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Kohl’s, Facebook, And A Sad STORY

On Tuesday, Kohl’s announced a partnership with Facebook to use the social media giant’s consumer information to select a merchandising assortment. The assortment – featuring new or unknown brands – is entitled “Curated by Kohl’s,” and is part of CEO Michelle Gass’s efforts to enhance Kohl’s relevance with younger consumers. Kohl’s plan for its execution – and how it contrasts with Macy’s STORY concept – is another example that the mindset of legacy retail executives may be holding them back in today’s market.

The “Curated by Kohl’s” assortment will launch in-store and digitally in 2020. While marketers have used Facebook’s customer data to reach target consumers for years and actively use the platforms to sell their products today, partnering directly with the platform to identify up-and-coming brands to include in an assortment is new.

The data driving these assortment decisions should be good. Flocks of new direct-to-consumer brands have used the platform as the quickest – although increasingly expensive – path to customer acquisition.

But will it play in Peoria?

Photo courtesy of Getty Images for Macy’s, Inc.

Macy’s STORY, by contrast, builds an assortment around a theme. The latest concept – “Outdoor” – includes a head-scratching Miracle-Gro partnership. A visit to the merchandising pad at the Macy’s at Woodfield Mall this weekend showed evidence that the consumer is puzzled too; despite heavy traffic in both the Chicago suburban mall and at Macy’s, there was no one shopping the pad.

STORY is also exclusively in-stores. Although individual items may be found on Macy’s site, STORY is not available as a shoppable concept online.

Kohl’s approach to creating a new, traffic-driving assortment is stronger. Kohl’s already recognizes that digital traffic is as important as physical traffic; the assortment will be available on both the site and the retailer’s mobile app. And with Facebook’s help, matching a defined target consumer with an assortment should yield more fruitful results than dropping Miracle-Gro in the store.

If executed properly, the move by Kohl’s is a further data point revealing that the mindsets of legacy retail executives must change quickly. A recent study by McMillanDoolittle revealed that only 5% of the leaders of legacy retailers have a career background that started in marketing – a function that may have a better-developed sense of meeting a defined customer’s needs.

Kohl’s Michelle Gass is one of those legacy retailers with a career rooted in marketing. Her strategies of creating traffic by leveraging Amazon’s returns and the Curated concept reveal she is thinking differently about customer acquisition and repeat visits. Acquisition for legacy retailers is no longer about additional advertising or opening new stores. And it definitely isn’t driven through assorting random products that are tailored to a fashionista-ironic mindset in a Macy’s setting – a strategy that bares a whiff of the Ron Johnson experiment at JCPenney. (Disclosure – I was briefly part of the Ron Johnson-era JCP.)

Strong retail leadership will need the foundations of smart merchandising that fits both a digital and physical setting, the know-how to combine the operations of a store and the digital world, and an understanding of how to acquire customers in today’s retail marketplace. Gass may be one of the examples of a retail leader who gets it.

This articles first appeared in Forbes.

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Robots Are Coming To Grocery Fulfillment: Can They Drive Profitability?

As I’ve written several times before, there are multiple reasons why the grocery category is well under-penetrated relative to other e-commerce categories. Multi-temperature products, awkwardly sized and shaped products, product and SKU proliferation, delivery challenges, combined with razor-thin margins have kept e-commerce penetration today to under 3%. However, there are multiple efforts underway to change this, from massive investments in buy online, pickup in-store infrastructure (Walmart), third party, on-demand fulfillment (Instacart) along with a host of new investments in sophisticated robotics and AI from a variety of start-ups and established companies. These efforts are all designed to address the fundamental challenge of reducing costs/increasing efficiency to make grocery e-commerce more profitable, or frankly, profitable at all.

Three new developments in robotics are all working on the profitability equation for grocery e-commerce. Commonsense Robotics, Takeoff Technologies and Kroger/Ocado are approaching this issue from different but equally fascinating angles. All are implementing automation and robotics in different ways, but they are designed to address one of the key fundamental cost challenges—picking groceries. The other, of course, is delivery, which also is seeing advancements through route management, autonomous delivery and naturally, not delivering at all (pick-up).

