings
Excluding Grocery Stores and Restaurants
20,000
15,000
10,000
5,000
0
S O U R C E : I C S C R E S E A R C H T E A M A N D P N C R E A L E S T A T E R E S E A R C H
2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8
C U M U L A T I V E C L O S I N G S
C U M U L A T I V E O P E N I N G S
6
While the next several years might bring
what could be the largest number of
retail bankruptcies and store and mall
shutdowns on record, to call the state
of the retail industry an apocalypse is
largely a misnomer. The shuttering of
stores is not the end of retail. It’s the end
of retail as we used to know it. Digital
technologies have disrupted how people
behave and consume, creating, without a
doubt, a crisis for retailers as they rush to
keep pace with evolving online shopping
trends. Michael Sapir, CEO of ProShare
Advisors, forewarned,
“A minority of brick and mortar (retailers)
will be able to make the transition
[to online retail], and it is going to be
expensive and painful.” 9
Shifting consumer trends offer the same
opportunities to every retailer. In our era
of digital Darwinism, natural selection will
favor bold retail innovators, like Amazon,
Walmart, Target, and Sephora, that adapt
more readily to these changes.
9. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4
“A minority of
brick and mortar
(retailers) will
be able to make
the transition [to
online retail], and
it is going to be
expensive 			
and painful.”
7
Changing Consumer Behavior:
A Threat and an Opportunity
Over the past two decades, the behaviors,
preferences, and values of consumers
have been changing as a result of their
access to digital devices, social media,
real-time connectivity, and new online
shopping experiences. What consumers
once considered the standard for how
they shopped — dedicating time to visit
their favorite stores and browsing for
new products and trusted brands — has
evolved, creating new norms in the
process. “People get used to on-demand
retail, Amazon conveniences, mobile
phones, and so on,” Scott Emmons, Head
of Innovation Lab (iLab) at Neiman Marcus,
shared with us. As they get a taste of these
new experiences, it’s hard for them to go
back to shopping as usual.
Consumers today are more informed,
empowered, discerning, demanding,
impatient, and elusive. With a simple online
search, they have near-limitless access to
product choices, information, and prices.
They can instantly plug into the “wisdom
of the crowds,” accessing online reviews
and sharing experiences. With such a
massive amount of information, they are
more discriminating than ever about what
brands they buy and how much they are
willing to pay for products.
They have also grown accustomed to the
ease of online shopping, as well as the
speed of delivery and on-demand access
that the best e-commerce sites offer. They
now insist on these conveniences — plenty
of choices, competitive pricing, and rapid
transactions — in all of their shopping
experiences, including in-store ones.
And as they focus their attention on
their social networks and mobile apps,
it’s harder than ever to reach them with
traditional advertising and marketing.
The rise of e-commerce has birthed a
generation of digital-first consumers
— consumers for whom the preferred
and only channels to discover and buy
products are digital. “
The reality is that the online
channel has massively
disrupted consumer patterns,”
Julie Bornstein — a retail
industry executive with
experience at Stitch Fix,
Nordstrom, Sephora, and
others — concluded. “People
aren’t spending as much time
going into stores.”
Now, the pervasiveness of mobile devices
and commerce apps has further disrupted
consumer behavior. As consumers set
out to make decisions about their next
purchase, more and more frequently
they’re reaching for the device closest to
them — usually their smartphone. This has
given rise to a generation of mobile-first
and mobile-only consumers who mainly
interact with brands and commerce via
their phone, further reshaping how, where,
and why consumers shop.
8
With the swipe of an app or scan of a
product barcode, mobile consumers have
instant access to product and pricing
information at their fingertips.
Erich Joachimsthaler, Ph.D.,
founder and CEO of Vivaldi
Partners Group, has written
that mobile consumers
behave “… ever more
spontaneously, with short
attention spans and short
bursts of action. ... They shop
in their spare moments; they
search while on the go; they
buy on a break by interacting
primarily with their 		
mobile phone.” 10
The ubiquity of online and mobile tools
for product discovery, comparison, and
purchase means consumers no longer view
the brick-and-mortar store as a primary
shopping destination but as one of many
distribution points for all the brand options
available. “Retailers are rushing to find the
secret sauce of why consumers would be
compelled to get into their cars and drive
into a store,” Emmons noted. “There are
too many good alternatives to the physical
store as a ‘distribution center.’”
This shift, in turn, has changed the
dynamics of consumer loyalty. Charlie
Cole, Chief Digital Officer and Vice
President at Tumi, explained: “There might
still be brand loyalty, but not at the point of
distribution loyalty.”
In the past, local retailers marketed and
competed on the basis of “proximity”:
The limited number of brands they made
available, the physical convenience to
shoppers, their hours of operation, and
the design of their stores. These were
the critical differentiators that earned a
retailer consumer loyalty. As customers
became familiar and comfortable with
a retailer’s offerings, store layouts, and
accessibility, they went back over and over
again. But for connected consumers who
can access a seemingly infinite number
of brand choices at any time of the day
without leaving their homes, competing
on “proximity” may no longer be enough.
Instead, today consumers extend their
loyalty to brands that offer experiences,
personalization, and services.11
This does not mean that consumers have
given in-store shopping up. According to
Marissa Tarleton, CMO of RetailMeNot and
a self-described in-store shopper, “The
retail-to-e-commerce ratio is not a signal of
people’s interest in physical retail space.”
The problem is that retailers have been
slow to adapt to this new ratio. Emmons,
agrees: “In-store shopping experiences
have not evolved as quickly as what’s
happening on the digital side of the world.”
As much as changing consumer behavior
threatens traditional retailers, it presents
them with an opportunity to modernize
their aging business models and invest
in fresh, value-added experiences that
are inherently appealing to connected
consumers.
10. Erich Joachimsthaler, “The Flight of the Bumble Bee: Marketing in the Age of Micro-Moments,” LinkedIn, July 27, 2015 https://www.
linkedin.com/pulse/marketing-micro-moments-erich-joachimsthaler/
11. https://digiday.com/marketing/e-commerce-brands-opening-brick-mortar-stores/
9
SAMSUNG: Experience-
First Retail
“It’s not a store, but a new kind of
place filled with ideas, experiences,
and Samsung’s cutting-edge devices.”
That’s how Samsung describes its
innovative “837” concept location, situated
in New York City’s Meatpacking District.
Less of a store, more of a playground, “837”
doesn’t actively try to sell visitors anything.
Rather, it encourages them to explore,
learn, and have fun. Visitors can try out
the latest VR experiences and smart-home
devices; take a photography class; drop-in
on a lecture by high-profile thought leaders
(like Arianna Huffington); or attend concerts
with big-name lineups (like Gwen Stefani).
Much like Apple envisions its stores as the
“town halls” of tomorrow, “837” offers an
interesting example of an “experience-first”
retail future.
10
Why Retailers Struggle to Respond to Changing Consumer
Behavior and Digital Disruptions
12. http://marketing.prophet.com/acton/media/33865/altimeter--the-2017-state-of-digital-transformation
13. https://marketing.prophet.com/acton/media/33865/altimeter--the-2016-state-of-digital-transformation
These drastic and fast-changing consumer
behaviors are challenging even the most-
proven retail executive management
teams. Even as they perceive the urgency
to change and adapt to new shopping
trends, they find themselves hindered by
several factors.
THEY DON’T UNDERSTAND THEIR
CUSTOMERS
Retail executives often lack the necessary
knowledge to respond to new consumer
behaviors — they just don’t know who
their potential customers are. According
to our 2017 State of Digital Transformation
study, companies, including retailers, are
out of touch with real-world customer
behaviors and preferences in general. Only
35 percent12
of businesses we surveyed
had mapped the customer journey in 2017.
This number is down significantly from
54 percent in 2016. Only 20 percent13
of companies we surveyed in 2016 had
mapped the mobile customer journey.
THEY LACK DIGITAL EXPERTISE
Not only do companies and their
executives not understand connected
consumers and how they behave, they
often don’t have the digital experience
necessary to respond to these consumers.
Some executives who predate the
online disruption of retail even struggle
to appreciate the potential of digital
strategies at all; it is a world they don’t
understand or have never mastered. As
Kyle Nel, CEO of Uncommon Partners
and former Executive Director of Lowe’s
Innovation Lab, perceived, “It’s unfair that
so much blame is being put on executives
at retail organizations.
[They] were literally selected for success
based on old models because of past
performance. Now everyone expects
them to think radically different. You
have leadership that’s been bred to do
this one thing, and they’re now expected
to innovate against everything that’s
disrupting old models.”
THEY DON’T INVEST IN INNOVATION,
WHILE COMPETITORS LEAD WITH IT
This lack of consumer understanding and
digital experience among retail executives
is deeply problematic, since they are
often tasked with stopping Amazon and
other retail disruptors from pilfering
their traditional customers. Many try to
compete against them with their existing
consumer knowledge and retail mindset.
Even when retailers acquire startups to
compete against Amazon, they’re often
managed against a traditional, risk-averse
culture that does not value 		
experimental innovation.
Among boards and shareholders,
innovation efforts are generally viewed as
cost centers. Funds diverted toward these
new technologies, strategies, and talent
are perceived as cannibalizing resources
for proven strategies, like reducing costs,
increasing automation, scaling efficiencies,
and stimulating activity among current
customers. “Our problem is always that I
have to go out and fight for funding every
time,” admitted Neiman Marcus’ Emmons.
“There are only so many resources, and
we have to vie for them. … It’s been a
struggle to get the appropriate amount of
investment to change what we need to.”
11
Meanwhile, Amazon and other emerging
disruptors invest heavily in understanding
consumers and continuously release
retail innovations, such as same-day
delivery that contribute to the evolution
of consumer behavior. Their innovations
condition consumers to shop differently
while setting new standards for what
consumers expect from all retailers. In
other words: They change the game before
traditional retailers have learned to play the
previous round. According to Bornstein,
these nonstop waves of technology
disruptions “create an ongoing crisis for
traditional retailers.”
THEY ARE BURIED IN DEBT
Traditional retailers are under incredible
pressure to turn short-term profits while
operating massive infrastructures that
were established to scale for a consumer
that no longer exists. But worse, most do
so while repaying their mounting debts.
According to Bloomberg research,14 a
quiet but suffocating root cause of the
so-called “retail apocalypse” is leverage.
Retail chains are overloaded with debt,
often piled on from leveraged buyouts
led by private equity firms. Bloomberg
cites billions in borrowings on the
balance sheets that are crippling even
the healthiest of retail chains. This debt
is coming due over the next several
years, leading Bloomberg to predict that
“America’s ‘retail apocalypse’ is really 		
just beginning.”
14. https://www.bloomberg.com/graphics/2017-retail-debt/
15. http://www.businessinsider.com/retail-bankruptcies-expected-in-2018-2017-12
16. http://fortune.com/2017/09/19/toys-r-us-bankruptcy-retail-chapter-11/
17. http://www.businessinsider.com/retail-bankruptcies-expected-in-2018-2017-12
18. https://www.wsj.com/articles/toys-r-us-tells-workers-it-will-likely-close-all-u-s-stores-1521060803
19. https://www.bloomberg.com/graphics/2017-retail-debt/
20. https://www.bloomberg.com/graphics/2017-retail-debt/
Fifty U.S. retailers filed for bankruptcy
in 2017, a rate we haven’t seen since the
last recession. Among the retailers that
filed for bankruptcy in 2017 are brands
like Gymboree, Payless, RadioShack, Wet
Seal, The Limited, and Vitamin World.15
The biggest one, Toys “R” Us,16
represents
the third-largest retail bankruptcy in U.S.
history — a harbinger of what’s likely to
come.17
In March 2018, The Wall Street
Journal reported that the company was
likely to close all stores in the U.S. and
U.K., affecting 33,000 jobs.18
The number
of bankruptcies is expected to jump every
year as debts become due. According to
Fitch Ratings Inc., $100 million of high-
yield retail borrowings matured in 2017.19
That number is expected to increase to
$1.9 billion in 2018. From 2019 to 2025,
the annual average of maturing debt will
skyrocket to approximately $5 billion.
These numbers do not reflect the billions
of “risky debt” and outstanding high-yield
bonds that are coming due in the next 	
five years.20
Rising debts, pressure to deliver quarterly
progress, lack of consumer and digital
experience, and a competitive landscape
that is constantly changing the game
means retailers who want to compete
digitally still find themselves barely
keeping pace with changing consumer
behavior. Retail industry executive
Bornstein believes “many [retailers] are
not prepared to handle a physical 		
retail retraction.”
12
The Intertwined Fates of Malls and Retailers
The success or failure of physical retail is intricately tied to that of the mall. Many of
the recent store closures from retail chains like J.C. Penney, Macy’s, and Sears have
placed significant financial pressure on malls that depend on these anchor stores to
drive traffic. Oftentimes, the closures of anchor stores trigger clauses that allow other
smaller retailers to exercise their right to terminate their leases or negotiate new terms.
According to research by commercial real estate firm CoStar, 21
it’s estimated that
nearly 310 of the 1,300 shopping malls in the U.S., or about a quarter of malls, are at
high risk of losing an anchor tenant. Larry Perkins, CEO and founder of advisory firm
SierraConstellation Partners, told BusinessInsider, 22
“Landlords are panicking.”
21. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
22. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
13
Malls, like the physical retailers they
house, are struggling to navigate new
consumer behaviors. First, developers built
too many of them — and were left with
empty buildings once consumers shifted
their spending to e-commerce. “Square
footage was based on customers walking
to locations and buying it,” Nel, formerly
of Lowe’s, explained. To draw customers
in, retailers relied on “scarcity” to create
urgency among shoppers: “Limited time
only!” “Special cardholder sales event!”
“When it’s gone, it’s gone!” According to
Nel, those days are over: “There’s way too
much square footage for a retail world that
doesn’t have scarcity attached to it. Retail
as an industry had been planning for linear
growth but instead saw exponential growth
in unexpected directions — especially 		
on mobile.”
Second, while malls were once an
entertainment destination for buying
and discovering products, today they
risk becoming obsolete as shoppers
move their business to digital channels.
Jenn Bordner, Senior Manager, Product
Management, Innovation at Gap, said to
us, “We’re not seeing traditional malls as
destinations for entertainment anymore.
Younger generations aren’t as interested in
browsing casually.” A senior executive at a
flagship retail brand, who asked to remain
anonymous, concurs: “Malls have too
much irrelevant retail space and too many
dated shopping experiences.”
