International expansion, new technology and retailers’ impact on society were all on the agenda at this year’s National Retail Federation (NRF).

The NRF’s Big Show Expo Halls showcased technologies and services from more than 500 providers

With 27,000 people attending, the National Retail Federation’s (NRF) annual conference in New York is one of the biggest events in the retail calendar. This year’s was bigger than ever - after a couple of years of holding back, retailers seem increasingly keen to start investing and looking ahead again.

This is largely driven by a growing realisation that routes to market are changing. Retailing is still in some ways the same game as it ever was, but the rules are shifting. As Starbucks chief executive Howard Schultz said at the conference: “There is a seismic change linked to technology. Any company today that embraces the status quo of traditional marketing, PR and communication is facing a collision course with time. The level of investment in these new platforms, especially mobile, is mission-critical to our respective companies.”

NRF is at heart a technology conference, and hundreds of technology companies flock to its enormous exhibition hall. But just as technology has become a more integral part of retailers’ business models, so too is NRF about much more than IT. Politics, leadership, the economy and retail’s business model all featured, and speakers as diverse as former UN secretary general Kofi Annan and Walmart president Bill Simon made appearances.

Renewal and retail

Annan might not be an obvious choice for a retail conference, but he did touch on themes pertinent to the industry.

Changing supply chains have been a trend for years as retailers seek to increase flexibility and, more recently, bring production closer to home. Annan asked them to consider forming partnerships with small companies and farmers as part of the fight to boost economic prosperity in developing countries. “We live in a world where the population is growing very fast,” he said. “We need to create millions of jobs to keep young people busy. There are areas where retailers can play a role by bringing small and individual businessmen and women into their supply chain. If all these farmers are pulled into the chain they improve their own living conditions but are also able to supply their society.”

He mentioned Africa should be considered as a future manufacturing location. “Six out of 10 of the fastest growing economies are in Africa. It’s attracting quite a lot of interest. Not just in oil and mining but agriculture and manufacturing. The location is very good - I’m surprised countries have not exploited it so far.”

He also encouraged retailers to work with governments on projects and partnerships that will boost local prosperity. “As businessmen and women you do have influence in the communities in which you operate. You create jobs and bring prosperity, and are able to talk to political leaders.” He cited Vodafone as one example, which created a mobile payment service that enabled 17 million people who were previously excluded from the financial system to start paying for things electronically.

Simon also focused on the role retail plays in the wider economy - he unveiled plans to offer all returning military veterans a job if they want it, as Walmart is expected to hire 100,000 over five years. The Walmart boss also spoke of the need for retailers to lead an economic revival, rather than waiting for things to get better, and pledged to increase sourcing of American-made products by $50bn (£31.5bn) over the next 10 years in an attempt to contribute to an “economic renewal”.

“It’s a difficult slog, a fight for market share, but in a growing economy everyone can be successful. There are a lot of things we can do, a lot of big rocks we can start moving,” he said.

Schultz, meanwhile, added there is an appetite for more socially conscious brands. “The consumer is hungry to attach themselves to something they believe in. If a brand stands up for something relevant in their community you have an effect that is very powerful. If you can link that with the power of social and digital media that will have a significant effect on your core business.”

Convenient truths

Away from the keynote stage, the importance of convenience was an increasingly popular topic. As retailers’ sales channels evolve with the growth of mobile and multichannel, it looks likely that those who take convenience as their guiding light will do well in the coming years.

One of Amazon’s key points of difference has always been its user-friendly efficiency and, as multichannel retailing develops, retailers that cleverly utilise their networks of stores will be the ones that keep the etail giant on its toes.

Tesco chief information officer Mike McNamara said consumers will naturally flock to the easiest shopping option, and spoke about the vast changes poised to occur as a generation of shoppers who grew up with iPads start to enter the workforce. He said: “Retail in the 2020s will be vastly different to today. The emergence of digital natives into the workforce means we’ll need to change the way we go to market.”

He observed that retailers will need to change the way they create services. “Digital natives think differently.

