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Next in Retail Podcast

Episode 2 - Big & Nimble

What it Means to Be a Big & Nimble Retailer

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Publicis Sapient discusses what it takes for retailers to compete in an era where dramatic transformation is necessary. We explore where retailers should start in their journey to becoming the proverbial "elephant on the balancing ball."

Transcript

Reva Bhatia:    

You're listening to Next in Retail from Publicis Sapient, the podcast that shares insights on unlocking what's next in digital transformation. Remember Montgomery Ward? Toys R’ Us? How about Forever 21? Examples of massive retailers failing to adapt to the changes around them are becoming the norm. With this, the message is clear. Retailers need to find a way to be both big and nimble. Today, we will be discussing what it means to be agile in these evolving times, and how retailers should adapt so they can swim and not sink. Joining me are Jon Reily, business and customer strategy lead at Publicis Sapient, Hilding Anderson, retail strategy lead. I'm your host for the session, Reva Bhatia. Thanks for joining me, gentlemen. Now, let's dive in.

First question, in today's times, the definition of what it means to be nimble can mean a lot of different things. What does it mean to you? I'm going to start with you, Hilding.

Hilding Anderson:        

I think for large organizations, their challenges are that they've got to continue to fly the plane while they completely reinvent the way that they interact and connect to the customer. And the question is, how do you do that? That requires a level of flexibility and reinvention and almost an entrepreneurial spirit within organizations that, over the years, haven't invested or set that as a core value of their company. I think for me, it's about rediscovering what it means to be agile and nimble for a lot of these larger firms.

Reva Bhatia:    

Jon, what's your take?

Jon Reily:        

To continue with the airplane metaphor, I would say also coming to grips with the fact that while you're fixing the engine while the airplane is flying, you need to look out the window and realize there's a mountain coming, and not pretend that that's not a mountain or the mountain is going to move by the time that you get there. And what I mean by that is I think that many retailers have a somewhat “head in the sand,” or “it's the customer's problem, not us. We're fine. Everything's been going great. We've been in business for 75, 100 years and we know how to do business. And this internet thing, it's a fad.”We've seen a lot of that of various retailers over the course of the last 20 years -- the companies that you listed earlier, of course. Montgomery Ward, boy, that was a flashback. Hadn't thought about Montgomery Ward in a long time. But, the point being {is} that retailers have to also be in the now as well as trying to fix what the problems are, and realizing that -- to continue another metaphor -- skating to where the puck's going to be and realizing that what you're doing right now may not be what customers are going to want in two years, or even 18 months. Being nimble means being able to react to that when it does happen versus having an antiquated organizational structure that doesn't allow you to pivot when you need to.

Hilding Anderson:        

I do think it's interesting, Jon. There are few interactions I've had with executives where they're like, “oh, no, we don't need to change.” We recently did some research where we looked at 400 or 500 executives and asked them(this is from 2018) but only 6% felt like they were truly digitally mature, that their transformation was done. I guess it's rare that I have a conversation where they're like, “oh, yeah, we've got it all figured out.” I think the challenge that I see is whether they know the path to walk, as well as can they execute on that path. Do they have the talent, do they have the vision, do they know where they need to go and how to get there? I'm curious if that's what you've seen.

Jon Reily:        

Absolutely. But I think the struggle there is communicating that within their organizations, and visionis a very difficult thing to communicate. And what I was describing there is not necessarily the leaders at the top, but the people who actually do the work. And not to name any names, but we've seen several old school retailers struggle a little bit with the modern era in terms of their ground troops and doing what needs to be done in the moment for the customer based on the digital era we live in -- versus how they've been working at that job for 10 or 15 years, {or they} worked their way up through the organization and they "understand retail." That's an accurate statement, but retail is a lot different. So when you have a command from the top of we're going to change, we're going to transform, being able to communicate that completely down the chain is a huge challenge and I think that's a large part of what we see with these companies. I use Forever 21 is a pretty good example of that. They failed to modernize for the modern era and it cost them and I think that you had a labor force of ground troops in the field who didn't get the same messages that were being communicated from the top.