To survive, malls will have to partner
with retailers to experiment with new
models and services to offer compelling
experiences and regain a valued place in
the community — beyond being a product
distribution center. “Malls need to host
meaningful and modern community events
to make the mall relevant in small 	
town communities,”
the executive at a flagship retail brand
suggests. For example, in Brooklyn, New
York, the City Point shopping complex was
transformed from an aging, enclosed mall
into a 2-million-square-foot complex meant
to resemble a charming neighborhood,
complete with outdoor storefronts and
apartments. By including a mixture of retail
and housing, as well as a dine-in movie
theater and locally owned restaurants,
City Point developers intentionally
redesigned the mall with several consumer
experiences in mind.23
According to research by GlobalData,
providing extra services like restaurants,
in-mall entertainment, pop-up shops,
and child care drove more frequent
visits to malls and led to more consumer
spending.24
But the stores themselves
matter too. Melissa Gonzalez, Founder
and CEO of The Lionesque Group, a group
that designs pop-up stores, suggests that
landlords must become savvy curators of
stores not just “space fillers”: “[Shopping
center owners] must strategically curate
a mix of businesses tailored to the
demographics and needs of the 		
local community.” 25
Operators such as General Growth
Properties and Simon Property Group
have been doing just that by investing
in existing centers located in high-
density, affluent, or tourist markets. In
one example, Simon Property Group
recently completed a 155,000-square-
foot expansion at the King of Prussia mall
outside of Philadelphia. The development
attracted 50 new, high-end tenants,
including Cartier, Jimmy Choo, and Diane
von Furstenberg. According to Fung Global
Retail & Technology (now called Coresight
Research) these types of investments have
grown sales at double-digit rates over the
past five years.26
23. http://partners.wsj.com/icsc/shopping-for-the-truth/maximizing-the-human-experience/article
24. https://digiday.com/marketing/state-experiential-retail-5-charts/
25. http://partners.wsj.com/icsc/shopping-for-the-truth/maximizing-the-human-experience/
26. https://www.cnbc.com/2017/01/26/why-these-malls-are-thriving-while-others-die.html
14
How Innovative Retailers Stay Ahead
Traditionally, when retailers have tried to invest in digital strategies to appeal to
connected consumers, their approach has been to do so as a sideline operation — even
as online channels continue to grow. Their focus in terms of their business models
and customer experiences remain focused on what can best be described as their
“traditional” customers. But retail disruptors follow a different approach: They are natively
digital-first and mobile-first. They think like the evolving, connected customer, and they
focus their innovations and experiences with that customer in mind. More specifically,
leading retailers do five things to change the game for the entire industry:
	 1. Map an overarching customer journey
	 2. Invest in deep consumer research to focus their innovations better
	 3. Prioritize connected consumers
	 4. Create formal innovation programs
	 5. Acquire the right skillset
INNOVATIVE RETAILERS MAP AN OVERARCHING CUSTOMER JOURNEY TO CREATE A
CONSISTENT CROSS CHANNEL EXPERIENCE
From the perspective of retailers, digital innovations like social media and real-time
connectivity have defined how and where—physically or online—they find their
customers. But a consumer who orders lunch via a mobile app for pickup at the
restaurant later doesn’t think of her experience as having an “online” and “offline”
component. She thinks of it as single interaction with the brand. “Customers are always
navigating between digital and real worlds,” Cyril Lamblard, Nespresso’s Global Head of
eCommerce, observed. “They don’t differentiate between ‘online’ versus ‘offline’ behavior
in the way that executives often discuss it.” Former EVP and Chief Digital Officer of
Westfield Kevin McKenzie agreed: “To the consumer, it’s all just commerce and shopping.”
15
Driving this blurring of online/offline is
mobile technology. Research shows that
people interact with their phones an
average of 13 times per hour, which can
add up to a whopping 1,092 times per
week.27
As consumers stay connected
24/7, they use their phones to buy online
and to inform their offline purchases.
Gone are the days when digital customer
meant only an “online” consumer.
Today digital-first and mobile-first
customers are walking around the store
armed with phones. “Many customers
start with mobile, but they also shop
in multiple channels, always with their
phones in hand,” RetailMeNot’s Tarleton
explained. “Both online and in-store
consumers use their phones before
visiting and while in the store.” Their
mission is to quickly seek peer reviews,
product information, deals, and other
insights to make sound decisions in the
moment. “Mobile devices are where all
consumers start and end their journey,
which affects all commerce,” Tarleton
added. Yet, many retailers haven’t
grappled with the fact that mobile is the
new digital.
They are still trying to make the old
customer journey work — with digital and
analog channels managed in respective
silos and not consistently integrated.
“Brands must deliver exceptional
experiences in each moment and all the
moments together,” explained Nespresso’s
Lamblard. As the lines between digital and
physical shopping are blurred, consumers
expect seamless, intuitive experiences
across the channels. They demand a
modernized customer journeys and touch
points to productively guide them along
the way. “All channels must work together
to deliver the best customer experience
possible,” Lamblard added.
Neiman Marcus’ Scott Emmons believes
the opportunity for retailers is to create
“one overarching experience you want
to deliver to customers.” To do that,
progressive retailers don’t assume what
matters to customers; they figure it out
by studying real customers, optimizing
a single customer journey accordingly
and using that information to create
exceptional integrated experiences.
27. http://www.bain.com/publications/articles/mobile-marketing-dont-miss-the-moment.aspx
16
At Gap, journey mapping is crucial to the
process of delivering an omnichannel
experience. “The best thing we can do
is focus on managing the customer
experience online and in store,” explained
Gap’s Jenn Bordner. “To do that, we need
to understand what [consumers are]
doing online vs. in person.” By investing in
research to understand these online and
offline customer behaviors, retailers like
Gap zero in on the touchpoints that need
improvement or that are missing entirely
— creating a smoother omnichannel
experience. Without this information,
retailers’ investment in improving the
experience in one channel could backfire
or force friction in other channels.
“[At Gap] our customer insights and
strategy group uses journey mapping to
understand what customer pain points
exist to develop a roadmap and deliver
new value from there,” Bordner explained.
“They do it every year and move against it.
They also test pilots of specific projects,
launched in smaller subsets, to see what
works and to gather data.”
Sephora also maps digital and analog
customer journeys to understand how
to best unite digital — including social,
mobile, search, and email — with stores.
“The modern consumer transcends in-
store, transcends mobile, transcends
digital — transcends marketing,” Bridget
Dolan, Vice President of Sephora’s
Innovation Lab, told us. She believes
that as a result, consumers need to be
understood in a more holistic way. “We’re
constantly surveying and watching
what clients are doing to use different
technology in-store, online, and on
mobile,” she said. Their mapping efforts
have revealed a complicated, tech-laden
path where customers continuously hop
from one channel to the next. “Sephora
is such a multifaceted experience that
there’s not one path or map you could
create,” Dolan explained. “We think of it as
optimizing experience by experience. We
look at each piece and how it interrelates.”
17
In a recent interview, Sephora’s Executive
Vice President of Omni Retail, Mary
Beth Laughton, reiterated the need to
understand the customer’s pain points in
their journey when innovating. “What’s
common across all of our digital efforts is
that we’re not just doing technology for
the sake of it or because it’s cool or new,”
Laughton said. “Every digital product or
tool or experience that we introduce is
done to make shopping for our consumer
more fun and more efficient — to help
engage her, educate her, and 		
entertain her.” 28
One of those tools is “Color IQ,” a
technology that allows Sephora to solve
what they discovered was one of their
customers’ biggest concerns: finding
makeup that complements their skin tones.
At the store, customers have their skin
scanned and receive a personal reference
number that they can use in-store or online
to find products that are just right 		
for them.29
Sephora also added the “Virtual Artist”
to its app. This augmented reality
tool helps customers virtually try on
more than 20,000 products, such as
lipsticks, blushes, and eyeshadow, before
purchasing them. For customers who want
to buy a product without visiting a store
to try it on, the “Virtual Artist” tool is a real
time-saver. Since launching on the app,
customers have tried on more than 200
million shades of different types of makeup
with it, according to Sephora.30
Our research shows that retailers like
Gap and Sephora that constantly map
the customer journey and pursue a
smooth customer experience across all
platforms are the same ones that design
innovations that are more in touch with
the evolving needs of digital- and mobile-
first consumers. These companies, like all
best-in-class retailers today, understand
that their customers — and consumers
in general — don’t think of channels any
longer. Whether online or off, via social or
mobile, they are just communicating with a
brand to find the right solution for them.
28. https://www.techrepublic.com/article/how-sephora-is-leveraging-ar-and-ai-to-transform-retail-and-help-customers-buy-cosmetics/
29. https://www.nytimes.com/2017/05/11/fashion/sephora-beauty-retail-technology.html
30. https://www.techrepublic.com/article/how-sephora-is-leveraging-ar-and-ai-to-transform-retail-and-help-customers-buy-cosmetics/
18
TARGET: Bringing
Mobile Technology
to the In-Store
Experience
Target’s mobile app is a good
example of one approach to
combining mobile and in-store
experiences. The app began
as a central hub for store
information, later expanding
to incorporate Target’s loyalty
program, Cartwheel. The app
today uses smartphone GPS
to help customers find what
they’re looking for in the store
more quickly. More recently,
Target has begun using in-store
beacon technology to alert
shoppers to discounts as they
move about the store in real
time. As Target’s EVP, Chief
Information and Digital Officer,
Mike McNamara, has said,
“We’re working on new ways to
blend digital technologies with
stores to enhance the 		
shopping experience.” 31
31. http://blog.bluetooth.com/bluetooth-beacons-are-on-target-with-a-major-retailer
19
INVESTING IN RICH CUSTOMER DATA ALLOWS 						
LEADING BRANDS TO ZERO IN ON WHERE TO INNOVATE
Beyond mapping an overarching, cross-
channel customer journey, leading retail
brands invest heavily in extensive research
to understand the evolving consumer.
Their goal: to think like the customer
so they can better target the elements
of the shopping experience that needs
improvement or innovation. They use the
collected data and insights to come up
with experimental pilot programs.
David J. Katz, CMO & EVP at Randa
Accessories, founded in 1910 and now
the world’s largest men’s accessories
company, believes his work in retail
innovation starts with data science. As
such, he gained significant momentum
when he invested more resources to
follow his customers’ digital and analog
bread crumbs. “We needed to know more
about our consumers’ path to purchase
and how they migrate and shift in the new
retail landscape. So, we shifted a third of
our marketing budget to pure consumer
research,” he revealed. “Research used to
be less than five percent of our budget,
provided mostly by our retail and brand
partners. But I’m specifically looking
for trigger points; for example, what
incentivizes our shopper to buy three belts
per year versus one every 18 months? I
needed to know what stimulus they were
externally receiving that would induce
them to purchase a Randa product.”
Through a research partnership with First
Insight, Randa identified previously elusive
consumer preferences for styles and price
points that allowed it to make informed
decisions when developing products and
marketing strategies.32
Its research, for example, prompted the
company to “return to their roots” by
partnering with retailers. In one pilot
program with Myer Department Store’s
Bourke Street store in Australia, Randa
transformed 500 square feet of traditional
retail floor space into an “Accessories Lab”
designed to “look and feel like a design
workshop” and to offer personalized
products. The customization experts
who work at the Accessories Lab help
customers purchase in-store and place
personalized orders online. Since the
Lab opened, Randa has reported a 100%
increase in sales.33
At Randa Accessories, the investment
in ongoing consumer data and insights
led to the development of a dedicated
team. “We’ve always had sophisticated
planning and forecasting teams, but now
we’re building a consumer data analysis
team and consumer insights team,” Katz
shared. “The latter is growing, relying on
primarily third-party firms to collect data.
We conduct four to five different types of
consumer research.”
Data opens windows into consumer
behaviors that can help retailers, such as
Randa, redefine the customer journey.
Collecting data from multiple channels
and sources can reveal opportunities to
modernize key experiences that reshape
the overall journey one step at a time.
32. http://www.randa.net/news/press-article/david-j.-katz-maps-out-a-new-future-for-retail-driven-by-data
33. http://www.randa.net/news/press-releases/randa-launches-innovative-mens-accessory-shop
20
Nespresso’s Lamblard, for example,
combines tried-and-true customer service
inputs with insights gleaned from studying
customer digital footprints to inform the
coffee brand’s retail initiatives. “We listen
to customers in our contact relationship
center to get across-the-board feedback
and use it to continuously improve
processes and products,” Lamblard
explained. “We have many other internal
processes to do this too. We test a lot and
look into the data. Customer feedback is
monitored almost daily in local markets. I
review everything on a global basis weekly,
and board members monthly. This puts
pressure on the organization to optimize.”
Collecting data on customer pain points
led Nespresso to implement convenience-
based services, such as a “click-and-pick”
(aka BOPIS — Buy Online, Pick Up In Store)
program and same-day delivery via its
mobile app and online sites. Nespresso
also invested in an on-premise, automated
“store within a store.” Called N’Cube, this
dedicated, self-help system is a “robot”
that helps customers discover and select
coffee capsules to purchase.34
Once customers make a selection, N’Cube
processes payment and dispenses the
capsule sleeves. Customers can even
pick up bags to carry out their purchases
and can complete the entire transaction
without having to speak to a 		
store representative.
“These services came from a data insight, not just
customer input,” Lamblard explained. “It’s also a
lesson in humility — every day, for our experts across
all areas —when you have to let the data — the
customer — speak.”
34. https://www.youtube.com/watch?v=D2xHjIhx83o
21
SUCCESSFUL RETAILERS PRIORITIZE CONNECTED 						
CUSTOMERS OVER TRADITIONAL ONES
Our interviews with executives from retailers reveal a strong desire to better serve digital-
and mobile-first customers while not alienating what could best be described as their
“existing” or “traditional” customers — those who still shop in person at the store. That
desire is driven, in part, by organizational cultures that are risk averse; designed to scale
efficiencies, operationalize transactions, and increase margins; and manage the business
toward survival and growth based on generations-old standards and processes.
“Retail in my experience is mostly a ‘what have you done for
me lately’ rotation,” Tumi’s Cole explained. “Retail priorities
emphasize matching promos on seasonal schedules from the
year before. The industry as a whole tends to reward shorter-
term growth as opposed to long-term investments 			
and progress.”
The desire to protect “traditional” customers may also stem from executives not being
as plugged in as necessary to evolving consumer behaviors. Retail executives and
their boards don’t necessarily represent the evolving customer — and they often don’t
understand the “testing-as-you-go” nature of digital innovation. The task to reach out to
the digital-first consumer is confined to specific online channel teams who have to fight
to get investments approved and break new ground by convincing executives who are
largely inexperienced in managing innovation and growth efforts in a digital economy.
22
“Executives feel that it’s too early to tell what commercial
gain will yield from emerging technology and connected
customer investments versus the return they can expect
by marking something down by 20 percent or more,”
Cole explained.