They buy through the most convenient mechanism. They’re like people who have grown up bilingual who effortlessly switch between languages. They seamlessly switch between the two.” He also noted that while convenience in the past has been all about location of stores, in the future it will centre much more around multichannel services such as click-and-collect.

Technology supplier Oracle’s research on the evolution of ‘experience retailing’ backs this up - it found customers in its seven largest retail markets selected Amazon as their preferred retailer because of the experience it provides in terms of choice and ease of use.

Mike Webster, senior vice-president at Oracle Retail, said digitally empowered customers are increasingly in control. “This is the age of the individual that wants every retail interaction to be ‘good for me’, to be defined and dictated by ‘my’ preferences,” Webster said.

Much of the effort needed to achieve that is behind the scenes, such as the work Ugg owner Deckers Outdoor has done with Oracle. The retailer has centralised its merchandising, planning and store operations and plans to integrate its ecommerce operations as well, making it easier to get an overall view of stock levels and trends.

Capable and comprehensive

NRF 2013

NRF 2013

It’s not just technology infrastructure that needs work - Ram Rampalli, director of engineering at Walmart’s research facility @WalmartLabs, said it is becoming more important for retailers to make their products easy to find in a saturated market. “The lines between channels are blurring, you have to be everywhere. And you have to support online with a good search platform,” he said.

It is essential to give customers flexibility, said Chris Mangham, chief information officer at Russian electricals chain M.Video, which is also investing in Oracle systems. He said: “We need to give the customer what they want. We need to be able to track the order and have the capability to change status. If a customer orders online, then goes into the store and finds the product they ordered is stocked, we need to be able to give them that product and stop the online order.” He added: “If you don’t do omnichannel, you don’t have a business.”

There’s a lot of work for traditional bricks-and-mortar retailers to do - it’s all achievable, but the next few years will be a challenge for some. There is also, as ever in retail, a central role for those who make their own luck.

Being in the right place at the right time has led to some big names rushing to the top - this is no less true of Amazon than it was for Tesco and Walmart 20 years ago.

Amazon founder Jeff Bezos highlighted the role luck has played in his company’s success, as he collected the NRF Gold award at the conference. He said: “18 years ago I was driving the packages to the post office myself in my Chevy Blazer, and I can assure you I did not expect to happen what actually happened. I can also assure you we at Amazon have had incredible planetary alignment for this to have happened. There’s been a tremendous amount of luck and a lot of great timing and we are very grateful for that.”

Data analytics was another recurrent theme - while hardly new, it’s still a growing area with a lot of development to come. Macys.com is leading the way with plans to introduce a testing environment to enable it to solve business problems with its data. Working with provider SAS, Macy’s vice-president of analytics Kerem Tomak says the plan is to use data to create a multichannel roadmap.

NRF 2013

“We’re answering the question of what is the interaction between dotcom and stores,” he said. “How do people respond to messages on mobile devices versus email? We are looking at how email is driving direct mail responses, for instance, how many days after a catalogue arrives should you send an email. It’s so challenging but so important, it’s the difference between losing a sale or gaining a sale.”

Worldwide reach

Alongside the technology-related issues was the ever-present theme of international retailing. Monsoon founder Peter Simon and Aldo president of international Norman Jaskolka both talked about their work with Middle Eastern franchise company AlHokair Group, which is working with Accessorize to roll out stores in the US.

But as Jaskolka said, not even international retailing is immune from the changes sweeping the industry.

Multichannel retailing is even more difficult to do well when operating in multiple markets. “There’s a rapidly shifting business environment and we’ve got to adapt to that world,” he said. “The future landscape will
be different. We will need to distribute in countries across all channels. There’s the challenge of exporting cross-channel to international franchise partners.”

There’s no avoiding it - changing routes to market are impacting nearly every retailer. As the examples highlighted throughout NRF showed, retailers’ are responding to the culture change.