Hilding Anderson:        

And just building on that -- we're in conversations with a large retailer and they have, over the last 30 years, looked at IT mostly as a cost center, not as a source of competitive differentiation. As a result, they're now sitting looking at that landscape and saying, “oh crap, we have to be digitally led, we have to put digital at the core of the enterprise and everything's on green screens.” Now you're looking at a 25-year debt of technology that they've got to overcome and they can't wait  20 years to get there.

Jon Reily:        

Right.

Hilding Anderson:        

Those types of challenges --and that's just the technology, that's not even the people -- that's not even the mindset. That's a huge part of this pain point, , around transitioning to be more nimble.

Reva Bhatia:    

Right. And what you both are describing is often that retailers, when faced with the need for transformation, find it to be exceptionally daunting, especially when you're a massive organization. And we see so many retailers specifically just trying to dip their toes in and make minor changes to their overall digital presence versus understanding the imperative to make {a} more sweeping change. I'd love you both to give your take on whether or not you think that “dip-the-toe-in approach” works, and why or why not?  I'm going to start with you, Jon.

Jon Reily:        

Well, you have to start somewhere and {if} you're going to get in the pool, you're going to start with your feet probably. However, there's lots of, well, “I have a toe in and everything's fine,” but that doesn't work for what we're talking about. An analogy I use is health. You can't diet or improve your health because you have some sort of heart condition. You have to dive right in. And I think a lot of retailers suffer from that obesity. And we're going to diet tomorrow, but we're going to put this one portion on a diet and everything else will fall and it'll be fine. And that's the whole thing about transformation. It has to be a lifestyle change in order for it to be effective. And so, that “dip a toe in the water to see if it works” probably is not a good long-term strategy. You have to start somewhere. Every journey starts with one step. But unfortunately, a lot of journeys stop at that one step for retailers and that's not a healthy way for retailers to go.

Hilding Anderson:        

I'm going to be a little provocative. I actually don't, in my experience, think that most retailers are like, “oh, I just need to dip my toe in at this point.” Maybe three years ago, but today, everybody knows that their platforms are on fire, in my experience. And maybe this is just the organizations, the 30, 40 organizations I've talked with in the last year, but the problem is “our platform's on fire, our board mandates that we continue to pay out dividends and our IT investments have just been cut by 20%. How do we self-fund this transformation? And yeah, I've got a 15-year, 20-year tech debt that I've got overcome to just do the basic blocking and tackling.” That's fundamentally the challenge that I see. It's not because they're only wanting to dip the toe in the water. That's the reason everyone looks at them and says,“hey, you've only dipped the toe in the water” {is} because it's so bloody hard to update everything because they're running all these antiquated systems. There's no question there are secrets to transformation and to accelerating transformation. One of the key ones is around agility and embedding agility in small teams, and using some of this product and agile methodologies that really have fundamentally changed just in the last three to five years. A lot of executives and retailers aren't familiar with them or, if they are, they're familiar with them only in a fairly limited sense of technology projects, which it I think underestimates the amount of impact they can have. But I think we're in broad agreement, except for the part around how much are they intending to change.

Reva Bhatia:    

I will say, speaking of intent to change, Walmart is really a hallmark story here. They're massively large, but they also found a way to revamp their operating model to compete in these changing times. That journey didn't happen overnight for them. What do you think they did well, and where do you think they still have left to go?

Jon Reily:        

Walmart I think is a great example of what I was referring to earlier, which is communicating vision and the importance of doing that through the entire organization. From the CEO's office in Bentonville, Arkansas, to the person working the cash register in Muskogee, Oklahoma - there is no question as to what Walmart's mission {is} and what their goals are. I think that that is a huge portion of Walmart's recent success, because they've been able to communicate that vision to the people who are actually doing the work, and communicate that vision to their customers of “this is what we offer and this is the types of solutions we can offer it for your problems.” Walmart's core business is grocery. They're the largest grocer in the United States, and that is a large part of their bread and butter after having the center of their stores hollowed out by the replenishment revolution that took place in the last couple of years. So, for Walmart to be able to say, “we want to be your hub for your home and everybody from the top of the company to the bottom of the company is going to help you as a consumer achieve that,” -- that's a perfect example of communicating with the ground troops, making sure everybody's on the same page and having that shared vision. So, when I talk about Walmart, I am singing from the rooftops about Walmart, about taking a company that, on the surface, looks like it would be stuck in the 20th century, but they're not.