But our research shows that progressive retailers actually prioritize and invest in
innovations that serve connected customers over those that serve these so-called
“existing” or “traditional” ones. They recognize that all customers are becoming a hybrid
of digital-first and in-person consumers — even traditional customers aren’t abstaining
from technology adoption. In other words, everyone is becoming digital, even though
some groups of customers may be doing so at a slower pace than others. By prioritizing
the needs of digital-first customers, they come up with new business models and
innovations that serve all their customers, provide a superior digital experience, and often
lead to a better in-store experience.
“Executives feel that it’s too early to tell what commercial gain will yield from emerging
technology and connected customer investments versus the return they can expect by
marking something down by 20 percent or more,” Cole explained.
23
The way they do so is by asking questions that are customer-centered while keeping
business objectives in mind. As Bridget Dolan from Sephora put it: “The mission is to
listen to our customers about what their needs are.” 35
Scott Emmons, head of Neiman Marcus’ Innovation Center, iLab, for example, shared
some of the questions that led to the company’s launch of a formal innovation program
that prioritized connected consumers but ultimately benefited all of its customers: “We
were driven by exploring the answers to critical questions that were core to our brand
and values: How do we take what has made us famous in-store and translate it to online?
How can we be a high-touch, white-glove, luxury service retailer on the digital side as
well? How can those online insights lead to in-store innovation?”
The answer to those questions led Neiman Marcus to build capabilities “to deliver a
great online experience, which also creates new opportunities to modernize what’s
in store.” These experiences include the “Memory Mirror,” which allows shoppers to
“get a 360-degree view of what they’re wearing and … share the video real time with
friends or a spouse for feedback before purchase.” Following a successful pilot, Emmons
oversaw the development of similar mirrors for eyewear shopping and also for use during
“makeovers.” The latter allows shoppers to record a video of their makeup application that
they can later reference at home or next time they are in the store shopping.36
For Emmons, the “Memory Mirror’s” success is a reflection of consumers’ desires to
experience their favorite online shopping features in-store. The mirrors give Neiman
Marcus an unprecedented level of information about customers while customers benefit
from a better shopping experience. “For the customer, they get this video tutorial of them
using and modeling these products that they can send out or share,” Emmons shared in
an interview with PYMNTS.com. “For the brand, it gives a video CRM record with all kinds
of customer metadata that can be used down the road to help service that customer.” 37
35. Source: https://www.slideshare.net/capgemini/the-innovation-game-why-how
36. https://www.retailcustomerexperience.com/articles/neiman-marcus-embracing-innovative-tech-from-the-front-door-to-the-
dressing-room/
37. https://www.pymnts.com/news/omnicommerce/2017/can-the-lab-save-omnicommerce-retail-scott-emmons-neiman-marcus/
24
Retailers who want to prioritize connected consumers must ask themselves similar
questions, including:
	 1. Who is our existing and target digital/mobile customer?
	 2. What technologies/apps do our target shoppers use IRL (in real life) and 			
	 how/why?
	 3. What do digital/mobile consumers prefer, expect, and value? What are their 		 	
unmet needs?
	 4. Which modern commerce brands do our ideal connected customers love and 	 	
why? What features, benefits, and experiences do they deliver that we don’t?
	 5. What is the ideal customer journey for digital- and mobile-first customers? 	 	 	
What are the trigger events that get customers thinking about our product 	 	 	
or service?38
	 6. What could be improved and/or what’s missing from our (omni/cross-channel) 	 	
	 journey today?
	 7. What new services, products, and processes can we pilot to deliver new value 	 	
	 that engage and expand our markets?
All businesses are faced with the question of whether to invest in improving their current
models to deliver short-term results or to reallocate resources toward longer-term
innovation initiatives that may or may not pay off. For retailers who want to remain in the
game, the answer is they must invest in both. They might need to deliver in the short term
by catering to their “traditional” customers. But those customers are evolving, and they
soon will adopt the very same behaviors of connected consumers. That’s why to survive
in today’s market, retailers must also prioritize investing in innovative strategies and
experiences to appeal to connected consumers.
38. https://www.questionpro.com/blog/20-not-so-obvious-questions-to-ask-your-customer-on-your-survey/
25
Hema: 				
Re-Thinking Retail
Chinese e-commerce giant Alibaba
has begun making a push into
physical retail in China with its
streamlined Hema supermarkets.
Hema stores rely entirely on the
Hema app, which acts as a price-
checking tool, in-store navigation
tool, and payment/check-out
platform. There are no physical
cashiers or check-out lines.
Hema physical stores also act as
fulfillment centers, and employees
can fulfill orders for online
shoppers — again using the app
to log inventory. Customers living
within three kilometers of a Hema
location can order groceries to be
delivered within 30 minutes.
26
LEADING RETAILERS OPERATE INNOVATION LABS 							
TO EXPLORE FUTURE RETAIL STRATEGIES
In the past several years, the number of
retailers and consumer goods brands
opening innovation labs has skyrocketed.
IKEA, Staples, The Home Depot, Lowes,
Sephora, Gap, Target, Sears, CVS, Neiman
Marcus, Walmart, and Kohls, among
many others, have dedicated space and
resources to formal innovation programs.39
While some in the industry debate their
effectiveness, many retailers’ innovation
labs have led to tangible improvements in
digital prowess and business results.
Innovation labs are typically set up to
operate outside of the everyday culture
of their companies to explore new
horizons and test and learn quickly
without the limitations that may stymie
experimentation and progress. In some
ways, innovation labs operate like startups
under a mantra of “innovate or die.”
Budgets and resources aren’t unlimited,
and labs are on the hook to demonstrate
value at every step.
When we first thought to have an
innovation lab and news got out around
the company, it took time to gain
credibility with the C-suite and other
divisions not familiar with our work,”
Emmons, Head of Neiman Marcus’
iLab, explained. “We had to prove a few
wins first.”
While no two innovation labs are the same
in size and scope, these labs are primarily
chartered with learning, building new
capabilities, and growing opportunities
within existing and new markets. Their
most common directives focus on the
following goals.
39. https://www.cbinsights.com/research/corporate-innovation-labs/#retail
27
To connect with, invest in, or acquire
promising startups and emerging 		
technology partners
The advantage of partnering with
startups and tech companies outside the
retail industry is that their teams bring
new capabilities and, in some cases,
complete new business models, sources
of revenue, and markets to retailers. When
focused on business objectives, these
partnerships can deliver results at speeds
and to extents that would otherwise face
operational hurdles within traditional 		
corporation models.
Nestlé opened its San Francisco
“Innovation Outpost” in 2014 with the
purpose of plugging into the Silicon Valley
ecosystem and developing partnerships
with startups and leading technology
companies. In 2016, the company
launched HENRi@Nestlé, a digital platform
that invites startups to pitch projects
in response to specific “innovation
challenges” Nestle wants to solve. Among
the pilot programs to come out of it
include one-hour delivery services via
Instacart; a Nespresso-themed partnership
with Feastly, the “Airbnb of dinner”,40
and a
partnership with Amazon to develop a
“In order to be leaders and
for us to delight consumers
in ways that we never
even thought possible,”
explained Vice President of
Digital Innovation at Nestlé
Mark Brodeur, “we need
to be constantly testing
new technologies, new
associations, new approaches
with new partners. Otherwise,
we lose completely
our relevance and our
competitive set.”
40. https://www.bizjournals.com/sanfrancisco/news/2016/07/06/nestle-sf-innovation-center-food-startups.html
41. https://www.nestleusa.com/media/pressreleases/nestle-goodnes-skill-amazon-alexa-true-cooking-companion
“GoodNes” 41
skill for Alexa, which lets
users access recipes from Nestle’s
GoodNes.com. In addition to these
partnerships via HENRi@Nestlé, the
company has made strategic investments
and acquisitions in companies that
target connected consumers, such as its
acquisition of direct-to-consumer healthy
meal provider Freshly.
28
To explore and stay abreast of emerging
technologies, such as augmented and
virtual reality, Internet of Things (IoT),
wearables, AI, 3D printing, and more
Sephora opened its dedicated innovation
center in San Francisco in 2015, with
the mission “to better understand the
digital customer and the new relationship
between physical and digital shopping.”42
A customer-centered focus drives the
lab’s partnerships within the emerging
technology ecosystem and shapes
its innovation roadmap. Some of the
innovations that have come from the 		
lab include:
• Beacons: Sephora uses beacons to
communicate with app users once they
walk into the store. The app then offers
shopper a map of the store and alerts them
of promotions. 43
• Augmented Reality (AR): Within the
Sephora mobile app, shoppers can apply
filters over their live selfie to virtually
sample makeup in real time.44
To experiment with hybrid physical and
digital retail spaces
Since Neiman Marcus opened its
innovation lab, iLab, in 2012, it has steadily
tested how to implement technology
and digital experiences into the in-store
experience. Much of iLab’s work in this
area is showcased in Neiman’s recently
opened store in Fort Worth:
• Interactive “Memory Mirrors”
invitesshoppers to record and share
videos of themselves trying on new outfits,
sunglasses, and makeup.45
• “Snap. Find. Shop.” — a “Shazam for
shopping” — allows shoppers to take a 	
picture of a product they like in the real
world and get a list of similar products 	
available within the store’s inventory.46
• “Programmable jukeboxes” in dressing
rooms lets shoppers to customize the 	
music that is playing while they try on
clothes.47
• “Push-button service” in dressing rooms
summon concierge assistance without 	
shoppers having to leave the room.
• “Theatro” voice-controlled wearables,
originally designed as a customer-
service tool, help staff communicate
more effectively with front and back
operations.48
• “ChargeItSpots” offer shoppers a lockup
and charging station for mobile devices.
42. https://www.prnewswire.com/news-releases/-announces-innovation-lab-to-usher-in-the-future-of-retail-300046332.html
43. https://www.lsretail.com/blog/5-innovative-brands-revolutionizing-retail/
44. https://www.seattletimes.com/business/technology/beauty-brands-hope-virtual-makeovers-encourage-shoppers-to-try-new-looks/
45. http://rebusinessonline.com/the-space-age-of-retail-integrating-technology-into-todays-shopping-center/
46. https://slyce.it/press/neiman-marcus-introduces-new-snap-find-shop-app/
47. https://www.retailcustomerexperience.com/articles/neiman-marcus-embracing-innovative-tech-from-the-front-door-to-the-
dressing-room/
48. https://www.prnewswire.com/news-releases/rollout-of-theatros-voice-controlled-wearables-at-neiman-marcus-last-call-
stores-300391240.html
29
To optimize digital/mobile channels and
improve customer experiences
The Old Navy Mission Bay Lab Store
operates within Gap’s San Francisco
headquarters. Besides testing emerging
technologies, Old Navy’s innovation lab
focuses on integrating tech advances
into the customer experience online and
in stores. “[The lab] is working on things
such as conversational commerce, like
allowing customers to self-service returns
and exchanges and manage tracking
through SMS or Facebook Messenger,”
Gap’s Jenn Bordner shared. “The lab
is also testing digital price tags, smart
fitting rooms, and same-day delivery
options at a smaller store format.”
To accelerate innovation pilots
Randa Accessories debuted its innovation
lab — a bespoke in-store experience — as
a pilot concept in Australia that it plans to
bring to other markets. The “Accessories
Lab” offers an “integrated, elevated,
personalized, and serviced experience,”
Dene Heath, General Manager of Randa
Australia, said in a statement.49
Randa
Accessories’ David Katz explained that
the lab operates with agility and speed.
“We need to think like a startup,” he said.
“Traditional retailers want to go through
50 steps before piloting an idea. We test
and learn quickly. We weed out the bad,
measure clearly, optimize, and move on
or jump on it. There isn’t time to always
wait for 100% of the information.
You can test products in the real-world
market faster, more cost effectively, and
more accurately than by doing abstract
focus groups, creating CADs, and fielding
insight studies.”
To study the evolving customer
In 2015, IKEA opened SPACE10 in
Copenhagen, an innovation lab that
operates outside the company’s day-to-day
operations. One of its missions is to study
how people live and to use those insights
to design innovations that facilitate a more
“meaningful and sustainable life” and “new
ways of living.” 50
A recent SPACE10 study, for example,
explored the evolving needs of consumers
considering living in shared spaces.51
An
alternative to traditional housing that is
growing in popularity in densely populated
areas,52
co-living spaces usually offer
residents private bedrooms with shared
common areas.53
More than 7,000 people
across 150 countries completed SPACE10’s
survey, which revealed, among other
findings, that people who consider co-living
do so not to save on rent, but to “create new
ways of socializing with others.” Insights
such as this one helps IKEA stay on top of
trends and explore design solutions that
meet the expectations or unmet needs
of its customers (such as furniture or
accessories that promote communal living,
communication, and collaboration).
49. http://www.randa.net/news/press-releases/randa-launches-innovative-mens-accessory-shop
50 https://space10.io/approach/
51. http://onesharedhouse2030.com/intro/
52. https://www.curbed.com/2016/3/8/11178598/cooperative-housing-city-living-coliving
53. https://www.designboom.com/design/space10-one-shared-house-2030-ikea-co-living-11-14-2017/
30
To develop a “culture of innovation” throughout the company
At Nestlé, Brodeur hosts executives from
around the world, leading tours and
immersion sessions for them at the SF
Innovation Outpost. The idea behind these
visits is to create urgency to innovate,
spark ideas, and introduce new ways
of working. “We host senior leaders in
Silicon Valley and use these learning
journeys to jumpstart specific initiatives,”
he explained. “We set out to do more than
have executives visit and say, ‘Oh that was
great,’ then go back and have nothing
change. We’ve made a commitment that
the teams that come out here need to
commit to taking action.”
At Neiman Marcus, Emmons’ efforts have
led to the expansion of the company’s
innovation lab role to include acting as
an internal consultant. “Amazon spends
billions on R&D. While retailers don’t
have that budget, we can compete by
collaborating and cross-pollinating our
innovative ideas with one another,” he
explains. “We started as an independent
innovation team exploring online and in-
store opportunities. Now, we’re seen as a
consulting partner within various business
units when they’re interested in deploying
a new technology. We deliver practical
solutions by combining expertise from
different areas.”
One of the challenges facing innovation
labs and teams is that their work can be
siloed or invisible to other key stakeholders
and executives. Our research shows that
successful innovation programs are open,
inclusive, and forthcoming. Kevin
McKenzie, formerly of Westfield, believes
sharing innovation efforts and results,
as well as involving stakeholders, helps
everyone learn.
