Monday May 26, 2014

Why Haven’t NFC Payments Taken Off?

With the EMV 2015 milestone approaching rapidly, there’s been renewed interest in smartcards, those credit cards with an embedded computer chip.  Back in 1996 I was working for a vendor helping Visa introduce a stored-value smartcard to the US.  Visa Cash was debuted at the 1996 Olympics in Atlanta, and I firmly believed it was the beginning of a cashless society.  (I later worked on MasterCard’s system called Mondex, from the UK, which debuted the following year in Manhattan).

But since you don’t have a Visa Cash card in your wallet, it’s obvious the project never took off.  It was convenient for consumers, faster for merchants, and more cost-effective for banks, so why did it fail?  All emerging payment systems suffer from the chicken-and-egg dilemma.  Consumers won’t carry the cards if few merchants accept them, and merchants won’t install the terminals if few consumers have cards.

Today’s emerging payment providers are in a similar pickle.  There has to be enough value for all three constituents – consumers, merchants, banks – to change the status quo.  And it’s not enough to exceed the value, it’s got to be a leap in value, because people generally resist change.  ATMs and transit cards are great examples of this, and airline kiosks and self-checkout systems are to a lesser extent.

Although Google Wallet and ISIS, the two leading NFC payment platforms in the US, have shown strong commitment, there’s been very little traction.  Yes, I can load my credit card number into my phone then tap to pay, but what was the incremental value over swiping my old card?  For it to be a leap in value, it has to offer more than just payment, which I can do very easily today.  The other two ingredients are thought to be loyalty programs and digital coupons, but neither Google nor ISIS really did them well.

Of course a large portion of the mobile phone market doesn’t even support NFC thanks to Apple, and since it’s not in their best interest that situation is unlikely to change.  Another issue is getting access to the “secure element,” the chip inside the phone where accounts numbers can be held securely.  Telco providers and handset manufacturers own that area, and they’re not willing to share with banks.  (Host Card Emulation, which has been endorsed by MasterCard and Visa, might be a solution.)

Square recently gave up on its wallet, and MCX (the group of retailers trying to create a mobile payment platform) is very slow out of the gate.  That leaves PayPal and a slew of smaller companies trying to introduce easier ways to pay.

But is it really so cumbersome to carry and swipe (soon to insert) a credit card?  Aren’t there more important problems to solve in the retail customer experience?  Maybe Apple will come up with some novel way to use iBeacons and fingerprint identification to make payments, but for now I think we need to focus on upgrading to Chip-and-PIN and tightening security.  In the meantime, NFC payments will continue to struggle.

Friday May 16, 2014

Privacy Concerns are Overblown

I keep hearing about the importance of privacy, but people’s actions are contrary to their words.  The retail industry has been debating this topic, trying to figure out how much data to collect, store, and analyze.  Retailers want to serve their customers better by stocking shelves with the products they want, at the right price points, at the right time of year.  To achieve that goal means collecting as much data as possible.

I suppose retailers could interview shoppers as they enter and exit the store.  What did you come in for?  Did you find it quickly?  What path did you take through the store?  That would be pretty annoying and biased away from time-starved consumers, because they would say anything to move on.

So instead, retailers are considering in-store sensor that track people’s movements though the store and collect accurate, unbiased data about how they shop.  And for those consumers that opt-in and identify themselves, they’ll provide a more personalized experience with relevant offers and information.  “Oh my gosh, I’m being stalked!”

That’s the wrong way to look at it.  When you think about it, a butler and a stalker may be indistinguishable to an uninformed onlooker.  The big difference is in their motivations; the butler is trying to make your life easier.

Consumers say they want better shopping experiences, and their spending backs that up.  Look at the growth of Amazon.  How can Amazon be rated by consumers the #1 customer service retailer while Nordstrom is #10?  Has anyone actually ever talked to an Amazon representative?  Everything Amazon does is data-driven – data that is collected on its customers to improve the shopping experience.

Every click on the websites we shop is recorded.  Every purchase using a credit card is stored.  Every interaction with an ATM is videotaped.  If you’re carrying a mobile phone, you’re on the grid.  You’re kidding yourself if you think otherwise.

I love these surveys that ask shoppers how they feel about tracking their purchases and movements in stores.  Who’s really going to say they want to be tracked?  My privacy isn’t something I give away for free if I can help it.  People use credit cards even though all their purchases are tracked.  They use loyalty cards too.  They’ll post all day on Facebook, Twitter, and Instagram and, in some cases, their location is tracked there as well.  Why would they do that?

We trade privacy for benefits, quid-pro-quo.  The convenience of my toll-tag outweighs the fact that my drives are recorded. Yeah, I suppose the team at Law and Order can subpoena those records and figure out where I was at the time of the crime, but I’d like to think it’s more likely to provide an alibi than a conviction.