As Scott DeGraeve, COO and Co-founder of Locai Solutions explains, “Robotics in e-grocery are aimed at making a step function change in labor costs and throughput time. As customer penetration grows, more and more retailers are feeling the effects in their busier stores of the challenges of the in-store pick”.  While the efficient way into e-commerce is through utilizing existing in-store infrastructure, it is not likely the long-term solution.  DeGraeve cites congestion in the aisles, higher out of stocks, and issues with labor productivity as key issues, with “stores designed to sell products, not provide for an efficient 40+ item order pick”.

But, are robots truly the answer? Three notable efforts are designed to address this.

Takeoff Technologies, creator of the world’s first automated micro-fulfillment centers (MFC’s) recently announced a partnership with Wakefern Food Corp., the largest retailer-owned grocery cooperative in the U.S. Takeoff is an eGrocery solution that leverages automation on a hyper-local scale. Orders are placed online through established retailers and Takeoff’s automated technology fulfills the order using robots in the MFC’s. These centers are significantly smaller and less capital intense than full scale solutions, which could allow faster deployment and centers closer to the end consumer. The first such center will open in Clifton, NJ and work with Wakefern’s ShopRite from Home platform. It promises orders of up to 60 items being fulfilled in minutes.

CommonSense Robotics, an Israeli start-up, is also focusing on micro-fulfillment centers. Their twist—the first underground and automated grocery delivery center that will make one-hour deliveries for grocers while utilizing existing space and can also be placed closer to the consumer in denser urban markets. Their new micro-fulfillment center will be in downtown Tel Aviv, located in the parking garage of the city’s oldest skyscraper, Shalom Meir Tower, and will only take up 18,000 square feet of triangular space.

Finally, Kroger’s partnership with Ocado is an example of automated fulfillment centers at scale. Kroger has announced that they plan to build as many as 20 automated grocery warehouses with a capital cost of up to $55 million for the land and equipment. UK based Ocado is clearly a leader in the space and is perhaps the only company (certainly a public one) that has shown grocery e-commerce profitability at scale. Kroger has announced the development of the 355,000 square foot Monroe, Ohio fulfillment center known as “shed” in spring 2021. These centers are also powered by sophisticated technology and advanced robotics and Ocado is perhaps furthest along in streamlining every aspect of the process (order, pick and delivery). The disadvantage of these centers is capital cost, time to build and time to achieve economies of scale.

From in-store pick, dark stores, semi-automated fulfillment, micro fulfillment centers to full scale automated warehouses, the rush is on to figure out a way to lower costs of grocery fulfillment. As always, there will not be a one size fits all solution for the right way to approach the problem. The best retailers will have flexibility in their solutions (urban vs. suburban, delivery vs. pick-up, immediacy vs. scheduled) that ultimately meet consumers, at a profit.

Neil Stern for Forbes

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Amazon At 25: A Fascinating Journey Through Retail History

In July 1994, Jeff Bezos founded Amazon.com. 25 years later, he is the wealthiest man in the world and Amazon controls 50% of the online business in the U.S. with no signs of slowing down. I have been tracking developments in the world of retail for an even longer period of time (by writing for Retail Watch which began publishing in July 1986) and wish I could tell you that I saw it coming. Amazon didn’t even make my radar until May 1997, when I wrote about its IPO and book wars with Barnes & Noble.  And at that time, internet was still a dial up, text heavy, largely unsearchable world where, I noted, a phone line would take your order if you were uncomfortable providing credit card details online.

Much has changed at Amazon, and in the world of retail, in 25 years. Here’s a quick look back at how Amazon has progressed in this period:

1994—While Amazon didn’t make my radar, I reviewed some of the stories that were covered during that time. I wrote about Expo, Home Depot’s revolutionary home store that is now defunct, but I also explored a number of “new” concepts that have withstood the test of time including CarMax, Dave & Buster’s and Anthropologie.