Monsoon’s franchise network

Monsoon partners with both big and small companies for its franchises

Monsoon partners with both big and small companies for its franchises

Peter Simon founded Monsoon in 1973, and sister retailer Accessorize launched a year later. Today, it has 1,450 stores across 74 countries - 1,100 are overseas - and it is the only UK retailer to have a sizeable presence in Brazil.

The retailer works with a number of franchise partners internationally and Simon said the strategy has helped speed up expansion. He said: “I was never going to open a subsidiary but I realised it’s better to have 50% of something than 100% of nothing. The franchise model allows for speedy expansion.”

Monsoon’s international expansion strategy started in an unusual way - Simon said he agreed to see a man who had been waiting at his offices for three days, who turned out to be an Icelandic salmon fisherman who wanted to open a franchise in Reykjavik. Simon said: “I was keen to go salmon fishing so I gave him the franchise for Iceland. He still operates it today and I got to go salmon fishing.”

Simon said his most successful partnership is with Middle Eastern company AlHokair Group, which operates 121 stores across eight countries, including the US, where it opened its 23rd Accessorize store in 2012.

“They’re going to really drive and open up the US,” he said. Simon said the retailer has a combination of partnerships with big companies and small family operators. “Both work well if you can get that important ingredient, passion,” he said.

“We like to find partners with good knowledge and understanding of local customs, as well as the finance to invest. The most important thing is to have the passion. Without that you won’t succeed.”

Data-driven retailing at Macy’s

Macy's

Data analytics is one of the driest terms in the retail industry but, as most will know, it’s worth paying attention to - analytics helped Amazon get where it is today. It is still possible to run a successful retailer without making much use of the data it generates but, as the decade goes on, routes to market will change. Customers will interact with retailers in different ways and online, mobile, stores and social media will all play their role. What’s difficult is that customers will interact with each retailer in a different way, and the only way to find out for certain what they respond well to is by interrogating the data generated by transactions, online browsing, or social networks, to give an indication of where things are heading.

US department store Macy’s is one of the few retailers outside of grocery to throw its weight behind data-driven retailing. Kerem Tomak, its vice-president of data analytics, has spent about two years investing in the right tools - he works with analytics provider SAS - and the right people to get the retailer’s data capability to a “world-class” standard. So far, his work has centred on email marketing and improving segmentation of customers, which across the retail industry is the most mature part of analytics.

“The most challenging part is going beyond email and trying to understand the more complicated interactions between channels, such as how email is driving a response to direct mail,” he said.

“It’s so challenging but so important - you are either gaining a sale or losing a sale. We’re answering the question of what’s the interaction between dotcom and stores. Doing it right, and tying in offline marketing with online marketing, will be a game changer. I’m just scratching the surface.”

Tomak has big plans for the next few years. Within three to four years he wants to have built a testing environment similar to Amazon’s, which will involve staff approaching problems in a new way. At Amazon, experts comb through all the data available to them to look for aberrations or answers to problems. They use the data to form hypotheses that they then test, using the resulting data to decide whether something is worth exploring further.

Tomak said he already approaches problems in a similar way, and is educating other staff to think in that way too. “I like to listen for a business unit that has a problem, and see if I can answer that question with analytics. I’m working with our product management teams to make sure that testing is part of the birth
of an idea,” he said. “There’s a lot of misunderstanding of analytics and people get nervous of it, because they think we’re scientists that do things no one understands.”

The required cultural change will take a couple of years and, in the meantime, Tomak will work on developing customer recommendations - for which Macy’s has its own algorithm, something most retailers use technology suppliers for. For others interested in boosting their analytics capabilities, Tomak said the most crucial part of his work was having the necessary support. “The senior management at Macy’s are very savvy. They want everything data driven, and it makes my job a lot easier.”

Tesco’s internal social network

Tesco

Tesco is rolling out Microsoft Office 365 software, which will enable colleagues across the world to share ideas and collaborate on projects. The system will act almost as an internal Facebook, connecting staff from stores and head offices and, the idea is, enabling staff to communicate and learn from each other.

