Insight-Driven Retailing Blog

When shopping, I hate standing behind someone that writes a check. "How much was that? What's the date? Should I write my license number on it?" What a giant time sink. Clearly the person has a checking account, so why can't she get a debit card? Swipe, PIN, done. -- its just that fast. Personally, I aways use credit cards because I like the points and the 25 day grace period. Plastic is so convienent that I have no issue paying an annual fee.

The UK Payments Industry recently released their numbers for retail payments, and the trend to use debit cards is increasing. For 2008, 43% was debit, 32% was cash, 23% was credit and checks were down 4% to 3% of the total. Yeah, kill those checks!

I love the fact that Apple is geared to accept plastic payments. Anything else and you're moved to the lonely, hidden cash register behind the Geek Bar. Apple's EZPay is very unique for the retail industry, but I hope it defines a trend. The music video below is a bit over the top, but the point is clear. Use plastic. Please.

Alvenda is taking a different approach to e-commerce. Rather than using advertising to drive traffic to a webstore, they are enabling purchases directly in the ad, without leaving the user's current website. This effectively allows a webstore to have a presence on blogs, social networks, and other places where you see traditional advertising. This "distributed store" takes shopping to the customer, instead of the other way around. Its an interesting concept that you can test drive for Mother's Day.

Computers have come a long way, and many science fiction stories depict their continued maturation ultimately leading to Skynet, HAL, WOPR, etc. The internet represents a seemingly inexhaustible source of data, but its just data. Powerful search engines working in harmony on grids can find that data in milliseconds, but that's where computers stop. Until now.

You're probably thinking the next step in this evolution is artificial intelligence, but there's an intermediate step we're missing. First we need computers to derive some meaning from all that data. Computers must make sense of the data in order for it to be useful.

Enter Stephen Wolfram and the Wolfram|Alpha project. Not since the Segway has there been this much hype around a new technology, and its potential to impact the world.

From the Wolfram|Alpha team...

Our overarching goal, the “higher purpose” of this project, is to make all computable, factual knowledge available to everyone. What Wolfram|Alpha does is compute on top of those facts—answering questions, solving equations, providing insights, projecting future behaviors, and more.

Now instead of searching for data, you can search for answers. But how did they do it? There are three basic ingredients. First, they assembled a large amount of verified, accurate data. Then they programmed a vast number of formulas and computations using a tool called Mathematica. Lastly, they created the interface to combine the two based on the question posed.

A few select people have been invited to use the system, and their reports have been impressive. It will be exciting when the project is finally revealed to the public, but keep in mind that it will always be a work-in-progress.

I wonder how this new advancement will impact the way we shop for products online. Will it make it easier to find exactly what product fits our needs best? Or is it just another step toward the machines exterminating us?

In the retail industry shrinkage refers to the loss of product, usually from theft. (If you're a Seinfeld fan, then the term means something entirely different.) In recent years, organized crime has found that retailers are easy targets, and online auction sites tend to make it easy to unload stolen merchandise. In my home state of Texas, its estimated that we loose $77 million in state sales tax, and that number doesn't include local sales tax. No wonder they rarely mow the medians -- there's no tax revenue for road maintenance!

These organized groups tend to find a method that works, then repeat it across lots of chains. This adds up to around $30 billion a year in stolen merchandise. Working alone, each retailer is often out-manned, but retailers that normally compete are now working together to share valuable crime patterns. And by building their cases together, they tend to garner more attention from local police.

"We see a lot of people who had been in the business of dealing drugs but who find out they can make more money in stolen retail property trade with a lot less chance of being sent to prison," said Frank Muscato, Walgreen's organized retail crime coordinator. Just keep the take under $1500 and the crime is classified as a misdemeanor in most states. That beats the heck out of selling drugs.

The NRF Loss Prevention Conference & EXPO is being held June 15–17 in Los Angeles this year. Its a chance for retailers to hear about these problems and solutions.

I for one don't want to pay higher prices to support a thief, so if retailers need to curb my shopping experience a bit, I'm for it.

Update: Siobhan recommends the article Annals of Retail, “Stop, Thief!" (registration required for full article).

I read an interesting article in Forbes called Why Retailing Will Never Be The Same Again. It says that the industry is splitting into three camps: those that compete on price, those that compete on uniqueness, and those that can't compete. The recession has accelerated the demise of those that fall into the third camp. Retailers like Circuit City, Mervyn's, and Linens-and-Things have failed miserably.