Hilding Anderson:        

I actually think that it'll be really interesting to see if they can sustain this shift that they've made in the last three, five years, in part through acquisition and bringing in some new leadership, and sustain that movement. I think that the challenge for Walmart, it's going to become even greater over the next 36 months, as Amazon continues to grow and eat away at their business, as well as some of the other players start to beef up from a technology perspective. I think that we've seen, and it's been publicly talked about on the board, a real question that they're asking around “what is the role of digital within the broader mandate for profitability?” If you look at their digital division, I think they announced they've lost over $2 billion in, I think it might have even been in six months, or even a quarter, which, given their scale, isn't as big of a problem as it would be at a lot of retailers.- But the realization {is} that the digital still isn't a profitable enterprise for them. And you have a management and a board that looks at that and says, “well, why are we investing all of this in a losing channel when we're making good money in the store?” And that's the classic near-term orientation that many public companies are forced to take. I think if that mindset continues to dominate the board, it's going to lead to a set of bad decisions, and it's going to lead them down a path that is going to make them ultimately less competitive.

Jon Reily:        

So, we're just a bunch of provocateurs here, so let's just establish that. I'll come back to that and say, yes, but is that the new expense? Is it knowing that e-commerce may not be profitable right out of the gate, that you have to spend on the short tail in order to possess the long tail, which would be the Amazon philosophy?,  It almost becomes an investment in the future that, yes, I understand that here, in the year 2019, I'm going to lose X amount of dollars with e-commerce knowing that, , in that 2023, I know that my e-commerce will be more profitable than it is today, thanks to operational enhancement, efficiencies, et cetera. And I will own these customers… {But} is it worth it? If I'm going to a board and I'm going to look at the long tail of this rather than a quarter by quarter look at it, and look at a year by year or half decade by half decade…that's the kind of thing that I'm thinking about. Now, the question is whether you can afford to do that because not everybody has the enormous borrowing capital that some other companies in Seattle may have. And whether or not that is sustainable over the long tail, that remains to be seen.

Hilding Anderson:        

We're in agreement. I think that if you look at the history of disruptive innovation, a lot of it is around how you invest in something that is initially underperforming the current status. I look at electric cars in America in 2019, 2020, and you can say that technology is still, with the exception of one manufacturer, still largely not at mass scale. And a lot of that is because I live in Texas, as do you, and it's hard to not be able to go 400 miles here, which occasionally you need to do. And you’re not going to have a lot of options for charging. And there's still some pain points with this technology, just as there is with online. But that doesn't, for me, question the long-term viability of e-commerce and its role and its importance as a touchpoint for customers.

Reva Bhatia:    

Large retailers often really want to buy themselves out of the problem that we're describing here by simply acquiring smaller, digitally native firms to inject that culture and sense of being digitally forward. You saw this with Nordstrom as an example with their acquisition of Trunk Club. Does having an eye on M&A to solve these issues really work for retailers? When does it work, and when is it not such a great idea?

Hilding Anderson:        

I actually think that acquisition plays a role, but it plays a role in the early stages of that business maturation cycle where you're just starting to try to rapidly grow your IQ., A lot of acquisition, I believe, should be around talent management more than the individual products. I think for CPG, that answer is probably a little bit different, but for an apparel retailer, I think it's mostly about the fact that many retailers are what we call “talent starved.” They struggle to get and retain the best people, and doing acquisitions is one solution to that at scale.