1997—Amazon goes public (at the equivalent of about $2/share in today’s stock price) with $16 million in sales and selling exclusively books. Music comes along in 1998, a deal with Toys R Us to move into toys comes along in 2000 and apparel in 2002.

2003—Amazon Web Services debuts in 2003. It would have been impossible to predict at the time, but this became the profitability engine that would fuel continued e-commerce expansion and operating losses.

2005—Amazon Prime is born and is probably the game changer, with 100 million global users and stickiness to the company that is almost impossible to replicate. Over time, Amazon sets the standard for shipping and the race towards immediacy.

2007—Kindle becomes the first major product with Echo (probably the real game changer) in 2014.

2009—Zappos is Amazon’s first major acquisition.

2015—In an ironic twist to the bookstores Amazon put out of business, Amazon Books debuts and ushers in (maybe) an era of Amazon in the physical world. Amazon Go arrives towards the end of 2016.

2017—Whole Foods is acquired marking a significant push into grocery and the world of physical retail. 2019 will likely mark the opening of an all new Amazon food format.

Of course, the timeline obscures the massive impact that Amazon has had on the industry. Revenues equal $232 billion at the end of 2018 with 50% of that occurring through third party sellers. Amazon operates in 13 countries around the world and the very mention of it entering a new market (or new product category) sets the entirety of the retail world on edge.

What is clear is that there are very few stories of true retail disruption in the market.  For fun, look at the Rule of 16—about every two decades concepts come along that fundamentally disrupt the marketplace. If this rule holds, the current major disruptor to retail already exists…it just may not be recognized as such (and it will quite likely not originate from the U.S.).

  • Walmart was founded in 1962, as was Target and Kohl’s. This introduced an era of discount stores that disrupted the department stores and became the dominant form of U.S. retailing.
  • Home Depot was founded in 1978. Big box category killer stores proliferated the retail market in the 1980’s. Almost holding to my theory, Price Club formed the club business in 1976 with Coscto (and Sam’s) entering the market in the early 80’s.
  • Amazon is founded in 1994, as was Old Navy.
  • So, who came along in 2010? Warby Parker was founded in 2010 and arguably heralded the era of digitally native retailers who begin their origin story online. I will cheat and make the observation that the Taobao mobile app was launched in this year as well. While Alibaba dates back to 1999, the mobile app becomes the real business game changer.

What will the next 25 years be like for Amazon? Likely a whole lot different than the first 25. Can Amazon drive wholesale adoption of voice activation as Alexa becomes embedded in more and more devices? Will physical retail stores play a more prominent role in its future as omnichannel converges? And perhaps most critically, how does Amazon contend with being the established behemoth versus the scrappy underdog? As Jeff Bezos has said, “Amazon is not too big to fail. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”

This article first appeared in Forbes.

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Wayfair Wayfails In Social Activism

Efforts to intervene in social, political, economic or environmental reform have largely been driven by activist organizations and individuals. Retailers, for the most part, have been content to stay on the sidelines for fear of alienating a particular customer group and targeting one demographic group over another. This middle ground of indecision, however, is no longer an option. Retailers are being forced to take stands on social issues by both customers and employees. And oftentimes, the controversy comes from an entirely unexpected place.

Wayfair, an online marketplace for home goods, is one such example. Over the last few days, Wayfair has landed in the middle of a politically charged discussion on immigrant detention centers on the United States and Mexico border. The detention centers are being overtaxed and the quality of life for the detainees has been quickly degrading.

The issue (and controversy) arose when Wayfair employees learned that the company had received a $200,000 order from a government contractor that manages border detention camps. Upon discovery, Wayfair employees sent a signed petition to the leadership team of the company asking to cease all current and future business with contractors participating in the camps’ operations and to donate the proceeds of this sale to a non-profit helping immigrants. This demand was predicated by the belief that Wayfair shouldn’t be “enabling, supporting or profiting from [the detention centers]” by doing business with government contractors involved.