Chief information officer Mike McNamara said that it has taken a while for corporate culture to allow such freedom of communication but once the grocer had decided to do it, it wasn’t a difficult process.

“We had a ‘road to Damascus’ moment a couple of years ago as Facebook took off in Europe,” he said. “At first we were resisting it, saying it doesn’t matter to us, but then we changed. It was fairly evident to everybody we couldn’t control communication any longer, so we decided we weren’t going to. Once we made that mental leap of opening up the flood gates, we were fine and never looked back.”

The system will be rolled out to head offices across the world in February, and after that to UK stores.

Tesco already uses Microsoft Sharepoint to connect colleagues and McNamara said social systems inside businesses are a natural move for most staff.

McNamara said: “There’s a pent-up demand within businesses for these kind of things. We’ve never had to encourage it or push people. For most people this is nothing, it’s Facebook inside the enterprise.

People embrace it very readily.”

Staff will also be able to access the system on their own mobile device, in a departure from most retailers’ policies a few years ago when that was deemed to be a security risk.

McNamara adds that the way retailers operate internally and externally will need to change as more ‘digital native’ shoppers come into the workforce and become consumers. “Retail in the 2020s will be vastly different to today. The emergence of the digital native into the workforce means we’ll need to change the way we go to market. Digital natives think differently. They buy through the most convenient mechanism. They’re like people who have grown up bilingual, who effortlessly switch between languages.

They seamlessly switch between the two,” he said.

In the shorter term, McNamara said the system will help support a shift of power back to store managers, who he said were ‘deskilled’ when Tesco centralised and standardised its offer throughout the 1990s. He said the new system will help support a new era of more personalised, localised retailing.

“A key thing for us is around communication to and from shops,” he said. “Today head offices broadcast to shops, and stores respond via the management hierarchy. This is really opening the flow of information. There will also be peripheral benefits through engaging colleagues, and it will have a positive morale impact in the shops,” he added.

McNamara said the system should also improve everything from merchandising to service, by giving managers easy access to best practice worldwide and allowing staff to collaborate on the best way of doing things.

John Lewis at NRF

John Lewis was a Christmas 2012 winner, in part because of its multichannel proposition. Online sales were up 44% over the festive season and its click-and-collect operation was key.

With a replatforming over to Oracle ATG software about to go live in the next few weeks, the retailer’s lead over many in the multichannel market may widen further.

Speaking at the Oracle Retail Exchange as part of NRF 2013, John Lewis director, retail operations development, Simon Russell, said the replatforming will help the department store group reach just shy of £1bn online sales this year.

Russell said that in 2010 John Lewis had multiple channels and wanted to work out how best to integrate. “We had lots of bits to fix,” said Russell.

He explains that John Lewis looked at how much its store-only and online-only customers spent and it was “roughly the same”, then looked at how much those shoppers spent who used multiple channels, and it was three-and-a-half times higher. “If we introduced our shop customers to the website, it would increase their spend,” he said.
John Lewis carried out a series of quick wins such as improving search, navigation, delivery options and introduced ratings and reviews. Click-and-collect was launched and expanded to Waitrose stores.

Staff were also trained in the importance of the website. “You need to spend time with colleagues to show them why it is important. The way customers shop has changed so dramatically that it shouldn’t be seen as a threat,” he said.

He explained that the retailer opened its staff discount up to the website so they could understand the online shopping experience.

But quick wins weren’t enough and Russell said the retailer “dramatically increased its IT investment in order to move ahead”. He said John Lewis’ existing platform dates back to when it bought Buy.com in 2001, which led to its first online iteration. “The existing platform is well past its sell by date,” he said.

When searching for a new platform, Russell said he faced a “big battle internally” as sister grocer Waitrose was investing in a new platform but it was different to the one John Lewis wanted. While it would have made some sense to be on the same platform, John Lewis went with the Oracle ATG platform.

The beta site went live in autumn for staff and some testing groups, and will be switched on fully in the next few weeks.