Jon Reily:        

Yeah, the “acqui-hire” is always attractive because you feel like you can get a turnkey group of folks that could come in and inject life into your business, but it's also dangerous because there's culture that has to be taken into account. I would say that probably a pretty good illustration of that collision  with Jet.comand Walmart. They have since overcome a lot of that, of course. But retailers who are somewhat healthy that have the ability to have an M&A strategy to be able to try and purchase opportunity and talent and technology.... I would also caution a lot of retailers to not make that “midlife crisis” mistake of going out and purchasing the red sports car of, “okay, this is going to solve all my problems here,”when rather maybe that talent exists already within your business, or that money would be better spent elsewhere, as opposed to picking up something new and shiny that you think is “going to be the thing that's going to drive me forward.”

Hilding Anderson:        

I think the other lens to take on that is that there is a product opportunity around acquisition that if you understand a frame where retailers are being commoditized and challenged - on one side, from brands that have their own product that's proprietary, that you can basically only shop where they want(not very substitutable), and marketplaces that are going for scale and availability and a large footprint. You, as a retailer, have a choice. You can either go for more scale and build up your own marketplace, and build up some of your own selection and options, make convenience  a key part of your play…or you can look at having your own product. And if you choose that option, then I think there probably is a portfolio strategy around acquisition that lets you more quickly build up your private label capabilities. And we're seeing that at some European retailers and we're seeing that in North America as well to a limited degree.

Reva Bhatia:    

So maybe shifting gears a little bit, and we touched on this briefly when we talked about M&A as a strategy to change the culture of your organization -- how do large retailers need to view their organization models in order to be able to become fully nimble and fully agile? Jon, I'm going to have you kick this one off.

Jon Reily:        

This comes back to the “dipping a toe in.”  If  we look at a pattern of e-commerce over the course of the last 20-ish years, it's weird to think that we're about to enter the third decade of e-commerce, but the path of it within most organizations is they're a successful brick and mortar retailer, this internet thing comes along, {and} they think, “okay, well we probably need a website. We may want to sell some stuff. Let's go find some nerds and stick them in a closet down in the basement and they can create this website, maybe sell some stuff.” And then, eventually it gets to the point where that website's making enough money where it starts to compete with the rest of the business. I personally experienced this in my past lives... Then the brick and mortar guys are like, “wait a minute, you're stealing my customers.” And rather, those are all the same customers. So those organizational structure problems that we saw in the earlier part of the previous decade and up into the early 2010s, those have largely been pushed aside. But now we're starting to see it in different ways in the entire lifecycle of the customer and the customer experience. And something I will jokingly say to executives is if I, as a consumer, can sense when I've crossed a P&L, you've failed at customer experience because the customer doesn't care whether they're dealing with you in the store, online, on their phone, on a website, mobile, whatever. From the customer's standpoint, it's all retailer X, and they don't care what channel they're using in order to communicate with them. The organization, on the other hand, is probably pretty segmented into various divisions to service all of those needs. And so, when you look at the modern era and you look at the success of digital DTC companies that have come along with this direct-to-consumer market, the reason they're able to do that, and, coming back to our original comment about being nimble, is because they're just a group of people that are trying to solve a problem and offer a service. And big companies struggle with that for various reasons because you have in communication over P&L's, you have starving for talent, as Hilding pointed out. And it may not spread across the entire organization. And thenyou have to realize that you have a problem and not just continue to Band-Aid it and say, “okay, well, we're just going to get better at communication,” or “we're just going to get better at sharing information across silos” because that's just not going to work. The unified experience for the customer across the entire experience is critical for retailers to survive in the modern era.

Hilding Anderson:        

I would just add that we see multiple models be successful. That being said, for example, we have one client that has that traditional digital business arm that owns all of their e-commerce -- which pretty siloed from the traditional technology arm, yet is one of the top performing retailers in North America. We have other businesses where that same structure causes all sorts of divisiveness and problems, especially as it conflicts with the P&L responsibility.  I think ultimately my recommendation is to absolutely keep it customer centric, look at your organization and try to make sure that you have that customer be the key target and set up teams that are focused on different aspects of the customer journey; making sure you think about what kind of a product orientation is an aspect of that. But then look and understand that power in most of these organizations is ultimately linked to that P&L responsibility.The extent that that is in conflict with building a great experience for the customer, the organization is not going to perform as well. And that's an essential part of this puzzle.

