Reva: You’re listening to Next in Retail from Publicis Sapient. The podcast that shares insights on unlocking what’s next in digital transformation.
Reva: As we careen our way through 2022, a similarly fast pace of tech advancements is emerging. Prompted by the pandemic, digital transformation is booming, specifically in BTC industries, and is showing no signs of slowing. With seemingly limitless investment opportunities, firms need to prioritize what will give them the most bang for their buck as they look to make investments in the year ahead.
In this episode, we’re going to discuss what should be on top of the priority list for the year. Joining me today is Scott Clarke, Industry Lead for Consumer Products at Publicis Sapient and Hilding Anderson, Retail Strategy Lead in North America Publicis Sapient. I'm your host for the session, Reva Bhatia. Now let's dive in.
So, we are covering both retail and consumer products today, two industries that often have similar focus areas when it comes to digital investments.
Where we do see a difference is often with both scale and maturity. Scott, kick us off with a snapshot on what you see as the key imperatives for CP firms in the year ahead.
Scott: Absolutely and hello, Reva. Hello, Hilding. You know it’s interesting, as we sit down and peddle predictions for the year ahead every year, I think we were reminded of the words of Roy Moore, the computer scientist in the 1960s, who said that we have a tendency of overestimating the impact of technology in the short term and underestimating the impact of technology in the longer term. And I think what that tells us is not to chase the shiny new object.
But at the same time, take more of a systems approach to ensure that we have the right capabilities.
Scott: The right foundational pieces in place for what technology is likely to open up this new opportunity in that longer term. Having said that, I think that from a consumer products industry perspective, we have a very exciting year ahead: a year of high economic growth.
Most of our large consumer products clients are predicting high revenue growth and a high increase in operating margins in the year ahead. And I think there are a number of trends that are going to start to disrupt the industry, reshape, redefine what consumer products companies mean to the consumers that they exchange value with.
Scott: The first, I think is all around e-commerce. It’s hard to ignore the stratospheric increase in e-commerce activity over the last two years or more. It’s changed the way people shop, the way they think about brands. And despite the fact that e-commerce has become increasingly convenient, increasingly fast, and increasingly ubiquitous over the last two to three years, I think most of us would agree that, from a consumer experience perspective, it’s still pretty underwhelming.
It’s not very exciting, and I think as we look forward to the year ahead, we’re going to start to see the melding of entertainment in e-commerce and more CP companies investing in things like shoppable TV and live streaming and dynamic content, gamification, augmented reality, virtual reality to create much more immersive, interactive, memorable, and exciting e-commerce experiences.
The second is around brands becoming more personal. I think most brands that we love have been on this personalization journey for quite some time, but as AI becomes more democratized, we’re going to start to see some significant improvements in the level of personalization that exists not just at the point of transaction but across the entire consumer journey, big changes around supply chain efficiency, around dynamic content, around voice, and visual search on the front end. I think that’s gonna matter not just for the brands but for the consumers who ultimately benefit from that level of intimacy at the point of interaction.
Scott: The third is really about DTC brands themselves. And I think to a large extent, offline is going to become the new online for DTC brands. We’re seeing that from digital-first brands, like All Birds and Fendi, and the DTC intimate brand NYX, for instance, and then recently with Amazon announcing the launch of Amazon style, a new LA fashion store later this year, which is exciting, but it says that even DTC brands who have been committed to digital experiences recognized that if you want to be relevant in today’s marketplace, you have to be where your consumer is both online and offline, and offline provides a lot of distinct opportunity that online does not.
Scott: The fourth–we’ll talk about this a bit more later—is around sustainability. We know that so many of our CPG clients have committed to purpose and sustainability in the last few years, and I think that commitment to sustainability is going to become increasingly democratized as we shift from direct two models to direct with models and really starting to see those purpose-driven brands become movement-driven organizations where purpose is not just at their center but defines the value exchange they enter into with consumers.
And then the last, which I know Hilding and I will both talk about at length because it’s hard to avoid this year, is the Metaverse and how more and more CPG brands are going to start to experiment with the Metaverse to engage new consumers. And we’ll come back to that later, about what the Metaverse is and what it’s not. But I think regardless of whether you believe that the Metaverse is going to transform online and offline engagement,
Scott: I think it’s safe to assume that all CPG brands are going to have to consider what the Metaverse means to them and the level of relevance and engagement they deliver to their consumers.
Reva: Thanks Scott, and I know I mentioned at the onset of this session the difference in scale and maturity between both CP and retail, though it seems like CP is advancing really rapidly, I’m going to pass the mic over to you now, Hilding, to elaborate on where we think retailers are at and if there’s anything from Scott’s list for consumer products that you would adjust for our friends in the retail ecosystem.