While this situation presented an opportunity for Wayfair to follow in the footsteps of other retailers who have taken strong social stands such as Dick’s Sporting Goods, Patagonia, and CVS, Wayfair’s leadership team decided to ignore the protest from employees and fulfill the order. This decision has led to an escalation of the issue including an employee walkout and caused backlash with customers as well, with some calling for boycotts against the company. The aftermath of this situation is still unfolding, but ultimately this was a missed opportunity to resonate with its employees and customers. This action has now impacted how future employees will view the company’s core values and might deter customers from shopping with Wayfair. Wayfair’s stock has ping-ponged up and down so it is difficult to understand the long term impact.

The situation Wayfair finds itself in is a difficult one. An argument could be made that these centers are trying to improve conditions and Wayfair is assisting. But, management should have been more sensitive to the larger optics and followed the employees’ suggestion to donate the proceeds to a worthy charity.

Wayfair’s employee walkout should be a shot across the bow for retailers everywhere. Businesses are not faceless organizations that only sell products, services, and experiences. Consumers (and employees) want to align their values with the companies they are doing business with. By humanizing retailers, we have raised our expectations of their actions in moral, ethical, and political situations. The companies that don’t take retail activism seriously will likely see history repeat itself.

Wayfair, quite by accident, joins the growing list of companies thrown into the world of politics. I don’t think they want #wayfairwalkout to be the hashtag du jour.

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Building Brands The Omnichannel Way: Sweets Anyone?

From pop-ups to exclusive web content, there are a number of tools available to brands that create compelling ways to engage consumers.  A number of these examples are on display during this Holiday season.

With a slight obsession with chocolates and sweets, here are some unusual ways that some brands are going to market, often bypassing traditional distribution methods:

  • Cailler, Nestle’s super premium brand of Swiss chocolate, has been previously unobtainable in the U.S.  The brand has chosen to create exposure to this upscale offering in a few different ways. There is an on-line Holiday store front on Amazon.com as well as two pop-up locations that really help bring the magic (and exclusivity) of the brand to life. The locations are designed as retail holiday pop-up shops in New York’s Meatpacking District (November 19th-26th) and San Francisco’s Union Square (at 117 Post Street through December 21st). These locations were designed to create brand buzz and drive traffic to the Amazon.com site.
  • Oreo has created an on-line holiday site that delivers White Fudge Oreos in a festive holiday tin. One of the more unique features is that a customer only has to input the email address or mobile phone number of the recipient, who is then notified of the gift. Shipping is also free. https://gifts.oreo.com/oreo.html?siteid=34#/catalog

  • Magnum is a longer standing example of using pop-up to build their brand and has been moving around its Make Your Own Magnum in key global cities around the world like London, Sydney, Singapore and New York. Customers can customize and co-create their own decadent Magnum bar.

 

Besides making you hungry, what’s the point of these efforts?  Brands can leverage new tools to launch a product, offer an exclusive product, allow customers to customize, give a gift and most importantly, build trial and awareness, all while by-passing more traditional retail distribution points.

While pop-up in retail has been around for some time, pop-up can also work on-line. The key will be to develop new forms of measurement that go beyond simple P&L’s. On-line offers easy ways to measure such engagement—traffic, conversion, etc. while retail offers trickier sets of measurements like halo effect that can track lift in a market or community.

Omni-channel brand building is still very much in its infancy but I expect to continue to see new creative uses of these forms of engagement that create excitement while building traffic and sales.

Neil Stern for Forbes

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Target Goes Omni In A Big Way: A Sign of Things to Come

It’s no secret that Target has been an e-commerce laggard. One of the main priorities of CEO Brian Cornell has been to significantly increase their investment in technology spend and work to re-accelerate their on-line momentum. The latest quarter suggests that they are beginning to see a pay-off but also have a long way to go. E-commerce sales were up 34% in the latest quarter, which put them ahead of rivals Walmart and Amazon, a result of having perhaps the most aggressive free shipping policy (with orders of $25 or more).  Still, that puts Target’s on-line sales at just 5% of company totals, which suggests a huge opportunity ahead.
We visited one of Target’s higher volume stores in Chicago to see what evidence of Omnichannel initiatives we could find. To put it mildly, Target is doubling down on omni as a way to narrow the gap. In the latest quarter, Target indicated that in-store pickup grew 60% with 30% of their orders being fulfilled from stores or direct ship.
The sign at the entry below tells you all you need to know. In addition to Target’s programs, two third party initiatives were also in evidence, Instacart and Curbside:

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Instacart is nearly omni-present in the store through aggressive signing and shopper presence. Curbside, we were told, was particularly attractive during Chicago winters:

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Perhaps most impressive at Target was the sheer “presence” of on-line initiatives. There wasn’t a spare endcap or signage opportunity in the store that wasn’t being utilized to tout the benefits of their on-line programs. These included:

  • Additional assortments available on-line, which was promoted in nearly every department
  • Subscription services, particularly in commodity driven household categories
  • Promotion of free shipping and 5% off for Target Red Card members

image3

 

image4Probably most critically, in-stock conditions seemed particularly improved from prior visits. It feels like Target might finally be righting the ship. Setting a model for Omnichannel won’t solve all of their issues but it places them on a more competitive long term footing.

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Has Your Store Strategy Kept up with Your Omnichannel Strategy?

We are well into 2016 and the new year has brought a host of highly publicized store closures from Macy’s to Walmart, and there may well be other announcements coming.  The continued demise of Sears, and bankruptcy talk swirling around The Sports Authority which could result in the closure of nearly 200 of it’s 450 stores, only add to the sense of gloom.  Take a look at your retail stock holdings (if you dare!) and you’ll see most of them have lost 30% or greater of their value since the late Fall.  The volatility of the sector is as great as we’ve ever seen.

There are many forces at play that are continuing to drive “seismic shifts” in the retail marketplace, but the greatest continues to be the journey from a traditional brick and mortar retail model, to a seamless omnichannel model.  To this end, we believe many retailers should double down the analysis of one of their largest assets:  the store.  How these assets are used to gain competitive advantage brings to mind a series of strategic questions we believe retailers should be asking:

1.  The store itself.How many stores should we have?  What is the role of the store? Retailers have been painfully reminded that the customer migration to e-commerce quickly exposes poor performing stores, if it wasn’t evident already.  Many retailers simply have overreached and have too many stores, and we expect more closure announcements throughout 2016.  In addition to rationalizing the store base, we also believe the role of the store must be redefined within the context of the brand.  Should the store be simply a showroom with inventory shipped to customers? Check out Argos in the U.K. for a great example.  Or should certain stores within the portfolio be an experiential showplace where customers may want to linger, shop and experience the brand? Check out the Starbucks Roastery in Seattle.  A last point:  remember your not-so-secret weapon, your people.  Amazon is certainly the colossus that is creating pain for all brick and mortar retail.  However even with Amazon Prime free shipping or same day 1-hour delivery, retailers with brick & mortar locations can offer something Amazon can’t, and that is great personalized service.  The well-trained and knowledgeable associate can be the differentiator that keeps your customers engaged and coming back.

2.  Data.  What data do you have, and how are you using it?  How can you gather meaningful data on your customers’ shopping behaviors and turn this into higher conversion rates both online and in store? Some retailers are innovating in this area with RFID and “smart” mirrors and fitting rooms, but the pace of innovation and investment must accelerate.  In-store analytic technologies exist that can provide shopper path, engagement, traffic and conversion data which are very powerful tools in the hands of strong merchant, stores, and e-commerce teams.  This should be a key focus for any retailer attempting to increase the ROI of their store base.

3.  Minding the store itself.  Is your omnichannel experience really seamless?  How well do your stores perform on the basics? We continually see execution failures as one of the greatest problems in retail, and it only gets magnified in an omnichannel environment.  Promises get unfulfilled when customers can’t locate the Buy Online Pick Up in Store desk due to poor or no in store communication, limited staff availability, or merchandise which cannot be located or is out of stock.  Spend a day in your customer’s shoes – you may well be shocked at what you find.

It’s time for retailers to double down for an intense review of their store base to determine how these assets can support their omnichannel strategy, versus simply becoming tomorrow’s store closure headline.

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