“Westfield has 87 Westfield branded malls
around the world that are run by over
4,000 employees. So, anything we create
and test, we’ve got people on the ground
in the physical setting we’ve got to work
with,” he explained. “To bring everyone
along for the journey and manage
the process, we’ve created a project
management team. We also found that
we needed to a create product marketing
team to actively communicate all the
various initiatives that we’re doing and the
results of those initiatives.”
Whether a formal innovation program
takes an outside-in or inside-out innovation
approach, its ultimate goal should be
to make retail at large more innovative,
agile, and capable. But innovation work
shouldn’t solely be left to the innovation
lab; it should be a company-wide mandate.
“Huge innovation breakthroughs should
come from everywhere ... through the
supply chain or operations,” Tumi’s Cole
explained. “For example, Amazon’s two-
day shipping was a loyalty program
improvement — leveraging existing
infrastructure in a unique wrapper.”
Innovation efforts are also most potent
when they’re managed officially from
the top-down. And it is no exception in
the retail industry. “Innovation labs are
at the forefront of the effort to change
company culture,” explained McKenzie.
“It is imperative that the CEO/leadership
team nurture the innovation center and
champion its initiatives throughout the
organization.” He further explained, “If
companies truly do want to innovate, it’s
got be sponsored by the CEO.” 54
54. https://www.slideshare.net/capgemini/the-innovation-game-why-how
31
WALMART: In-house Incubators
When Walmart acquired Jet in 2016, it also acquired Jet’s
founder Marc Lore, now leader of Walmart’s e-commerce
division. Under Lore’s direction, Walmart is seeking to
“invent the future of retail.” 55
A key part of this future is
Walmart’s in-house incubator, dubbed ‘Store No. 8’. Teams
within Store No. 8 operate like startups, “exploring new
operational models and emerging technologies,” 56
but with
one distinct advantage: “When you get entrepreneurs who
are passionate about disruption, particularly in retail, and
give them the ability to scale within an existing company
with lots of data, customers, and a footprint to deploy
innovation, it’s incredibly exciting for them,” 57
explained
Lori Frees, SVP of Corporate Strategy at Walmart. The
incubator has already spawned some promising ventures,
including “Code Eight,” an AI-powered personal shopping
assistant targeted at busy moms, and “Project Kepler,”
purportedly a checkout-free physical store meant to
compete with its rival’s “Amazon Go” concept.58
55. https://progressivegrocer.com/walmart-launch-store-no-8-tech-incubator
56. https://www.chainstoreage.com/technology/innovation-walmart-store-no-8-beyond/
57. http://multichannelmerchant.com/ecommerce/walmarts-store-no-8-will-five-ventures-running-2019/
58. https://techcrunch.com/2017/12/20/walmart-personal-shopping-services-and-cashier-free-stores/
32
ACQUIRING THE RIGHT SKILLSET ALLOWS SUCCESSFUL RETAILERS 				
TO APPEAL MORE EFFECTIVELY TO EVOLVING CONSUMERS
Our 2017 State of Digital Transformation study reported that 31.4% of companies
surveyed (which included retailers) believe a low rate of digital literacy or expertise
among colleagues and leadership was a top challenge they faced.59
Like other industries,
many retailers are not equipped to swiftly adapt to digital disruption. In our interviews
with retail executives, we’ve learned that finding the right skillset to innovate digitally and
compete for the attention of evolving consumers is of particular concern and 	
critical urgency.
“In my mind, there’s been a lot of mishandling from boards. They’re not demanding
the skills that are needed for future business dynamics,” Julie Bornstein shared. “There
will be some pain before gain, and some retraction,” she added. Tumi’s Cole agreed: “If
you’re a retailer who’s been in this since 1980, you’re used to 300-unit minimum or many
distribution points, etc. [You are] not wired into what’s possible in a test and iteration way.
To engage digital- and mobile-first consumers at their level, retailers must develop digital
skillsets and attract people who are skilled in.60
	 • Data analysis/science
	 • AI/machine learning
	 • User experience and user interface (UX/UI)
	 • Customer experience (CX)
	 • App development
	 • Robotics and automation engineering
	 • Agile and scrum practices
Cole believes one way executives can get these skills is by tapping into digital natives.
“There’s something inherent in someone who grew up in
a digital culture to test and iterate. You learn the most that
way,” he explained. But Bornstein believes digital talent in the
C-Suite is critical for retailers: “I think that it’s about the team
and talent — you have to have the right people sitting around
the executive management team that know how to do 	
things differently.”
59. http://marketing.prophet.com/acton/media/33865/altimeter--the-2017-state-of-digital-transformation
60. https://www.bcg.com/publications/2017/people-organization-technology-how-gain-develop-digital-talent-skills.aspx
33
Often what it takes to bring an entire team
along for the innovation ride is updating
the organizational chart, as well as the
business processes. “It used to be the
assumption that a process will serve me for
30 years, but that’s not how things work
today. We’ve made a lot of investment
in running in a more agile way,” Neiman
Marcus’ Emmons explained. “We’ve had
a big focus on reorganizing people and
business processes so that change can be
integrated faster,” he shared.
To get the right people in the right jobs
to perform the right innovation initiatives
also requires bringing in skillsets from
outside the traditional retail industry,
or with deep technological and digital
experience that retailers often don’t have.
“Philosophically, everything we create
and build revolves around that consumer
and the consumer experience. You need
to get into the skillset of what it’s going to
take to do that,” McKenzie,61
formerly of
Westfield, explained. “We’ve grown fond
of the product management discipline. For
example, a lot of our employees come
from Amazon or Yahoo or CNET, typically
Internet-related companies or retailer-
related companies that held roles of
product management and worked
on building digital experiences.” He
continued, “We’ve also built an amazing
design and development team that boasts
deep research, UX/UI, product design, and
software engineering backgrounds.”
“The retail executives we interviewed
also shared that there needs to be
deeper collaboration between the IT
department and teams responsible for
the customer experience. The company’s
digital, in-store, and IT teams are partners,
forming new collaborative models that
are symbiotic from the beginning; the IT
department is not brought in just at the
end to execute. “Digital and IT have to
be in lock-step,” Sephora’s Bridget Dolan
suggested. “Finger-pointing goes out the
window, and hand-holding comes in its
place. IT participates in every meeting
to understand goals and objectives and
to provide inventive — but realistic —
solutions, timelines, and costs.” 62
61. In this section, insights from Kevin McKenzie and Bridget Dolan were sourced from interviews conducted by Altimeter in 2016 for a
joint research report with Capgemini, entitled The Innovation Game.
62. Source: Digital Transformation: Why and How Companies Are Investing in New Business Models to Lead Digital Customer
Experiences, 2014, Altimeter Group
34
Conclusion: The Future of Retail Is Here and Evolving
The future of retail is already here. Consumer behavior is changing. Disruptive
technologies such as AI/machine learning, AR/VR, 3D printing, on-demand apps, geo-
location, and more will continue to disrupt the shopping experience. For retailers to keep
up with these disruptive changes, it will take more than acquiring and integrating new
technologies to appeal to new, evolving customers.
At the center of the retail disruption is the evolving customer experience. Once
customers taste a new experience — one that’s more intuitive, personal, and reflective of
how they communicate and they interact with other people and brands — they will not
go back to yesterday’s experience.
“The power has shifted to [consumers], and it’s not coming
back,” explained Andy Hedges, Founding Partner at
SMARTMESH and former Scentre Group (previously Westfield)
Director of Shopping Center Management. “Asking them
to compromise as a means to navigate dated touchpoints,
processes, systems, and experiences will only put your brand
on the list of store closures.”
To re-imagine the retail experience, executives will need to undergo deep immersion into
the mindsets, preferences, and shopping behaviors of connected consumers, prioritize
their needs, embrace a culture of innovation, and promulgate a strong core set of
digital skills across the organization. By doing so, the most progressive retail brands we
surveyed ensure even the smallest of pilots or initiatives they launch are as well-equipped
as possible to deliver valuable customer experience and results.
35
Methodology
ECOSYSTEM INPUT
This report includes input from 13 strategists and executives at retailers and technology
companies supporting the retail ecosystem, interviewed between Q1 2017 to Q4 2017.
Although we could only include a few of their voices in this report, we thank everyone we
spoke with for their time, as well as for their insights that informed and are reflected in
this report. Input into this document does not represent a complete endorsement of the
report by the companies listed below.
Brands
• Adidas, Colin Rattigan, Global VP Consumer Engagement / Digital Brand Commerce
• Gap, Jenn Bordner, Senior Manager, Product Management, Innovation
• Neiman Marcus, Scott Emmons, Head of the Innovation Lab (iLab)
• Nespresso, Cyril Lamblard, Global Head of eCommerce
• Randa Accessories, David Katz, CMO & EVP
• Tumi, Charlie Cole, CDO and VP
Vendors
• Rebo, Rajesh Kumar, Founder and CEO
• RetailMeNot, Marissa Tarleton, CMO
Retail Innovation Experts
• Julie Bornstein, formerly COO at Stitch Fix (at the time of interview)
• Kyle Nel, formerly Executive Director of Lowe’s Innovation Labs at Lowe’s (at the 		
time of interview), now CEO of Uncommon Partners
Previous Interviews
This report also contains insights from previous interviews conducted by 			
Altimeter, a Prophet Company, in Q1 2016
• Sephora, Bridget Dolan, Vice President, Sephora Innovation Lab
• Kevin McKenzie, formerly EVP, Chief Digital Officer at Westfield (at the time of 		
interview), now EVP, Chief Digital Officer at Macerich
36
ABOUT BRIAN SOLIS
Brian Solis (@briansolis) is a digital analyst, anthropologist, and also a futurist. Brian
studies the effects of disruptive technology on business and society. More so, he
humanizes these impacts to help people see people differently and understand what
to do about it. He is an award-winning author and avid keynote speaker who is globally
recognized as one of the most prominent thought leaders in digital transformation 		
and innovation.
Brian has authored several best-selling books, including What’s the Future of Business
(WTF), The End of Business as Usual, and Engage!. His latest book, X, explores the
intersection of where business meets design to create engaging and 			
meaningful experiences.
ABOUT ALTIMETER, A PROPHET COMPANY
Altimeter, a Prophet Company, is a research and strategy consulting firm that helps
companies understand and take advantage of digital disruption. In 2015, Prophet
acquired Altimeter Group to bring forward-thinking digital research and strategy
consulting together under one umbrella and to help clients unlock the power of 		
digital transformation.
Altimeter, founded in 2008 by best-selling author Charlene Li, focuses on research in
digital transformation, social business and governance, customer experience, big data,
and content strategy.
Altimeter, a Prophet Company
One Bush Street, 7th Floor
San Francisco, CA 94104
info@altimetergroup.com
www.altimetergroup.com
@altimetergroup
415-363-0004
37
OPEN RESEARCH
This independent research report was 100% funded by Altimeter, a Prophet Company.
This report is published under the principle of Open Research and is intended to advance
the industry at no cost. This report is intended for you to read, utilize, and share with
others; if you do so, please provide attribution to Altimeter, a Prophet Company.
HOW TO WORK WITH US
Altimeter research is applied and brought to life in our client engagements. We help
organizations understand and take advantage of digital disruption. There are several ways
Altimeter can help you with your business initiatives:
Strategy Consulting
Altimeter creates strategies and plans to help companies act on business and technology
trends, including ethical and strategic data use and communications. Our team of
analysts and consultants work with global organizations on needs assessments, strategy
roadmaps, and pragmatic recommendations to address a range of strategic challenges
and opportunities.
Education and Workshops
Engage an Altimeter speaker to help make the business case to executives or arm
practitioners with new knowledge and skills.
Advisory
Retain Altimeter for ongoing research-based advisory: Conduct an ad-hoc session to
address an immediate challenge or gain deeper access to research and strategy counsel.
Speeches & Events
Whether you’re kicking off a major event or sitting down for an executive brainstorming
session, Altimeter will energize and inform your audience. Our speakers are inspiring and
entertaining, while remaining eminently approachable.
To learn more about Altimeter’s offerings, contact sales@altimetergroup.com.
PERMISSIONS
The Creative Commons License is Attribution-Noncommercial ShareAlike 3.0 United
States, which can be found at https://creativecommons.org/licenses/by-nc-sa/3.0/us/.
Disclaimer
ALTHOUGH THE INFORMATION AND DATA USED IN THIS REPORT HAVE BEEN PRODUCED AND PROCESSED ALTHOUGH
THE INFORMATION AND DATA USED IN THIS REPORT HAVE BEEN PRODUCED AND PROCESSED FROM SOURCES
BELIEVED TO BE RELIABLE, NO WARRANTY EXPRESSED OR IMPLIED IS MADE REGARDING THE COMPLETENESS,
ACCURACY, ADEQUACY, OR USE OF THE INFORMATION. THE AUTHORS AND CONTRIBUTORS OF THE INFORMATION
AND DATA SHALL HAVE NO LIABILITY FOR ERRORS OR OMISSIONS CONTAINED HEREIN OR FOR INTERPRETATIONS
THEREOF. REFERENCE HEREIN TO ANY SPECIFIC PRODUCT OR VENDOR BY TRADE NAME, TRADEMARK, OR
OTHERWISE DOES NOT CONSTITUTE OR IMPLY ITS ENDORSEMENT, RECOMMENDATION, OR FAVORING BY THE
AUTHORS OR CONTRIBUTORS AND SHALL NOT BE USED FOR ADVERTISING OR PRODUCT ENDORSEMENT PURPOSES.
THE OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE .

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Leading Trends in Retail Innovation by Brian Solis

  • 1. LEADING TRENDS IN RETAIL INNOVATION Insights from Some of the Most Progressive Retailers Changing the Game MAY 2018 BY BRIAN SOLIS RESEARCH REPORT
  • 2. 2 Table of Contents 3 Executive Summary 4 Retail in Crisis: “A Day of Reckoning Is Coming” 7 Changing Consumer Behavior: A Threat and an Opportunity 10 Why Retailers Struggle to Respond to Changing Consumer Behavior and Digital Disruptions 12 The Intertwined Fates of Malls and Retailers 14 How Innovative Retailers Stay Ahead 14 Innovative Retailers Map an Overarching Customer Journey to Create a Consistent Cross Channel Experience 19 Investing in Rich Customer Data Allows Leading Brands to Zero in on Where to Innovate 21 Successful Retailers Prioritize Connected Customers Over Traditional Ones 26 Leading Retailers Operate Innovation Labs to Explore Future Retail Strategies 32 Acquiring the Right Skillset Allows Successful Retailers to Appeal More Effectively to Evolving Consumers 34 Conclusion: The Future of Retail is Here and Evolving 35 Methodology 35 Ecosystem Input 36 About Brian Solis, Principal Analyst 36 About Altimeter, A Prophet company
  • 3. 3 Executive Summary Judging by media headlines reporting the staggering number of store closures, the current state and future of the retail industry is bleak. The shopping habits and behaviors of consumers have changed significantly with the rise of e-commerce and mobile technologies, leading the retail market to undergo radical transformation in the relatively short span of 20 years. But burdened with mounting debt, retailers have struggled to compete in this new world. They lack digital expertise. They lack a deep understanding of the evolving customer. And they fail to make the investments necessary to innovate, while their competitors continuously churn out new innovations that change the game for everyone. To understand the state of retail innovation, we interviewed 12 top retail executives at some of the industry’s most- recognized brands. We set out to learn how leading retailers are responding to digital disruptions — and staying ahead of them. We also aimed to uncover the challenges they face and the strategies that are making an impact. Our interviews and third-party research showed that retailers engage in these five strategies: • Constantly map the customer journey to create smooth cross-channel customer experiences; • Engage in deep consumer research; • Prioritize innovations that target the connected consumer; • Invest in formal innovation programs; and • Cultivate the necessary digital skills across the organization. Retailers today understand that customers and disruptive technology have changed the game and continue to do so. While they know innovation is the answer, how to innovate, consistently execute, and evolve continue to elude many of them. The insights from some of the most- successful retailers can offer guidance on how to stave off disruption and keep pace with an evolving retail landscape.
  • 4. 4 Retail in Crisis: “A Day of Reckoning Is Coming” Over the past few years, the term “Retail Armageddon” has been frequently invoked to describe the state and future of retail. The media coverage of bankruptcy and store- closing announcements, as well as the predictions from experts, have certainly fueled doomsday hysteria. In 2017, Glen Kacher of Light Street Capital Management hedge fund warned, “The retailing industry is going to be an apocalypse.” 1 And Charlie O’Shea, a retail analyst for Moody’s, shared a similar grim outlook for the future of retail in a Bloomberg report: “A day of reckoning is coming.” 2 To be fair, the number of store closures in the U.S. (and around the world) is staggering and gives credence to these apocalyptic predictions. In 2017, retailers closed approximately 9,000 brick-and-mortar stores.3 This was a significant increase from 2016, when only 2,056 stores closed down, and from 2015, when that number had soared to 5,077, according to a research report published by brokerage firm Credit Suisse. “Barely a quarter into 2017, year-to-date retail store closings [had] already surpassed those of 2008,”4 the report stated. In 2018, the number of store closures is expected to dramatically soar to more than 12,000, according to real estate firm Cushman & Wakefield.5 But there’s more to the retail-industry story than what these numbers might suggest. 1. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4 2. https://www.bloomberg.com/graphics/2017-retail-debt/ 3. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1 4. http://money.cnn.com/2017/04/22/news/credit-suisse-retail/index.html 5. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1 Major Chain Store Closures 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 M A J O R C H A I N C L O S U R E S F O R E C A S T M A J O R C H A I N C L O S U R E S C U S H M A N & W A K E F I E L D
  • 5. 5 After all, U.S. retailers (not including grocery stores and restaurants) also announced more than 3,000 store openings in the first three quarters of 2017.6 While the number of closed-versus-open store signs that will be hung this year represents a jaw-dropping four- to-one ratio, the number of store openings shows that physical stores still matter. Eighty-five percent of retail sales are still made in physical stores today. According to U.S. government data,7 for example, retail and food service sales totaled $4.78 trillion in the U.S. during the first three quarters of 2017. In September 2017, sales hit $484.4 billion, which represented a monthly record high. And during the first week of November 2017, Walmart and Home Depot shares also hit record highs, with Home Depot raising its full-year profit and sales forecasts. So long as consumers continue to visit physical stores, retailers continue to invest in them. Amazon.com’s opening of its Amazon Books physical bookstore and Amazon Go convenience stores — and its surprising $13.7 billion8 acquisition of Whole Foods in August 2017 — also point to the promise of brick-and- mortar retail. 6. Source: ICSC Research Team and PNC Real Estate Research, Image: Bloomberg, “America’s ‘Retail Apocalypse’ Is Really Just Beginning,” https://www.bloomberg.com/graphics/2017-retail-debt/ 7. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4 8. http://www.businessinsider.com/amazon-buys-whole-foods-changes-2017-8 Announced Store Openings and Closings Excluding Grocery Stores and Restaurants 20,000 15,000 10,000 5,000 0 S O U R C E : I C S C R E S E A R C H T E A M A N D P N C R E A L E S T A T E R E S E A R C H 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 C U M U L A T I V E C L O S I N G S C U M U L A T I V E O P E N I N G S
  • 6. 6 While the next several years might bring what could be the largest number of retail bankruptcies and store and mall shutdowns on record, to call the state of the retail industry an apocalypse is largely a misnomer. The shuttering of stores is not the end of retail. It’s the end of retail as we used to know it. Digital technologies have disrupted how people behave and consume, creating, without a doubt, a crisis for retailers as they rush to keep pace with evolving online shopping trends. Michael Sapir, CEO of ProShare Advisors, forewarned, “A minority of brick and mortar (retailers) will be able to make the transition [to online retail], and it is going to be expensive and painful.” 9 Shifting consumer trends offer the same opportunities to every retailer. In our era of digital Darwinism, natural selection will favor bold retail innovators, like Amazon, Walmart, Target, and Sephora, that adapt more readily to these changes. 9. https://www.reuters.com/article/us-usa-stocks-weekahead/despite-amazon-brick-stores-are-not-dead-yet-idUSKBN1DH2R4 “A minority of brick and mortar (retailers) will be able to make the transition [to online retail], and it is going to be expensive and painful.”
  • 7. 7 Changing Consumer Behavior: A Threat and an Opportunity Over the past two decades, the behaviors, preferences, and values of consumers have been changing as a result of their access to digital devices, social media, real-time connectivity, and new online shopping experiences. What consumers once considered the standard for how they shopped — dedicating time to visit their favorite stores and browsing for new products and trusted brands — has evolved, creating new norms in the process. “People get used to on-demand retail, Amazon conveniences, mobile phones, and so on,” Scott Emmons, Head of Innovation Lab (iLab) at Neiman Marcus, shared with us. As they get a taste of these new experiences, it’s hard for them to go back to shopping as usual. Consumers today are more informed, empowered, discerning, demanding, impatient, and elusive. With a simple online search, they have near-limitless access to product choices, information, and prices. They can instantly plug into the “wisdom of the crowds,” accessing online reviews and sharing experiences. With such a massive amount of information, they are more discriminating than ever about what brands they buy and how much they are willing to pay for products. They have also grown accustomed to the ease of online shopping, as well as the speed of delivery and on-demand access that the best e-commerce sites offer. They now insist on these conveniences — plenty of choices, competitive pricing, and rapid transactions — in all of their shopping experiences, including in-store ones. And as they focus their attention on their social networks and mobile apps, it’s harder than ever to reach them with traditional advertising and marketing. The rise of e-commerce has birthed a generation of digital-first consumers — consumers for whom the preferred and only channels to discover and buy products are digital. “ The reality is that the online channel has massively disrupted consumer patterns,” Julie Bornstein — a retail industry executive with experience at Stitch Fix, Nordstrom, Sephora, and others — concluded. “People aren’t spending as much time going into stores.” Now, the pervasiveness of mobile devices and commerce apps has further disrupted consumer behavior. As consumers set out to make decisions about their next purchase, more and more frequently they’re reaching for the device closest to them — usually their smartphone. This has given rise to a generation of mobile-first and mobile-only consumers who mainly interact with brands and commerce via their phone, further reshaping how, where, and why consumers shop.
  • 8. 8 With the swipe of an app or scan of a product barcode, mobile consumers have instant access to product and pricing information at their fingertips. Erich Joachimsthaler, Ph.D., founder and CEO of Vivaldi Partners Group, has written that mobile consumers behave “… ever more spontaneously, with short attention spans and short bursts of action. ... They shop in their spare moments; they search while on the go; they buy on a break by interacting primarily with their mobile phone.” 10 The ubiquity of online and mobile tools for product discovery, comparison, and purchase means consumers no longer view the brick-and-mortar store as a primary shopping destination but as one of many distribution points for all the brand options available. “Retailers are rushing to find the secret sauce of why consumers would be compelled to get into their cars and drive into a store,” Emmons noted. “There are too many good alternatives to the physical store as a ‘distribution center.’” This shift, in turn, has changed the dynamics of consumer loyalty. Charlie Cole, Chief Digital Officer and Vice President at Tumi, explained: “There might still be brand loyalty, but not at the point of distribution loyalty.” In the past, local retailers marketed and competed on the basis of “proximity”: The limited number of brands they made available, the physical convenience to shoppers, their hours of operation, and the design of their stores. These were the critical differentiators that earned a retailer consumer loyalty. As customers became familiar and comfortable with a retailer’s offerings, store layouts, and accessibility, they went back over and over again. But for connected consumers who can access a seemingly infinite number of brand choices at any time of the day without leaving their homes, competing on “proximity” may no longer be enough. Instead, today consumers extend their loyalty to brands that offer experiences, personalization, and services.11 This does not mean that consumers have given in-store shopping up. According to Marissa Tarleton, CMO of RetailMeNot and a self-described in-store shopper, “The retail-to-e-commerce ratio is not a signal of people’s interest in physical retail space.” The problem is that retailers have been slow to adapt to this new ratio. Emmons, agrees: “In-store shopping experiences have not evolved as quickly as what’s happening on the digital side of the world.” As much as changing consumer behavior threatens traditional retailers, it presents them with an opportunity to modernize their aging business models and invest in fresh, value-added experiences that are inherently appealing to connected consumers. 10. Erich Joachimsthaler, “The Flight of the Bumble Bee: Marketing in the Age of Micro-Moments,” LinkedIn, July 27, 2015 https://www. linkedin.com/pulse/marketing-micro-moments-erich-joachimsthaler/ 11. https://digiday.com/marketing/e-commerce-brands-opening-brick-mortar-stores/
  • 9. 9 SAMSUNG: Experience- First Retail “It’s not a store, but a new kind of place filled with ideas, experiences, and Samsung’s cutting-edge devices.” That’s how Samsung describes its innovative “837” concept location, situated in New York City’s Meatpacking District. Less of a store, more of a playground, “837” doesn’t actively try to sell visitors anything. Rather, it encourages them to explore, learn, and have fun. Visitors can try out the latest VR experiences and smart-home devices; take a photography class; drop-in on a lecture by high-profile thought leaders (like Arianna Huffington); or attend concerts with big-name lineups (like Gwen Stefani). Much like Apple envisions its stores as the “town halls” of tomorrow, “837” offers an interesting example of an “experience-first” retail future.
  • 10. 10 Why Retailers Struggle to Respond to Changing Consumer Behavior and Digital Disruptions 12. http://marketing.prophet.com/acton/media/33865/altimeter--the-2017-state-of-digital-transformation 13. https://marketing.prophet.com/acton/media/33865/altimeter--the-2016-state-of-digital-transformation These drastic and fast-changing consumer behaviors are challenging even the most- proven retail executive management teams. Even as they perceive the urgency to change and adapt to new shopping trends, they find themselves hindered by several factors. THEY DON’T UNDERSTAND THEIR CUSTOMERS Retail executives often lack the necessary knowledge to respond to new consumer behaviors — they just don’t know who their potential customers are. According to our 2017 State of Digital Transformation study, companies, including retailers, are out of touch with real-world customer behaviors and preferences in general. Only 35 percent12 of businesses we surveyed had mapped the customer journey in 2017. This number is down significantly from 54 percent in 2016. Only 20 percent13 of companies we surveyed in 2016 had mapped the mobile customer journey. THEY LACK DIGITAL EXPERTISE Not only do companies and their executives not understand connected consumers and how they behave, they often don’t have the digital experience necessary to respond to these consumers. Some executives who predate the online disruption of retail even struggle to appreciate the potential of digital strategies at all; it is a world they don’t understand or have never mastered. As Kyle Nel, CEO of Uncommon Partners and former Executive Director of Lowe’s Innovation Lab, perceived, “It’s unfair that so much blame is being put on executives at retail organizations. [They] were literally selected for success based on old models because of past performance. Now everyone expects them to think radically different. You have leadership that’s been bred to do this one thing, and they’re now expected to innovate against everything that’s disrupting old models.” THEY DON’T INVEST IN INNOVATION, WHILE COMPETITORS LEAD WITH IT This lack of consumer understanding and digital experience among retail executives is deeply problematic, since they are often tasked with stopping Amazon and other retail disruptors from pilfering their traditional customers. Many try to compete against them with their existing consumer knowledge and retail mindset. Even when retailers acquire startups to compete against Amazon, they’re often managed against a traditional, risk-averse culture that does not value experimental innovation. Among boards and shareholders, innovation efforts are generally viewed as cost centers. Funds diverted toward these new technologies, strategies, and talent are perceived as cannibalizing resources for proven strategies, like reducing costs, increasing automation, scaling efficiencies, and stimulating activity among current customers. “Our problem is always that I have to go out and fight for funding every time,” admitted Neiman Marcus’ Emmons. “There are only so many resources, and we have to vie for them. … It’s been a struggle to get the appropriate amount of investment to change what we need to.”
  • 11. 11 Meanwhile, Amazon and other emerging disruptors invest heavily in understanding consumers and continuously release retail innovations, such as same-day delivery that contribute to the evolution of consumer behavior. Their innovations condition consumers to shop differently while setting new standards for what consumers expect from all retailers. In other words: They change the game before traditional retailers have learned to play the previous round. According to Bornstein, these nonstop waves of technology disruptions “create an ongoing crisis for traditional retailers.” THEY ARE BURIED IN DEBT Traditional retailers are under incredible pressure to turn short-term profits while operating massive infrastructures that were established to scale for a consumer that no longer exists. But worse, most do so while repaying their mounting debts. According to Bloomberg research,14 a quiet but suffocating root cause of the so-called “retail apocalypse” is leverage. Retail chains are overloaded with debt, often piled on from leveraged buyouts led by private equity firms. Bloomberg cites billions in borrowings on the balance sheets that are crippling even the healthiest of retail chains. This debt is coming due over the next several years, leading Bloomberg to predict that “America’s ‘retail apocalypse’ is really just beginning.” 14. https://www.bloomberg.com/graphics/2017-retail-debt/ 15. http://www.businessinsider.com/retail-bankruptcies-expected-in-2018-2017-12 16. http://fortune.com/2017/09/19/toys-r-us-bankruptcy-retail-chapter-11/ 17. http://www.businessinsider.com/retail-bankruptcies-expected-in-2018-2017-12 18. https://www.wsj.com/articles/toys-r-us-tells-workers-it-will-likely-close-all-u-s-stores-1521060803 19. https://www.bloomberg.com/graphics/2017-retail-debt/ 20. https://www.bloomberg.com/graphics/2017-retail-debt/ Fifty U.S. retailers filed for bankruptcy in 2017, a rate we haven’t seen since the last recession. Among the retailers that filed for bankruptcy in 2017 are brands like Gymboree, Payless, RadioShack, Wet Seal, The Limited, and Vitamin World.15 The biggest one, Toys “R” Us,16 represents the third-largest retail bankruptcy in U.S. history — a harbinger of what’s likely to come.17 In March 2018, The Wall Street Journal reported that the company was likely to close all stores in the U.S. and U.K., affecting 33,000 jobs.18 The number of bankruptcies is expected to jump every year as debts become due. According to Fitch Ratings Inc., $100 million of high- yield retail borrowings matured in 2017.19 That number is expected to increase to $1.9 billion in 2018. From 2019 to 2025, the annual average of maturing debt will skyrocket to approximately $5 billion. These numbers do not reflect the billions of “risky debt” and outstanding high-yield bonds that are coming due in the next five years.20 Rising debts, pressure to deliver quarterly progress, lack of consumer and digital experience, and a competitive landscape that is constantly changing the game means retailers who want to compete digitally still find themselves barely keeping pace with changing consumer behavior. Retail industry executive Bornstein believes “many [retailers] are not prepared to handle a physical retail retraction.”