Hilding: Yeah, thanks, Reva. It’s got us. You know. Great list obviously. And yeah, I just got back from NRF a little bit ago and really interesting there, just celebrating the tremendous performance of retail over the last 12, 18 months, way past what we all expected it to be. I would say if, you know, certainly going in, you know 18 plus percent increase in year-over-year in 2021 on top of a 7 percent increase in 2020.
So huge growth for retail overall, and of course, digital has gotten a asymmetrical part of that. And so as I think about this next year and what kind of developments we’re going to see, I think there are couple, and they are resonant, I think, with what you’re saying Scott on that side.
First of all, I think e-commerce actually is going to get, and sort of that core e-commerce platform modernization of e-commerce, is really going to get a huge focus for a lot of our clients and the space. One of the key trends we’re seeing is the move towards microservices API-based headless commerce that allows more flexibility and scalability, and it also allows you know, I think, a critical area, which is around customer experience; and we’ve been all talking about customer experience.
But if you actually go through and do an audit as we’ve done, you know I’ve run a retail safari when I’m in New York with our clients and, you know, you see that there’s still huge opportunities to do more with integration and mobile and kind of connecting that digital experience with the physical one.
And the second kind of area that I see a lot of activities around [is] AI and data; this has been a kind of layer for some time. I think the biggest area I’m seeing right now, and I’ve seen it in a grocery shop, I’ve seen it an NRF and CS, and I would expect, as either proceeds, we see more, is around data monetization, and it’s really about, you know we’re seeing that retailers can generate, you know, 1 to 5 percent of their total revenues through and incrementally through retail media networks. And many retailers are looking at this. I think the question at hand now—most groceries have had this question at hand
Hilding: now—is does this make sense for an apparel and specialty retailer? Does this make sense in in big box retail outside that grocery sector; there’s some evidence there that it does in moderation, perhaps. So, I think that’s the kind of the second piece. And for CDP’s and data lake programs.
Hilding: And ultimately customer intimacy and knowledge is a huge trend, and we have to do a better job as an industry in delivering those types of solutions and across MarTech stack.
And then the last two experiences. So, I think I actually believe that mobile apps are at a key inflection point right now. When you think about the role of curbside and the role of NSCs, this next range of technology where you can you order when you’re doing apparel shopping, you get all your groceries ordered, and the grocery store can have it turned around in 10 minutes from you placing the order; it's really fundamentally different, and the role of mobile in that is going to become front and center.
And then finally on supply chain, of course a huge amount of challenges for retailers are around profitability. Supply chain represents 10 to 20 percent of costs. You know the number of e-commerce sales and shipping is growing at 10 or 20 percent supply chain volumes, and shipping volumes are growing at single digits, and you can do the math on that, but it’s going to drive even further increases in cost, and we’ve seen significant costs already, so a lot going on in retail. I’m really excited for 2022. It’s been a been a crazy 2021, and I think a lot of it is going to be okay, how do we stabilize? How do we focus on profitability and driving the outcomes? And how do we raise the bar, and keep these great digital customers that we’ve developed?
Reva: Speaking of raising the bar, something that you both mentioned at the onset of the discussion was around the topic of the Metaverse, and it really being everywhere these days. Beyond the Metaverse, both retailers and consumer products firms are starting to explore the role that NFTs and crypto currencies should play in their overall strategies.
Clinique has been getting a lot of press recently, for example, for developing NFTs and distributing them as a loyalty play for consumers. And retailers are starting to expand their digital like quasi-physical, right, footprints into the Metaverse. So, Scott, I’m going to start with you. Where are CPA firms going to head next here, and you know, is this really just an experimentation play for them? Or is there actually money to be made from this ecosystem?
Scott: I think there’s definitely money to be made. There’s definitely opportunity. I think the gaming sector itself is on the on the precipice of moving from being a 200 billion industry to being a multi trillion-dollar industry in the future largely because of the Metaverse, and let’s be clear that the idea of the Metaverse is not new, right? Really started in the 1990s.
We all—I say we all—people my age, certain members, Second Life and when it first became a thing, yeah, and it was gonna be game changer, right?
Reva: Second Life account.
Reva: Bring back Second Life.
Scott: Yeah, we could all live those wonderful alternative realities on this multimedia platform.
Scott: How exciting is that? But it stopped being exciting after a while because it wasn’t really making any difference to the world that mattered most to us, which was the physical world in which we lived. And yeah, it’s great to have digital twins, digital versions of the things that we love physically, but why not just stay in that physical world then if that’s all we’re really dealing with, right?