Because the web has made comparison shopping so easy, retailers that choose the discount path must excel at keeping costs low and thriving on razor-thin margins. Here, Walmart is king and there is limited space for competitors. Dollar Store and Costco are examples of discounters that have found their niche in the Walmart world.

What's interesting to me is the remaining group of retailers that compete on uniqueness. If you can't compete on price, then there are three broad ways to differentiate yourself as a retailer.

Unique Products
The retailers that excel in this space are often manufacturers like Apple and Coach that are no longer satisfied letting other people sell their products. Companies like Bose have found that selling their own products direct to consumers is the best (but not only) way to ensure control. Many traditional retailers, led by the grocery industry, are creating their own products that are sold only in their stores. Vertically integrated retailers, exemplified by Target and Trader Joe's, figure out what their customers want and deliver it. Some, like Nike, even personalize the products.

Value-Added Services
Uniqueness of products extends to services as well. Providing installation, delivery, repair, training, personal shopper, etc. are ways to differentiate. Offering unique products and value-added services, as Best Buy and Lowes do, are just want our gen-y and boomers want. People short on time don't want just groceries, they want nutritious, ready-to-eat meals.

Customer Experience
Today's consumer has very high expectations regarding a retailer's capability to provide information, customer service, and engaging content. Here again the Web has impacted the way in which people shop. Not only do consumers expect to be able to shop in stores, online, and via catalog (i.e. multi-channel) in various combinations (i.e. cross-channel), but they also expect reviews, ratings, comparisons, and advice at their fingertips. They want to be recognized as good customers, and be rewarded with discounts and special treatment.

Think about stores where time flies. Apple, Barnes & Nobel, and Whole Foods offer an experience beyond traditional browsing. They are engaging, but each in its own way.

This is making the traditional POS obsolete. Try to find a cash register in an Apple store. Its there, but its hidden because its not part of the store experience. Paying is a formality at the tail-end of shopping. Don't think about the cost; think about how the products will enhance the way you live.

Why be slowed down by a checkout-clerk when you can scan your own groceries? If you want to special order a particular floor, use the kiosk to do it. Can't find the size you're looking for? That's ok, we'll have it shipped to your home for free. Its not a scan-and-bag world anymore.

The ironic thing is that we're now demanding the same high-touch customer service we got at the corner dime-store in the 1950s, but through the use of technology. Technology is the great enabler that provides service at scale. This makes the software that retailers run even more important, and the CIO is an indispensable part of the survival equation.

The Web and its associated technologies have changed retail forever -- the recession is just making that even more obvious.

After writing the previous post Retail Has Changed Forever, I came across Jim Crawford's account of a presentation given by Jim Stengel, former CMO of Proctor & Gamble. Mr. Stengel started by saying

This is more than a correction... this is a fundamental shift.

He went on to identify "five ripples of opportunity:"
1. Stand for something that matters
2. Play a role in consumers' lives
3. Focus on ownership not purchase
4. Cultivate smart and savvy shoppers
5. Create joint value for retailers & brands

Read more about the five at the GREC blog.

The one that stood out to me was "focus on ownership not purchase." The customer experience shouldn't cease after the purchase. The goal is to make consumers into zealots that will "spread the word." It seems to have worked for Coach, Apple, and Zappos quite well. Providing opportunities to personalize, customize, and discuss products helps to increase loyalty.

After making a purchase at Newegg, for example, I can discuss my purchase with other consumers and get easy access to advice, recommendations, and upgrade information. Another example is getting care instructions for purchased clothing, or ideas for matching accessories.

Retailers need to continue finding ways to touch their customers outside the purchase transaction.

Are your loyal customers your best customers? Successful retailers want profitable customers, regardless of their loyalty. The consumer that's always in your store but only buys the loss-leaders is not profitable. Nor is the shopper that habitually returns items that can no longer be sold at full price. So if we think about shoppers in terms of profitability, they fall into the following categories:

1. Buys high margin items frequently
2. Buys high margin items occasionally
3. Buys low margin items frequently
4. Casual shopper
5. Bargain shopper

Loyalty programs often focus on making shoppers toward the low end move up the chain. This is done by influencing their behavior to "shift" to higher margin products/services and "lift" the the number of products/services purchased. By offering rewards for increased frequency, recentcy, basket size, etc. shoppers are incented in ways that make them more profitable. Of course the cost of those rewards needs to be factored into the equation as well.

