[Slides] What Do We Do with All This Big Data by Altimeter Group
[REPORT PREVIEW] Leading Trends in Retail Innovation
1. LEADING TRENDS IN
RETAIL INNOVATION
Insights from Some of the Most
Progressive Retailers Changing
the Game
MAY, 2018
BY BRIAN SOLIS
RESEARCH REPORT
PREVIEW VERSION
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
Annouced 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.