For the most part, but things have changed because the Metaverse now is powered by such exciting cutting-edge technologies. Really, it’s an array of different technologies that combine creatively in creating these or developing these new experiences from AR and VR to blockchain to IoT to 3D construction to, as you mentioned, cryptocurrencies and NFTs, and I think, really, CP companies are now tasked with understanding how those technologies can work together to create experiences that really matter.
Scott: So we talk about Clinique, and we can look at other examples like Mattel in launching new NFTs with Bobby, with the French luxury fashion company Balaji; there’s lots of different examples of it. Coca Cola, we can go on and on and on, and it’s fun, right? And I think we get excited about that possibility, but I think for it to have sustained impact, it’s gotta to be more than fun; it has to start to matter.
And I think it’s not just a case of how do I create a 3D digital version of my physical world, but how do I then take the things I’m experiencing in that virtual world in order to improve the quality of life that I have in the physical world? So I think what’s really interesting about the Metaverse today, and what’s different about the days of Second Life is it’s not just the creation of these digital twins, it’s the creation of the physical twins of that 3D virtual reality. And I think that kind of makes it interesting as we blur the lines between what’s physical and what’s digital, so keeping laser-focused on how does this make a difference to human lives? How does it make our lives better in terms of the way we consume these brands and information, the way we educate ourselves, the way we interact with each other? I think that’s going to be very, very important, and the last thing I’ll say about the Metaverse, which we can’t forget, is we already live in a physical world, which, despite the pandemic, isn’t that bad.
So, we’re starting to imagine a Metaverse, a 3D version of a physical world, it has to be more than just what we can experience physically. It’s going to be 10X, if not 100X, of what we’re exploring physically to really get people excited about this new virtual reality.
Hilding: Yeah, and I think that’s really well said Scott. And from a retail perspective, there are limitless opportunities in the Metaverse. I think, though, trying to categorize them into, you know, what’s real now and what is a brand effort or a kind of a longer-term strategy to just kind of play and explore this space.
I’m kind of naturally a little bit of a curmudgeon as I think about retail and where you’re going to spend your hard-earned profit dollars from a from retail perspective. But I think given the momentum right now, and if you look at the investments that some of leading players are making in this, you’ve got to be looking at it, and we’ve had a bunch of clients come to us and say, “Okay, what should we be thinking about from a strategy perspective here?” And I would just point to a couple different things.
Hilding: I think, yeah, the kind of thinking about a digital outpost that is reflective of your kind of physical space. And when you’re launching brand or flagship stores, thinking about, you know, I think about my own kids. I’ve got an 8- and a 10-year-old, and they spend a ton of time on these digital worlds whenever they can, and they have their whole sophisticated lives. And in Avatar, and they want to buy stuff for those avatars. And it’s a very obvious transition for a lot of retailers, and you see the interest from Nike and others with their purchase of artifacts and some of these other players. So, no question that trend is happening.
The other thing I look at with the Metaverse is how the, you know, how the workforce embraces it or doesn’t, and I think that’s really interesting. You know, you think about Zoom, you think about all how many hours we spend on video calls? Is there a better way?
We’re all still exploring that, but when you think about the workforce of retail and you think about how you can enable better collaboration in the, you know, corporate offices or in the technology teams within those retailers, that’s the topic that is definitely in the fore of a lot of leaders.
And then finally, you know how does the Metaverse change what we consider important in terms of possessions? So this kind of trend around NFTs is trying around, you know, unique digital products that tag me as unique within this world. But, then, I want to be able to share socially on these new platforms.
Hilding: You know, really starts to be pretty interesting. And obviously digital products generally are really high margin, and so you can get an economic scale there that you maybe can’t elsewhere. But it does require new skills, so you’ve got to then partner and think about how do you create 3D versions of your existing products. To what extent do you build and net new digital SKUs that you allow your best customers to purchase, so then it gets into loyalty and data and on and on.
Scott: You know what’s interesting as well is we talk about microtargeting and personalization, which is obviously, you know, so important to building consumer trust and relevance and intimacy in the physical world. It’s no different when we go virtual. It’s no different in this new 3D Metaverse. So, the question is, you know all our lives don’t necessarily resemble each other physically and online, right?
Scott: Our physical world is fairly exposing. We are who we are. The people that, you know, we’ve become because of the environments in which we exist, there’s no escaping that, right, and your friends will call you out if you try to escape from that. But in this new Metaverse, people can be anything they want to be ultimately and often are, right? They take on these new personas, and so the question . . .
Hilding: Scott . . . I’ve got some great Harry Potter wigs that I’ve developed over the last two Halloweens that I can show you.
Hilding: I've dropped in . . .
Scott: Yeah, exactly and . . .
Hilding: couple of Zoom calls and use that.