I’m all for limiting data sharing with third-parties, and I support the “right to be forgotten.”  I’m concerned about identity theft, and I don’t go around advertising my contact information.  So I guess I do value my privacy – I just don’t think a few beacons in my local stores are a big deal.  And I like the result of stores having better assortments, lower prices, and providing offers that interest me.

Tuesday May 13, 2014

Dark Stores

Toys"R"Us has been offering omni-channel (I'm so sick of that term) journeys such as buy-online-pick-up-in-store for several years.  Additionally they can use the store to fulfill online orders, which is an important part of their business, especially during the holidays.  Both cases require a store employee to pick product from the floor and move it to the backroom.  I was speaking with someone from Toys that told me a funny story about this.  You can imagine the chaos on the floor during the holidays, so when employees were picking items they were constantly being interrupted to answer questions or retrieve items from high shelves.  To combat the issue, employees assigned picking duty did so without an official uniform.  Yep, they had to wear street clothes to get the job done.

Although online grocery shopping hasn't yet taken off in the US, its quite popular in the UK.  Customers place their order online which is fulfilled at a nearby store and delivered by truck.  Pickers are given a large cart with separate bins for separate orders, and they use a tablet to efficiently navigate the store.  With enough orders, you can imagine those customers slowing down the pickers.  The grocery store layout isn't really conducive to both types of foot-traffic.  Thus the dark store was born.

Just as you might expect, the dark store has no customers and is used strictly for picking and fulfillment.  Its location and layout are similar to traditional stores, but there's no price tags, no endcap advertising, and no checkout lines.  Its a neighborhood warehouse, complete with fresh, frozen, and dry goods.

Sainsbury, Tesco, and Waitrose continue to open dark stores in the UK, filling 4,000 online orders a day per store in some cases. I suppose this makes perfect sense in areas where order volume is high, like in big cities.  Then in the suburbs, it might be acceptable to leverage the existing store, perhaps with an express lane for crowd-sourced deliveries like Instacart.

Although I don't know of any dark stores in the US, it wouldn't surprise me to hear that Amazon Fresh and Fresh Direct are using them.

Image from The Guardian: Waitrose, Aldi and Lidl eat further into major supermarkets' market share.

Monday May 12, 2014

Five Ways to Reduce Implementation Costs

Buying new retail software is only the first step. Retailers have to get the software implemented, and that's where many projects go off the tracks.  To minimize risk and keep costs in check, here are a few ideas for better implementations:

1. Vanilla. One of the larger costs can be customization of software, but often times retailers are customizing without real business benefit.  If it doesn't offer competitive differentiation, vanilla is probably sufficient.  Kirklands (video) went this direction and is realizing the benefits of new software and is well positioned to more easily accept upgrades.

2. Sequence.  When implementing a suite, address the business' pain-points first.  This front-loads your return on investment, and sometimes the return from the first application can help fund subsequent applications.  Advanced Auto Parts (video) took a phased approach that provided the most value for their business.  Don't accept predetermined implementation sequences that aren't tailored to your business.

3. Clean data.  As they say, "garbage in, garbage out."  Prepare for the implementation by cleansing data as Hot Topic did.  You wouldn't move to a new house without tossing all the useless junk in the attic, so take the same stance with all that stale data.  It will definitely ease data migrations and provide fewer testing hiccups.

4. Cloud.  Often its easier to rely on partners to host software in a cloud model.  As a smaller, growing company, C. Wonder wanted to focus less on IT and more on retailing so they hosted their merchandising and planning systems with Logic Information Systems, an OPN partner.  Patches and upgrades are applied automatically without missing a beat.

5. Specialization.  Having the right knowledgeable people involved in the project is key to its success.  Most resources are not interchangeable between merchandising, planning, supply chain, and commerce.  Those areas require specialization as each has its own set of requirements and challenges.  Retailers should make sure their projects are staffed by system integrators with specialized resources.

Thursday May 08, 2014

Retail Vendor Consolidation

The vendor ecosystem for the retail industry has been very active in the last 10 years, growing with new entrants and shrinking with acquisitions.  This certainly benefits retailers through both access to innovation and lower costs.  The graphic below summarizes some of those acquisitions by the major players in the industry.

One thing enabled by this consolidation is the ability for a retailer to use a single vendor for a complete transformation.  That's what retailers like JCPenney, Belk, and Neiman Marcus have done with Oracle Retail.  Oracle brings the separate products together to ease integration efforts, and provide more comprehensive views of the enterprise.

Nowadays best-of-breed is a tougher sell as most retailers understand the importance of Commerce Anywhere and want comprehensive, coordinated systems that serve the needs of their customers.  Building solutions one block at a time is time-consuming and inefficient, so leaning on vendors to deliver the core is usually preferred.

This cycle of new companies building great solutions then being acquired is healthy for the industry, and I expect it to continue.


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