  • 12. 12 The Intertwined Fates of Malls and Retailers The success or failure of physical retail is intricately tied to that of the mall. Many of the recent store closures from retail chains like J.C. Penney, Macy’s, and Sears have placed significant financial pressure on malls that depend on these anchor stores to drive traffic. Oftentimes, the closures of anchor stores trigger clauses that allow other smaller retailers to exercise their right to terminate their leases or negotiate new terms. According to research by commercial real estate firm CoStar, 21 it’s estimated that nearly 310 of the 1,300 shopping malls in the U.S., or about a quarter of malls, are at high risk of losing an anchor tenant. Larry Perkins, CEO and founder of advisory firm SierraConstellation Partners, told BusinessInsider, 22 “Landlords are panicking.” 21. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1 22. http://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
  • 13. 13 Malls, like the physical retailers they house, are struggling to navigate new consumer behaviors. First, developers built too many of them — and were left with empty buildings once consumers shifted their spending to e-commerce. “Square footage was based on customers walking to locations and buying it,” Nel, formerly of Lowe’s, explained. To draw customers in, retailers relied on “scarcity” to create urgency among shoppers: “Limited time only!” “Special cardholder sales event!” “When it’s gone, it’s gone!” According to Nel, those days are over: “There’s way too much square footage for a retail world that doesn’t have scarcity attached to it. Retail as an industry had been planning for linear growth but instead saw exponential growth in unexpected directions — especially on mobile.” Second, while malls were once an entertainment destination for buying and discovering products, today they risk becoming obsolete as shoppers move their business to digital channels. Jenn Bordner, Senior Manager, Product Management, Innovation at Gap, said to us, “We’re not seeing traditional malls as destinations for entertainment anymore. Younger generations aren’t as interested in browsing casually.” A senior executive at a flagship retail brand, who asked to remain anonymous, concurs: “Malls have too much irrelevant retail space and too many dated shopping experiences.” To survive, malls will have to partner with retailers to experiment with new models and services to offer compelling experiences and regain a valued place in the community — beyond being a product distribution center. “Malls need to host meaningful and modern community events to make the mall relevant in small town communities,” the executive at a flagship retail brand suggests. For example, in Brooklyn, New York, the City Point shopping complex was transformed from an aging, enclosed mall into a 2-million-square-foot complex meant to resemble a charming neighborhood, complete with outdoor storefronts and apartments. By including a mixture of retail and housing, as well as a dine-in movie theater and locally owned restaurants, City Point developers intentionally redesigned the mall with several consumer experiences in mind.23 According to research by GlobalData, providing extra services like restaurants, in-mall entertainment, pop-up shops, and child care drove more frequent visits to malls and led to more consumer spending.24 But the stores themselves matter too. Melissa Gonzalez, Founder and CEO of The Lionesque Group, a group that designs pop-up stores, suggests that landlords must become savvy curators of stores not just “space fillers”: “[Shopping center owners] must strategically curate a mix of businesses tailored to the demographics and needs of the local community.” 25 Operators such as General Growth Properties and Simon Property Group have been doing just that by investing in existing centers located in high- density, affluent, or tourist markets. In one example, Simon Property Group recently completed a 155,000-square- foot expansion at the King of Prussia mall outside of Philadelphia. The development attracted 50 new, high-end tenants, including Cartier, Jimmy Choo, and Diane von Furstenberg. According to Fung Global Retail & Technology (now called Coresight Research) these types of investments have grown sales at double-digit rates over the past five years.26 23. http://partners.wsj.com/icsc/shopping-for-the-truth/maximizing-the-human-experience/article 24. https://digiday.com/marketing/state-experiential-retail-5-charts/ 25. http://partners.wsj.com/icsc/shopping-for-the-truth/maximizing-the-human-experience/ 26. https://www.cnbc.com/2017/01/26/why-these-malls-are-thriving-while-others-die.html
  • 14. 14 How Innovative Retailers Stay Ahead Traditionally, when retailers have tried to invest in digital strategies to appeal to connected consumers, their approach has been to do so as a sideline operation — even as online channels continue to grow. Their focus in terms of their business models and customer experiences remain focused on what can best be described as their “traditional” customers. But retail disruptors follow a different approach: They are natively digital-first and mobile-first. They think like the evolving, connected customer, and they focus their innovations and experiences with that customer in mind. More specifically, leading retailers do five things to change the game for the entire industry: 1. Map an overarching customer journey 2. Invest in deep consumer research to focus their innovations better 3. Prioritize connected consumers 4. Create formal innovation programs 5. Acquire the right skillset INNOVATIVE RETAILERS MAP AN OVERARCHING CUSTOMER JOURNEY TO CREATE A CONSISTENT CROSS CHANNEL EXPERIENCE From the perspective of retailers, digital innovations like social media and real-time connectivity have defined how and where—physically or online—they find their customers. But a consumer who orders lunch via a mobile app for pickup at the restaurant later doesn’t think of her experience as having an “online” and “offline” component. She thinks of it as single interaction with the brand. “Customers are always navigating between digital and real worlds,” Cyril Lamblard, Nespresso’s Global Head of eCommerce, observed. “They don’t differentiate between ‘online’ versus ‘offline’ behavior in the way that executives often discuss it.” Former EVP and Chief Digital Officer of Westfield Kevin McKenzie agreed: “To the consumer, it’s all just commerce and shopping.”
  • 15. 15 Driving this blurring of online/offline is mobile technology. Research shows that people interact with their phones an average of 13 times per hour, which can add up to a whopping 1,092 times per week.27 As consumers stay connected 24/7, they use their phones to buy online and to inform their offline purchases. Gone are the days when digital customer meant only an “online” consumer. Today digital-first and mobile-first customers are walking around the store armed with phones. “Many customers start with mobile, but they also shop in multiple channels, always with their phones in hand,” RetailMeNot’s Tarleton explained. “Both online and in-store consumers use their phones before visiting and while in the store.” Their mission is to quickly seek peer reviews, product information, deals, and other insights to make sound decisions in the moment. “Mobile devices are where all consumers start and end their journey, which affects all commerce,” Tarleton added. Yet, many retailers haven’t grappled with the fact that mobile is the new digital. They are still trying to make the old customer journey work — with digital and analog channels managed in respective silos and not consistently integrated. “Brands must deliver exceptional experiences in each moment and all the moments together,” explained Nespresso’s Lamblard. As the lines between digital and physical shopping are blurred, consumers expect seamless, intuitive experiences across the channels. They demand a modernized customer journeys and touch points to productively guide them along the way. “All channels must work together to deliver the best customer experience possible,” Lamblard added. Neiman Marcus’ Scott Emmons believes the opportunity for retailers is to create “one overarching experience you want to deliver to customers.” To do that, progressive retailers don’t assume what matters to customers; they figure it out by studying real customers, optimizing a single customer journey accordingly and using that information to create exceptional integrated experiences. 27. http://www.bain.com/publications/articles/mobile-marketing-dont-miss-the-moment.aspx
  • 16. 16 At Gap, journey mapping is crucial to the process of delivering an omnichannel experience. “The best thing we can do is focus on managing the customer experience online and in store,” explained Gap’s Jenn Bordner. “To do that, we need to understand what [consumers are] doing online vs. in person.” By investing in research to understand these online and offline customer behaviors, retailers like Gap zero in on the touchpoints that need improvement or that are missing entirely — creating a smoother omnichannel experience. Without this information, retailers’ investment in improving the experience in one channel could backfire or force friction in other channels. “[At Gap] our customer insights and strategy group uses journey mapping to understand what customer pain points exist to develop a roadmap and deliver new value from there,” Bordner explained. “They do it every year and move against it. They also test pilots of specific projects, launched in smaller subsets, to see what works and to gather data.” Sephora also maps digital and analog customer journeys to understand how to best unite digital — including social, mobile, search, and email — with stores. “The modern consumer transcends in- store, transcends mobile, transcends digital — transcends marketing,” Bridget Dolan, Vice President of Sephora’s Innovation Lab, told us. She believes that as a result, consumers need to be understood in a more holistic way. “We’re constantly surveying and watching what clients are doing to use different technology in-store, online, and on mobile,” she said. Their mapping efforts have revealed a complicated, tech-laden path where customers continuously hop from one channel to the next. “Sephora is such a multifaceted experience that there’s not one path or map you could create,” Dolan explained. “We think of it as optimizing experience by experience. We look at each piece and how it interrelates.”
  • 17. 17 In a recent interview, Sephora’s Executive Vice President of Omni Retail, Mary Beth Laughton, reiterated the need to understand the customer’s pain points in their journey when innovating. “What’s common across all of our digital efforts is that we’re not just doing technology for the sake of it or because it’s cool or new,” Laughton said. “Every digital product or tool or experience that we introduce is done to make shopping for our consumer more fun and more efficient — to help engage her, educate her, and entertain her.” 28 One of those tools is “Color IQ,” a technology that allows Sephora to solve what they discovered was one of their customers’ biggest concerns: finding makeup that complements their skin tones. At the store, customers have their skin scanned and receive a personal reference number that they can use in-store or online to find products that are just right for them.29 Sephora also added the “Virtual Artist” to its app. This augmented reality tool helps customers virtually try on more than 20,000 products, such as lipsticks, blushes, and eyeshadow, before purchasing them. For customers who want to buy a product without visiting a store to try it on, the “Virtual Artist” tool is a real time-saver. Since launching on the app, customers have tried on more than 200 million shades of different types of makeup with it, according to Sephora.30 Our research shows that retailers like Gap and Sephora that constantly map the customer journey and pursue a smooth customer experience across all platforms are the same ones that design innovations that are more in touch with the evolving needs of digital- and mobile- first consumers. These companies, like all best-in-class retailers today, understand that their customers — and consumers in general — don’t think of channels any longer. Whether online or off, via social or mobile, they are just communicating with a brand to find the right solution for them. 28. https://www.techrepublic.com/article/how-sephora-is-leveraging-ar-and-ai-to-transform-retail-and-help-customers-buy-cosmetics/ 29. https://www.nytimes.com/2017/05/11/fashion/sephora-beauty-retail-technology.html 30. https://www.techrepublic.com/article/how-sephora-is-leveraging-ar-and-ai-to-transform-retail-and-help-customers-buy-cosmetics/
  • 18. 18 TARGET: Bringing Mobile Technology to the In-Store Experience Target’s mobile app is a good example of one approach to combining mobile and in-store experiences. The app began as a central hub for store information, later expanding to incorporate Target’s loyalty program, Cartwheel. The app today uses smartphone GPS to help customers find what they’re looking for in the store more quickly. More recently, Target has begun using in-store beacon technology to alert shoppers to discounts as they move about the store in real time. As Target’s EVP, Chief Information and Digital Officer, Mike McNamara, has said, “We’re working on new ways to blend digital technologies with stores to enhance the shopping experience.” 31 31. http://blog.bluetooth.com/bluetooth-beacons-are-on-target-with-a-major-retailer
  • 19. 19 INVESTING IN RICH CUSTOMER DATA ALLOWS LEADING BRANDS TO ZERO IN ON WHERE TO INNOVATE Beyond mapping an overarching, cross- channel customer journey, leading retail brands invest heavily in extensive research to understand the evolving consumer. Their goal: to think like the customer so they can better target the elements of the shopping experience that needs improvement or innovation. They use the collected data and insights to come up with experimental pilot programs. David J. Katz, CMO & EVP at Randa Accessories, founded in 1910 and now the world’s largest men’s accessories company, believes his work in retail innovation starts with data science. As such, he gained significant momentum when he invested more resources to follow his customers’ digital and analog bread crumbs. “We needed to know more about our consumers’ path to purchase and how they migrate and shift in the new retail landscape. So, we shifted a third of our marketing budget to pure consumer research,” he revealed. “Research used to be less than five percent of our budget, provided mostly by our retail and brand partners. But I’m specifically looking for trigger points; for example, what incentivizes our shopper to buy three belts per year versus one every 18 months? I needed to know what stimulus they were externally receiving that would induce them to purchase a Randa product.” Through a research partnership with First Insight, Randa identified previously elusive consumer preferences for styles and price points that allowed it to make informed decisions when developing products and marketing strategies.32 Its research, for example, prompted the company to “return to their roots” by partnering with retailers. In one pilot program with Myer Department Store’s Bourke Street store in Australia, Randa transformed 500 square feet of traditional retail floor space into an “Accessories Lab” designed to “look and feel like a design workshop” and to offer personalized products. The customization experts who work at the Accessories Lab help customers purchase in-store and place personalized orders online. Since the Lab opened, Randa has reported a 100% increase in sales.33 At Randa Accessories, the investment in ongoing consumer data and insights led to the development of a dedicated team. “We’ve always had sophisticated planning and forecasting teams, but now we’re building a consumer data analysis team and consumer insights team,” Katz shared. “The latter is growing, relying on primarily third-party firms to collect data. We conduct four to five different types of consumer research.” Data opens windows into consumer behaviors that can help retailers, such as Randa, redefine the customer journey. Collecting data from multiple channels and sources can reveal opportunities to modernize key experiences that reshape the overall journey one step at a time. 32. http://www.randa.net/news/press-article/david-j.-katz-maps-out-a-new-future-for-retail-driven-by-data 33. http://www.randa.net/news/press-releases/randa-launches-innovative-mens-accessory-shop
  • 20. 20 Nespresso’s Lamblard, for example, combines tried-and-true customer service inputs with insights gleaned from studying customer digital footprints to inform the coffee brand’s retail initiatives. “We listen to customers in our contact relationship center to get across-the-board feedback and use it to continuously improve processes and products,” Lamblard explained. “We have many other internal processes to do this too. We test a lot and look into the data. Customer feedback is monitored almost daily in local markets. I review everything on a global basis weekly, and board members monthly. This puts pressure on the organization to optimize.” Collecting data on customer pain points led Nespresso to implement convenience- based services, such as a “click-and-pick” (aka BOPIS — Buy Online, Pick Up In Store) program and same-day delivery via its mobile app and online sites. Nespresso also invested in an on-premise, automated “store within a store.” Called N’Cube, this dedicated, self-help system is a “robot” that helps customers discover and select coffee capsules to purchase.34 Once customers make a selection, N’Cube processes payment and dispenses the capsule sleeves. Customers can even pick up bags to carry out their purchases and can complete the entire transaction without having to speak to a store representative. “These services came from a data insight, not just customer input,” Lamblard explained. “It’s also a lesson in humility — every day, for our experts across all areas —when you have to let the data — the customer — speak.” 34. https://www.youtube.com/watch?v=D2xHjIhx83o
  • 21. 21 SUCCESSFUL RETAILERS PRIORITIZE CONNECTED CUSTOMERS OVER TRADITIONAL ONES Our interviews with executives from retailers reveal a strong desire to better serve digital- and mobile-first customers while not alienating what could best be described as their “existing” or “traditional” customers — those who still shop in person at the store. That desire is driven, in part, by organizational cultures that are risk averse; designed to scale efficiencies, operationalize transactions, and increase margins; and manage the business toward survival and growth based on generations-old standards and processes. “Retail in my experience is mostly a ‘what have you done for me lately’ rotation,” Tumi’s Cole explained. “Retail priorities emphasize matching promos on seasonal schedules from the year before. The industry as a whole tends to reward shorter- term growth as opposed to long-term investments and progress.” The desire to protect “traditional” customers may also stem from executives not being as plugged in as necessary to evolving consumer behaviors. Retail executives and their boards don’t necessarily represent the evolving customer — and they often don’t understand the “testing-as-you-go” nature of digital innovation. The task to reach out to the digital-first consumer is confined to specific online channel teams who have to fight to get investments approved and break new ground by convincing executives who are largely inexperienced in managing innovation and growth efforts in a digital economy.