Reva Bhatia:    

Do you think that there's a certain sense of outdatedness with many retailers viewing, say, mobile as a product within their business or viewing it as its own independent channel?. And their website is its own independent product or channel, rather than integrating all of these different moving parts and pieces of their consumer-facing business, into one, more customer-centric model where the organization is collapsed, where all of these different channels aren't treated as separate communities? I know, Hilding, you mentioned that we have examples of where that works, but are those more the, anomaly than what we more consistently see?

Hilding Anderson:        

It really varies on the organization. The customer research shows that mobile, for example…  65, 70 plus percent of US customers use their mobile phone while in the store and it quickly gets into the question {of}“okay, well, if you purchase on the website something {that’s} in the store, who gets credit for that? And that's where that P&L battle begins. Digital today is on the agenda of every board, and how you respond to that challenge with digital is on that agenda. And organizations today understand much better than they used to that that omnichannel shopper is incredibly important. And I feel like in each of their own constructs have made some considerable progress in terms of solving that issue around channel conflict.

Jon Reily:        

I think all retailers… there's a maturity now where they get it, they watch their own usage, they watch their friends and neighbors and children's usage of how we interact with brands and interact with everything. So I don't think anyone really has the, “oh, mobile needs to be a separate entity, and what's our mobile strategy?” I haven't heard anyone ask that for some time, where just three years ago that was a super common thing that people would ask: “What's our mobile strategy? Mobile first. Responsive website.” When was the last time you heard somebody say that? I think that retailers now get that the goal is to reach the customer where they are and where they want to be in the right place at the right time. But, to Hilding's point, that attribution model comes up where this vice president wants to make sure that they get credit for that sale because it occurred over this vehicle. And that's what I'm talking about.That mindset is not how it's going to work for very much longer, especially as we're seeing a massive generational shift to generation Z -- that's going to be the largest consumer cohort here in just a couple of years, and no one under the age of 25 is buying things without touching their phone. So, if you're going to have a attribution model where, even though I'm in the store and I'm using my phone and there's bickering about that, that is time wasted that can be better spent creating a better customer experience.

Reva Bhatia:    

Great. So let's wrap with each of your key thoughts on how retailers can become the proverbial elephant on a balancing ball. I'm going to kick it over to you, Hilding.

Hilding Anderson:        

I think the key is to move faster as an organization. Think about adopting a product mindset and really unpacking how  you {can} just move and test and learn and make hundreds of changes every quarter to all of your digital

touchpoints. I think that will force you to look at your organization and measure yourself against, frankly, the best. Measure yourself against the Walmarts and the Targets and the Amazons of the world from an engagement perspective, from a customer experience perspective. And use that  {as}the measuring stick for your nimbleness and your organizational readiness and fit for purpose.

Jon Reily:        

Absolutely, can't echo that enough. And we're not going to be provocative on this one. If you don't know your customer, you're not going to succeed, and you can't learn about your customer unless you're taking lots of ways and offering them new things to learn more about them. Because unfortunately, consumers are somewhat reticent to share the information with retailers thatretailers require to enable them to offer the experiences that the customers want. And if you're not testing and learning, you're not going to be able to crack that nut and determine what it is that they want., Amazon is fast - they can do things very, very quickly and they test and learn everything. And other large retailers are the same way to the point where you visit any top 20 website, chances are there's a half a dozen or a dozen tests running on every single page that you see. And that's an example of who's going to be successful and who isn't. Because if you don't have a learning mindset, you're not going to make it.

Reva Bhatia:    

Awesome. Well, Jon, Hilding, thank you so much for joining. This was a great conversation. I appreciate it.

Jon Reily:        

Thanks. Great to be here.

Hilding Anderson:        

Thank you.

Reva Bhatia:    

Thanks for tuning into Next in Retail. Be sure to subscribe so you don't miss a beat on the future of digital in retail.