Buy those aren't the only types of shoppers. There are unprofitable shoppers as well:

6. Not a shopper
7. Problem shopper

Those that don't shop your store don't cost you anything, but they have profit potential. Much marketing money is spent to entice those shoppers, often at an overall loss. Shoppers that only buy products below cost, or return products too often may actually be cutting into profits. When these shoppers become loyal, it exacerbates the problem.

The authors of the forthcoming book Why Loyalty Matters state the following in their article When Customer Loyalty Is a Bad Thing:

The fly in the ointment is that typically only 20% of a firm's customers are actually profitable. And many — often most — of a company's profitable customers are not loyal.

About a year ago I visited a retailer in Utah that had a sophisticated video surveillance system in all their stores. At HQ they could watch any camera in any store in real-time (on the big screen in the conference room, no less). But who has time to review that much video?

They showed a video compilation detailing the theft of a high-value item. This item was normally kept on a shelf behind the counter, so the LP person started there. Pulling up yesterday's video, he found the product and circled it on a stopped frame of the video (John Madden style), then told the computer to forward to the next frame where the product moved. Using this technique, we watched the item being picked up and showed to customers a few times before the manager misplaced it on a box in the back room. Then he moved it to another location, then finally into the trunk of his car. (Yes, the video surveillance went into the parking lot.) Yet another inside job.

Companies like Stoplift are using sophisticated video recognition technology developed for national security to solve a big drain on the retail industry -- employee theft. One of the more popular ways in which employees steal is through "sweethearting." Remember when you were in high school and your boyfriend slipped an extra large-fry into your order for free? And you said to your friends, "what a sweetheart!" Well, there you go.

Sweethearting costs the industry about $13 billion a year. Its estimated that 30% of retail employees steal at least once, and only about 25% are ever caught.

Just as video surveillance software can be programmed to recognize faces, it can also be programmed to detect motions like sliding a package of steaks around the scanner. When teamed with the electronic receipt, its easy to see the steaks move near the scanner, but nothing shows up on the receipt. Bingo -- another case of sweethearting, all caught on video.

You may not have noticed, but CircuitCity.com relaunched on May 19th under new management. Systemax bought the Circuit City website for $14 million in cash plus a share of future revenue over the next 30 months. When CompUSA was close to bankruptsy, Systemax bought their website and 16 stores for $30 million back in 2008. Systemax now operates both websites in addition to TigetDirect, a popular website for consumer electronics.

Can Systemax breath new life into Circuit City as they did with CompUSA?

I toured the site a bit and it seems to be a combination of the old Circuit City and Tiger Direct websites. I assume that all three e-commerce sites are powered by the same supply chain, so their products and prices should be similar. Since I just ordered a Garmin Nuvi 205W GPS (from Kmart for $80), I thought I'd check its price at the three Systemax sites. CircuitCity.com and CompUSA.com had the same listing at $140, but TigetDirect.com did not carry it. All three sites offer similar product information and promotions.

I'd guess that Systemax is already heavily invested in its CompUSA stores and the Retail 2.0 theme, so I doubt the Circuit City stores will be resurected. Nonetheless, I think the Circuit City brand is in good hands since Systemax has a strong record of turning acquisitions around.

I get using my mobile phone to buy ring-tones, games, and maybe even movie tickets, but a New York Times article posted the following question: would you be comfortable using your phone to purchase big-ticket items?

Comfortable in terms of security? Sure; I think security has come a long way. But why would I since its so much easier to use a PC (or a Mac) with a wide screen and a keyboard that has a dedicated key for every letter in the alphabet? The article references research sponsored by Billing Revolution, a mobile payment provider, and includes some quotes from their co-founder, Michael Dulong.

Dulong: “If I could save myself a trip to Home Depot on Saturday using my mobile phone, I would be single-clicking myself to a frenzy.”

Seriously? Why would anyone use their mobile phone to buy from Home Depot? I might use their e-commerce site to buy things not stocked in the store, but not from my phone. I think purchases on the phone will be about "living in the moment." Things that I need now, not things that will be shipped to my house in a few days.

Dulong: “What if you could order a CD and T-shirt from the concert you’re attending and have it shipped to your home, without even going to the concession stand? That’s big.”

Not really. Again, if its going to be shipped to my home I'd rather wait until the morning and order it using my PC. Now if I could easily order it on my phone, skip the long line, and pick it up immediately then I'd consider it. Again, m-commerce purchases are about immediate gratification.

Now don't mistake my critical eye for a dislike of m-commerce altogether. I think mobile phones are great for product comparisons, research, payment, product location, etc. I just think purchases via mobile phones have limited value. Am I wrong here?