  • 22. 22 “Executives feel that it’s too early to tell what commercial gain will yield from emerging technology and connected customer investments versus the return they can expect by marking something down by 20 percent or more,” Cole explained. But our research shows that progressive retailers actually prioritize and invest in innovations that serve connected customers over those that serve these so-called “existing” or “traditional” ones. They recognize that all customers are becoming a hybrid of digital-first and in-person consumers — even traditional customers aren’t abstaining from technology adoption. In other words, everyone is becoming digital, even though some groups of customers may be doing so at a slower pace than others. By prioritizing the needs of digital-first customers, they come up with new business models and innovations that serve all their customers, provide a superior digital experience, and often lead to a better in-store experience. “Executives feel that it’s too early to tell what commercial gain will yield from emerging technology and connected customer investments versus the return they can expect by marking something down by 20 percent or more,” Cole explained.
  • 23. 23 The way they do so is by asking questions that are customer-centered while keeping business objectives in mind. As Bridget Dolan from Sephora put it: “The mission is to listen to our customers about what their needs are.” 35 Scott Emmons, head of Neiman Marcus’ Innovation Center, iLab, for example, shared some of the questions that led to the company’s launch of a formal innovation program that prioritized connected consumers but ultimately benefited all of its customers: “We were driven by exploring the answers to critical questions that were core to our brand and values: How do we take what has made us famous in-store and translate it to online? How can we be a high-touch, white-glove, luxury service retailer on the digital side as well? How can those online insights lead to in-store innovation?” The answer to those questions led Neiman Marcus to build capabilities “to deliver a great online experience, which also creates new opportunities to modernize what’s in store.” These experiences include the “Memory Mirror,” which allows shoppers to “get a 360-degree view of what they’re wearing and … share the video real time with friends or a spouse for feedback before purchase.” Following a successful pilot, Emmons oversaw the development of similar mirrors for eyewear shopping and also for use during “makeovers.” The latter allows shoppers to record a video of their makeup application that they can later reference at home or next time they are in the store shopping.36 For Emmons, the “Memory Mirror’s” success is a reflection of consumers’ desires to experience their favorite online shopping features in-store. The mirrors give Neiman Marcus an unprecedented level of information about customers while customers benefit from a better shopping experience. “For the customer, they get this video tutorial of them using and modeling these products that they can send out or share,” Emmons shared in an interview with PYMNTS.com. “For the brand, it gives a video CRM record with all kinds of customer metadata that can be used down the road to help service that customer.” 37 35. Source: https://www.slideshare.net/capgemini/the-innovation-game-why-how 36. https://www.retailcustomerexperience.com/articles/neiman-marcus-embracing-innovative-tech-from-the-front-door-to-the- dressing-room/ 37. https://www.pymnts.com/news/omnicommerce/2017/can-the-lab-save-omnicommerce-retail-scott-emmons-neiman-marcus/
  • 24. 24 Retailers who want to prioritize connected consumers must ask themselves similar questions, including: 1. Who is our existing and target digital/mobile customer? 2. What technologies/apps do our target shoppers use IRL (in real life) and how/why? 3. What do digital/mobile consumers prefer, expect, and value? What are their unmet needs? 4. Which modern commerce brands do our ideal connected customers love and why? What features, benefits, and experiences do they deliver that we don’t? 5. What is the ideal customer journey for digital- and mobile-first customers? What are the trigger events that get customers thinking about our product or service?38 6. What could be improved and/or what’s missing from our (omni/cross-channel) journey today? 7. What new services, products, and processes can we pilot to deliver new value that engage and expand our markets? All businesses are faced with the question of whether to invest in improving their current models to deliver short-term results or to reallocate resources toward longer-term innovation initiatives that may or may not pay off. For retailers who want to remain in the game, the answer is they must invest in both. They might need to deliver in the short term by catering to their “traditional” customers. But those customers are evolving, and they soon will adopt the very same behaviors of connected consumers. That’s why to survive in today’s market, retailers must also prioritize investing in innovative strategies and experiences to appeal to connected consumers. 38. https://www.questionpro.com/blog/20-not-so-obvious-questions-to-ask-your-customer-on-your-survey/
  • 25. 25 Hema: Re-Thinking Retail Chinese e-commerce giant Alibaba has begun making a push into physical retail in China with its streamlined Hema supermarkets. Hema stores rely entirely on the Hema app, which acts as a price- checking tool, in-store navigation tool, and payment/check-out platform. There are no physical cashiers or check-out lines. Hema physical stores also act as fulfillment centers, and employees can fulfill orders for online shoppers — again using the app to log inventory. Customers living within three kilometers of a Hema location can order groceries to be delivered within 30 minutes.
  • 26. 26 LEADING RETAILERS OPERATE INNOVATION LABS TO EXPLORE FUTURE RETAIL STRATEGIES In the past several years, the number of retailers and consumer goods brands opening innovation labs has skyrocketed. IKEA, Staples, The Home Depot, Lowes, Sephora, Gap, Target, Sears, CVS, Neiman Marcus, Walmart, and Kohls, among many others, have dedicated space and resources to formal innovation programs.39 While some in the industry debate their effectiveness, many retailers’ innovation labs have led to tangible improvements in digital prowess and business results. Innovation labs are typically set up to operate outside of the everyday culture of their companies to explore new horizons and test and learn quickly without the limitations that may stymie experimentation and progress. In some ways, innovation labs operate like startups under a mantra of “innovate or die.” Budgets and resources aren’t unlimited, and labs are on the hook to demonstrate value at every step. When we first thought to have an innovation lab and news got out around the company, it took time to gain credibility with the C-suite and other divisions not familiar with our work,” Emmons, Head of Neiman Marcus’ iLab, explained. “We had to prove a few wins first.” While no two innovation labs are the same in size and scope, these labs are primarily chartered with learning, building new capabilities, and growing opportunities within existing and new markets. Their most common directives focus on the following goals. 39. https://www.cbinsights.com/research/corporate-innovation-labs/#retail
  • 27. 27 To connect with, invest in, or acquire promising startups and emerging technology partners The advantage of partnering with startups and tech companies outside the retail industry is that their teams bring new capabilities and, in some cases, complete new business models, sources of revenue, and markets to retailers. When focused on business objectives, these partnerships can deliver results at speeds and to extents that would otherwise face operational hurdles within traditional corporation models. Nestlé opened its San Francisco “Innovation Outpost” in 2014 with the purpose of plugging into the Silicon Valley ecosystem and developing partnerships with startups and leading technology companies. In 2016, the company launched HENRi@Nestlé, a digital platform that invites startups to pitch projects in response to specific “innovation challenges” Nestle wants to solve. Among the pilot programs to come out of it include one-hour delivery services via Instacart; a Nespresso-themed partnership with Feastly, the “Airbnb of dinner”,40 and a partnership with Amazon to develop a “In order to be leaders and for us to delight consumers in ways that we never even thought possible,” explained Vice President of Digital Innovation at Nestlé Mark Brodeur, “we need to be constantly testing new technologies, new associations, new approaches with new partners. Otherwise, we lose completely our relevance and our competitive set.” 40. https://www.bizjournals.com/sanfrancisco/news/2016/07/06/nestle-sf-innovation-center-food-startups.html 41. https://www.nestleusa.com/media/pressreleases/nestle-goodnes-skill-amazon-alexa-true-cooking-companion “GoodNes” 41 skill for Alexa, which lets users access recipes from Nestle’s GoodNes.com. In addition to these partnerships via HENRi@Nestlé, the company has made strategic investments and acquisitions in companies that target connected consumers, such as its acquisition of direct-to-consumer healthy meal provider Freshly.
  • 28. 28 To explore and stay abreast of emerging technologies, such as augmented and virtual reality, Internet of Things (IoT), wearables, AI, 3D printing, and more Sephora opened its dedicated innovation center in San Francisco in 2015, with the mission “to better understand the digital customer and the new relationship between physical and digital shopping.”42 A customer-centered focus drives the lab’s partnerships within the emerging technology ecosystem and shapes its innovation roadmap. Some of the innovations that have come from the lab include: • Beacons: Sephora uses beacons to communicate with app users once they walk into the store. The app then offers shopper a map of the store and alerts them of promotions. 43 • Augmented Reality (AR): Within the Sephora mobile app, shoppers can apply filters over their live selfie to virtually sample makeup in real time.44 To experiment with hybrid physical and digital retail spaces Since Neiman Marcus opened its innovation lab, iLab, in 2012, it has steadily tested how to implement technology and digital experiences into the in-store experience. Much of iLab’s work in this area is showcased in Neiman’s recently opened store in Fort Worth: • Interactive “Memory Mirrors” invitesshoppers to record and share videos of themselves trying on new outfits, sunglasses, and makeup.45 • “Snap. Find. Shop.” — a “Shazam for shopping” — allows shoppers to take a picture of a product they like in the real world and get a list of similar products available within the store’s inventory.46 • “Programmable jukeboxes” in dressing rooms lets shoppers to customize the music that is playing while they try on clothes.47 • “Push-button service” in dressing rooms summon concierge assistance without shoppers having to leave the room. • “Theatro” voice-controlled wearables, originally designed as a customer- service tool, help staff communicate more effectively with front and back operations.48 • “ChargeItSpots” offer shoppers a lockup and charging station for mobile devices. 42. https://www.prnewswire.com/news-releases/-announces-innovation-lab-to-usher-in-the-future-of-retail-300046332.html 43. https://www.lsretail.com/blog/5-innovative-brands-revolutionizing-retail/ 44. https://www.seattletimes.com/business/technology/beauty-brands-hope-virtual-makeovers-encourage-shoppers-to-try-new-looks/ 45. http://rebusinessonline.com/the-space-age-of-retail-integrating-technology-into-todays-shopping-center/ 46. https://slyce.it/press/neiman-marcus-introduces-new-snap-find-shop-app/ 47. https://www.retailcustomerexperience.com/articles/neiman-marcus-embracing-innovative-tech-from-the-front-door-to-the- dressing-room/ 48. https://www.prnewswire.com/news-releases/rollout-of-theatros-voice-controlled-wearables-at-neiman-marcus-last-call- stores-300391240.html
  • 29. 29 To optimize digital/mobile channels and improve customer experiences The Old Navy Mission Bay Lab Store operates within Gap’s San Francisco headquarters. Besides testing emerging technologies, Old Navy’s innovation lab focuses on integrating tech advances into the customer experience online and in stores. “[The lab] is working on things such as conversational commerce, like allowing customers to self-service returns and exchanges and manage tracking through SMS or Facebook Messenger,” Gap’s Jenn Bordner shared. “The lab is also testing digital price tags, smart fitting rooms, and same-day delivery options at a smaller store format.” To accelerate innovation pilots Randa Accessories debuted its innovation lab — a bespoke in-store experience — as a pilot concept in Australia that it plans to bring to other markets. The “Accessories Lab” offers an “integrated, elevated, personalized, and serviced experience,” Dene Heath, General Manager of Randa Australia, said in a statement.49 Randa Accessories’ David Katz explained that the lab operates with agility and speed. “We need to think like a startup,” he said. “Traditional retailers want to go through 50 steps before piloting an idea. We test and learn quickly. We weed out the bad, measure clearly, optimize, and move on or jump on it. There isn’t time to always wait for 100% of the information. You can test products in the real-world market faster, more cost effectively, and more accurately than by doing abstract focus groups, creating CADs, and fielding insight studies.” To study the evolving customer In 2015, IKEA opened SPACE10 in Copenhagen, an innovation lab that operates outside the company’s day-to-day operations. One of its missions is to study how people live and to use those insights to design innovations that facilitate a more “meaningful and sustainable life” and “new ways of living.” 50 A recent SPACE10 study, for example, explored the evolving needs of consumers considering living in shared spaces.51 An alternative to traditional housing that is growing in popularity in densely populated areas,52 co-living spaces usually offer residents private bedrooms with shared common areas.53 More than 7,000 people across 150 countries completed SPACE10’s survey, which revealed, among other findings, that people who consider co-living do so not to save on rent, but to “create new ways of socializing with others.” Insights such as this one helps IKEA stay on top of trends and explore design solutions that meet the expectations or unmet needs of its customers (such as furniture or accessories that promote communal living, communication, and collaboration). 49. http://www.randa.net/news/press-releases/randa-launches-innovative-mens-accessory-shop 50 https://space10.io/approach/ 51. http://onesharedhouse2030.com/intro/ 52. https://www.curbed.com/2016/3/8/11178598/cooperative-housing-city-living-coliving 53. https://www.designboom.com/design/space10-one-shared-house-2030-ikea-co-living-11-14-2017/
  • 30. 30 To develop a “culture of innovation” throughout the company At Nestlé, Brodeur hosts executives from around the world, leading tours and immersion sessions for them at the SF Innovation Outpost. The idea behind these visits is to create urgency to innovate, spark ideas, and introduce new ways of working. “We host senior leaders in Silicon Valley and use these learning journeys to jumpstart specific initiatives,” he explained. “We set out to do more than have executives visit and say, ‘Oh that was great,’ then go back and have nothing change. We’ve made a commitment that the teams that come out here need to commit to taking action.” At Neiman Marcus, Emmons’ efforts have led to the expansion of the company’s innovation lab role to include acting as an internal consultant. “Amazon spends billions on R&D. While retailers don’t have that budget, we can compete by collaborating and cross-pollinating our innovative ideas with one another,” he explains. “We started as an independent innovation team exploring online and in- store opportunities. Now, we’re seen as a consulting partner within various business units when they’re interested in deploying a new technology. We deliver practical solutions by combining expertise from different areas.” One of the challenges facing innovation labs and teams is that their work can be siloed or invisible to other key stakeholders and executives. Our research shows that successful innovation programs are open, inclusive, and forthcoming. Kevin McKenzie, formerly of Westfield, believes sharing innovation efforts and results, as well as involving stakeholders, helps everyone learn. “Westfield has 87 Westfield branded malls around the world that are run by over 4,000 employees. So, anything we create and test, we’ve got people on the ground in the physical setting we’ve got to work with,” he explained. “To bring everyone along for the journey and manage the process, we’ve created a project management team. We also found that we needed to a create product marketing team to actively communicate all the various initiatives that we’re doing and the results of those initiatives.” Whether a formal innovation program takes an outside-in or inside-out innovation approach, its ultimate goal should be to make retail at large more innovative, agile, and capable. But innovation work shouldn’t solely be left to the innovation lab; it should be a company-wide mandate. “Huge innovation breakthroughs should come from everywhere ... through the supply chain or operations,” Tumi’s Cole explained. “For example, Amazon’s two- day shipping was a loyalty program improvement — leveraging existing infrastructure in a unique wrapper.” Innovation efforts are also most potent when they’re managed officially from the top-down. And it is no exception in the retail industry. “Innovation labs are at the forefront of the effort to change company culture,” explained McKenzie. “It is imperative that the CEO/leadership team nurture the innovation center and champion its initiatives throughout the organization.” He further explained, “If companies truly do want to innovate, it’s got be sponsored by the CEO.” 54 54. https://www.slideshare.net/capgemini/the-innovation-game-why-how
  • 31. 31 WALMART: In-house Incubators When Walmart acquired Jet in 2016, it also acquired Jet’s founder Marc Lore, now leader of Walmart’s e-commerce division. Under Lore’s direction, Walmart is seeking to “invent the future of retail.” 55 A key part of this future is Walmart’s in-house incubator, dubbed ‘Store No. 8’. Teams within Store No. 8 operate like startups, “exploring new operational models and emerging technologies,” 56 but with one distinct advantage: “When you get entrepreneurs who are passionate about disruption, particularly in retail, and give them the ability to scale within an existing company with lots of data, customers, and a footprint to deploy innovation, it’s incredibly exciting for them,” 57 explained Lori Frees, SVP of Corporate Strategy at Walmart. The incubator has already spawned some promising ventures, including “Code Eight,” an AI-powered personal shopping assistant targeted at busy moms, and “Project Kepler,” purportedly a checkout-free physical store meant to compete with its rival’s “Amazon Go” concept.58 55. https://progressivegrocer.com/walmart-launch-store-no-8-tech-incubator 56. https://www.chainstoreage.com/technology/innovation-walmart-store-no-8-beyond/ 57. http://multichannelmerchant.com/ecommerce/walmarts-store-no-8-will-five-ventures-running-2019/ 58. https://techcrunch.com/2017/12/20/walmart-personal-shopping-services-and-cashier-free-stores/
  • 32. 32 ACQUIRING THE RIGHT SKILLSET ALLOWS SUCCESSFUL RETAILERS TO APPEAL MORE EFFECTIVELY TO EVOLVING CONSUMERS Our 2017 State of Digital Transformation study reported that 31.4% of companies surveyed (which included retailers) believe a low rate of digital literacy or expertise among colleagues and leadership was a top challenge they faced.59 Like other industries, many retailers are not equipped to swiftly adapt to digital disruption. In our interviews with retail executives, we’ve learned that finding the right skillset to innovate digitally and compete for the attention of evolving consumers is of particular concern and critical urgency. “In my mind, there’s been a lot of mishandling from boards. They’re not demanding the skills that are needed for future business dynamics,” Julie Bornstein shared. “There will be some pain before gain, and some retraction,” she added. Tumi’s Cole agreed: “If you’re a retailer who’s been in this since 1980, you’re used to 300-unit minimum or many distribution points, etc. [You are] not wired into what’s possible in a test and iteration way. To engage digital- and mobile-first consumers at their level, retailers must develop digital skillsets and attract people who are skilled in.60 • Data analysis/science • AI/machine learning • User experience and user interface (UX/UI) • Customer experience (CX) • App development • Robotics and automation engineering • Agile and scrum practices Cole believes one way executives can get these skills is by tapping into digital natives. “There’s something inherent in someone who grew up in a digital culture to test and iterate. You learn the most that way,” he explained. But Bornstein believes digital talent in the C-Suite is critical for retailers: “I think that it’s about the team and talent — you have to have the right people sitting around the executive management team that know how to do things differently.” 59. http://marketing.prophet.com/acton/media/33865/altimeter--the-2017-state-of-digital-transformation 60. https://www.bcg.com/publications/2017/people-organization-technology-how-gain-develop-digital-talent-skills.aspx
  • 33. 33 Often what it takes to bring an entire team along for the innovation ride is updating the organizational chart, as well as the business processes. “It used to be the assumption that a process will serve me for 30 years, but that’s not how things work today. We’ve made a lot of investment in running in a more agile way,” Neiman Marcus’ Emmons explained. “We’ve had a big focus on reorganizing people and business processes so that change can be integrated faster,” he shared. To get the right people in the right jobs to perform the right innovation initiatives also requires bringing in skillsets from outside the traditional retail industry, or with deep technological and digital experience that retailers often don’t have. “Philosophically, everything we create and build revolves around that consumer and the consumer experience. You need to get into the skillset of what it’s going to take to do that,” McKenzie,61 formerly of Westfield, explained. “We’ve grown fond of the product management discipline. For example, a lot of our employees come from Amazon or Yahoo or CNET, typically Internet-related companies or retailer- related companies that held roles of product management and worked on building digital experiences.” He continued, “We’ve also built an amazing design and development team that boasts deep research, UX/UI, product design, and software engineering backgrounds.” “The retail executives we interviewed also shared that there needs to be deeper collaboration between the IT department and teams responsible for the customer experience. The company’s digital, in-store, and IT teams are partners, forming new collaborative models that are symbiotic from the beginning; the IT department is not brought in just at the end to execute. “Digital and IT have to be in lock-step,” Sephora’s Bridget Dolan suggested. “Finger-pointing goes out the window, and hand-holding comes in its place. IT participates in every meeting to understand goals and objectives and to provide inventive — but realistic — solutions, timelines, and costs.” 62 61. In this section, insights from Kevin McKenzie and Bridget Dolan were sourced from interviews conducted by Altimeter in 2016 for a joint research report with Capgemini, entitled The Innovation Game. 62. Source: Digital Transformation: Why and How Companies Are Investing in New Business Models to Lead Digital Customer Experiences, 2014, Altimeter Group
  • 34. 34 Conclusion: The Future of Retail Is Here and Evolving The future of retail is already here. Consumer behavior is changing. Disruptive technologies such as AI/machine learning, AR/VR, 3D printing, on-demand apps, geo- location, and more will continue to disrupt the shopping experience. For retailers to keep up with these disruptive changes, it will take more than acquiring and integrating new technologies to appeal to new, evolving customers. At the center of the retail disruption is the evolving customer experience. Once customers taste a new experience — one that’s more intuitive, personal, and reflective of how they communicate and they interact with other people and brands — they will not go back to yesterday’s experience. “The power has shifted to [consumers], and it’s not coming back,” explained Andy Hedges, Founding Partner at SMARTMESH and former Scentre Group (previously Westfield) Director of Shopping Center Management. “Asking them to compromise as a means to navigate dated touchpoints, processes, systems, and experiences will only put your brand on the list of store closures.” To re-imagine the retail experience, executives will need to undergo deep immersion into the mindsets, preferences, and shopping behaviors of connected consumers, prioritize their needs, embrace a culture of innovation, and promulgate a strong core set of digital skills across the organization. By doing so, the most progressive retail brands we surveyed ensure even the smallest of pilots or initiatives they launch are as well-equipped as possible to deliver valuable customer experience and results.
  • 35. 35 Methodology ECOSYSTEM INPUT This report includes input from 13 strategists and executives at retailers and technology companies supporting the retail ecosystem, interviewed between Q1 2017 to Q4 2017. Although we could only include a few of their voices in this report, we thank everyone we spoke with for their time, as well as for their insights that informed and are reflected in this report. Input into this document does not represent a complete endorsement of the report by the companies listed below. Brands • Adidas, Colin Rattigan, Global VP Consumer Engagement / Digital Brand Commerce • Gap, Jenn Bordner, Senior Manager, Product Management, Innovation • Neiman Marcus, Scott Emmons, Head of the Innovation Lab (iLab) • Nespresso, Cyril Lamblard, Global Head of eCommerce • Randa Accessories, David Katz, CMO & EVP • Tumi, Charlie Cole, CDO and VP Vendors • Rebo, Rajesh Kumar, Founder and CEO • RetailMeNot, Marissa Tarleton, CMO Retail Innovation Experts • Julie Bornstein, formerly COO at Stitch Fix (at the time of interview) • Kyle Nel, formerly Executive Director of Lowe’s Innovation Labs at Lowe’s (at the time of interview), now CEO of Uncommon Partners Previous Interviews This report also contains insights from previous interviews conducted by Altimeter, a Prophet Company, in Q1 2016 • Sephora, Bridget Dolan, Vice President, Sephora Innovation Lab • Kevin McKenzie, formerly EVP, Chief Digital Officer at Westfield (at the time of interview), now EVP, Chief Digital Officer at Macerich
  • 36. 36 ABOUT BRIAN SOLIS Brian Solis (@briansolis) is a digital analyst, anthropologist, and also a futurist. Brian studies the effects of disruptive technology on business and society. More so, he humanizes these impacts to help people see people differently and understand what to do about it. He is an award-winning author and avid keynote speaker who is globally recognized as one of the most prominent thought leaders in digital transformation and innovation. Brian has authored several best-selling books, including What’s the Future of Business (WTF), The End of Business as Usual, and Engage!. His latest book, X, explores the intersection of where business meets design to create engaging and meaningful experiences. ABOUT ALTIMETER, A PROPHET COMPANY Altimeter, a Prophet Company, is a research and strategy consulting firm that helps companies understand and take advantage of digital disruption. In 2015, Prophet acquired Altimeter Group to bring forward-thinking digital research and strategy consulting together under one umbrella and to help clients unlock the power of digital transformation. Altimeter, founded in 2008 by best-selling author Charlene Li, focuses on research in digital transformation, social business and governance, customer experience, big data, and content strategy. Altimeter, a Prophet Company One Bush Street, 7th Floor San Francisco, CA 94104 info@altimetergroup.com www.altimetergroup.com @altimetergroup 415-363-0004
  • 37. 37 OPEN RESEARCH This independent research report was 100% funded by Altimeter, a Prophet Company. This report is published under the principle of Open Research and is intended to advance the industry at no cost. This report is intended for you to read, utilize, and share with others; if you do so, please provide attribution to Altimeter, a Prophet Company. HOW TO WORK WITH US Altimeter research is applied and brought to life in our client engagements. We help organizations understand and take advantage of digital disruption. There are several ways Altimeter can help you with your business initiatives: Strategy Consulting Altimeter creates strategies and plans to help companies act on business and technology trends, including ethical and strategic data use and communications. Our team of analysts and consultants work with global organizations on needs assessments, strategy roadmaps, and pragmatic recommendations to address a range of strategic challenges and opportunities. Education and Workshops Engage an Altimeter speaker to help make the business case to executives or arm practitioners with new knowledge and skills. Advisory Retain Altimeter for ongoing research-based advisory: Conduct an ad-hoc session to address an immediate challenge or gain deeper access to research and strategy counsel. Speeches & Events Whether you’re kicking off a major event or sitting down for an executive brainstorming session, Altimeter will energize and inform your audience. Our speakers are inspiring and entertaining, while remaining eminently approachable. To learn more about Altimeter’s offerings, contact sales@altimetergroup.com. PERMISSIONS The Creative Commons License is Attribution-Noncommercial ShareAlike 3.0 United States, which can be found at https://creativecommons.org/licenses/by-nc-sa/3.0/us/. Disclaimer ALTHOUGH THE INFORMATION AND DATA USED IN THIS REPORT HAVE BEEN PRODUCED AND PROCESSED ALTHOUGH THE INFORMATION AND DATA USED IN THIS REPORT HAVE BEEN PRODUCED AND PROCESSED FROM SOURCES BELIEVED TO BE RELIABLE, NO WARRANTY EXPRESSED OR IMPLIED IS MADE REGARDING THE COMPLETENESS, ACCURACY, ADEQUACY, OR USE OF THE INFORMATION. THE AUTHORS AND CONTRIBUTORS OF THE INFORMATION AND DATA SHALL HAVE NO LIABILITY FOR ERRORS OR OMISSIONS CONTAINED HEREIN OR FOR INTERPRETATIONS THEREOF. REFERENCE HEREIN TO ANY SPECIFIC PRODUCT OR VENDOR BY TRADE NAME, TRADEMARK, OR OTHERWISE DOES NOT CONSTITUTE OR IMPLY ITS ENDORSEMENT, RECOMMENDATION, OR FAVORING BY THE AUTHORS OR CONTRIBUTORS AND SHALL NOT BE USED FOR ADVERTISING OR PRODUCT ENDORSEMENT PURPOSES. THE OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE .