Thursday Aug 28, 2014

Retail Software Periodic Table

In general, your average shoppers just don't think about the complexities of retailing.  They see, they like, they buy.  But behind the scenes is a complex orchestration of retail processes, and it would surprise most just how many software applications are involved.  I've seen many ways to depict the retail software landscape but decided to see if things fit in a periodic table.  The result is below (click for larger image):

Click to enlarge

On the far left are the back-end processing systems where items are sourced and shipped through the supply chain.  They are all about fast and accurate execution.  On the far right are the selling systems that interact with shoppers.  They are also focused on execution but in a way that is branded and differentiated.  Those two groups of applications are common for any retailer of size.  Where things get interesting is in the middle.

Its the analytics that inform the merchandising and selling systems.  Those applications help understand what customers want, what they're willing to pay, and how to keep them coming back.  The planning & optimization applications leverage the knowledge from the analytics to predict and plan the future.  This is where differentiation is born and eventually manifests on the selling side as customer experience.

Its truly the combination of great execution and science-driven decisions that power the most successful retailers.

Monday Aug 18, 2014

NRF Online Merchandising Workshop: Where Online Retailers Are Focusing for Holiday and Beyond

Last month we attended the NRF Online Merchandising Workshop in LA, and it was a great opportunity to catch up with our customers, meet new retailers, and hear some great presentations from VF Corporation, Zazzle, Julep Beauty, Backcountry, eBags and more.

The one-on-one conversations with Merchants and the keynote presentations carry the same themes across companies of all sizes and across verticals. With only 125 days left (and counting) until Black Friday, these conversations provided some great insight in to what’s top of mind for retailers during the most stressful time of their year, and a sneak peek in to what they will deliver this holiday season. 

Some of the most popular topics were:

When to start promoting for holiday: seems like a funny conversation to have in July, but a number of retailers said they already had their holiday shopping gift guides live on their site, and it was attracting a significant portion of their onsite traffic. When it comes to timing, most retailers were questioning when to begin their holiday promotions -- carefully balancing when to release pricing and specials, and knowing that customers are holding out for last-minute deals and price drops. Many retailers noted the frustrations around transparent pricing by Amazon and a few other mega-retailers last year, publishing their “lowest prices of the season” as early as October – ensuring shoppers that those prices were the best they could get all season long. Many retailers felt their hands were forced to drop prices. Others kept their set pricing with negative customer reaction, causing some to miss their holiday goals. The pressure is on, and most retailers identified November 1 as their target start date for the holiday promotions blitz. Some are even waiting for the big guys to release their “lowest prices of the season” guides and will then follow suit.

     Attribution is tough – and a huge focus: understanding the path to conversion is a tough nut to crack, especially in the new omnichannel world where consumers use multiple touchpoints to make a single purchase, and internal management wants to know hard data. This has lead many retailers to invest in attribution; carefully tracking their online marketing efforts to determine what gets “credit” for the sale, instead of giving credit to the “last click.” Retailers noted that it is very difficult to determine the numbers when online and offline worlds collide – like when a shopper uses digital channels for research and then makes a purchase in a store. As one of the presenters from The North Face mentioned in her keynote, a key to enabling better customer service and satisfaction when it comes to converged online and offline sales is training the in-store staff, and creating a culture where it eventually “doesn’t matter what group gets the credit” if they all add to the sale. No doubt, the area of attribution will be a big area of retail investment in the coming years.

     How to plan for the converged world: planning to ensure inventory gets where it needs to be was another concern. In conversations with retailers, we advised them to analyze customer patterns: where shoppers purchase items, where the items were sourced from and even where items are returned. This analysis is very valuable in determining inventory plans. From there, retailers can more accurately plan and allocate inventory to support both the online and offline customer behavior. As we head into the holiday season, the need for accurate enterprise-wide inventory visibility, and providing that information to associates, is even more critical to the brand-wide customer experience.

      Improving the search / navigation / usability of the site(s): Aside from some of the big ideas and standard holiday pricing pressure, most conversations we had centered around continuing to improve the basics of the site. Reinvesting in search and navigation came up time and time again (FitForCommerce blogged about what a big topic it was at the event as well). Obviously getting shoppers on their path quickly and allowing them to find what they need fast is critical, but it was definitely interesting to hear just how much effort is still going in to honing the search and navigation experience. Adding new elements to search and navigation like typeahed, inventive navigation refinements, and new navigation categories like gift guides, specialized boutiques and flash sales were top of mind, in addition to searchandising and making search-driven product recommendations. (Oracle can help!)

      Reducing cart abandonment: always a hot topic that is top of mind for every online retailer. Getting shoppers to the cart is often less then half the battle; getting them to click “buy” and complete the transaction is much more difficult. While retailers carefully study the checkout process and where shoppers tend to bounce, they know that how they design their checkout page is critical. We’re all online shoppers in our personal lives and we know how frustrating it can be when total prices are not transparent (i.e. shipping, processing, taxes is not included until the very last possible screen before clicking that buy button). Online retailers are struggling with where in the checkout process to surface the total price to be charged to reduce cart abandonment, while not showing the total figure too early in the process that it keeps shoppers from getting to checkout altogether. Recent research shows that providing total pricing prior to the checkout process dramatically reduces cart abandonment – as it serves as a filter to those shopping within a specific price band. Much of the cart abandonment discussion leads us to…

      The free shipping / free returns question: it’s no secret that because of Amazon and programs like Prime, consumers expect free shipping, much to the chagrin of the smaller retailer. The reality is that if you’re not a mega-retailer, shipping is an expensive part of doing business that doesn’t allow most retailers to keep their prices low and offer free shipping. This has many retailers venturing out on the “free returns” path, especially in apparel. A number of retailers we spoke with are testing a flat rate shipping fee with free returns to see if they can crack the price threshold where shoppers are willing to pay for shipping with an added service. But, free shipping remains king.

     Social ads and retargeting: they are working, but do they turn off consumers? That’s the big question. Every retailer we spoke with during a roundtable on the topic said that social ads and retargeting (where that pair of boots you’re been eyeing on a site magically follows you around the Internet) work and are meeting campaign goals. The larger question many retailers are asking is if this type of tactic is turning off a large number of shoppers, even if these campaigns are meeting their early goals. Retailers also mentioned that Facebook ads are working very well for them, especially when it comes to new customer acquisition, serving as a complimentary a channel to SEO when it comes to engaging new customers.

While there are always new things to experiment with in retail, standard challenges are top of mind as retailers scramble to get ready for holiday. It will undoubtedly be another record-breaking online shopping season, but as retailers get more and more advanced with each Black Friday, expect some exciting things. This excitement needs to be backed by sound solutions and optimized operations. Then again, consumers are expecting more than ever, so I don’t doubt that retailers are already thinking about the possibilities of holiday 2015… and beyond.

Customers who read this article, also found value in the following stories:

Personalization for Retail:
Shop Direct User Experience Focus Drives Sales:
Making Waves: Australian Online Retailer SurfStitch:
What’s new in Oracle Commerce v11.1 for Retail
What the Content+Commerce Equation is Missing

Wednesday Aug 13, 2014

Amazon Payments

Today Amazon announced a card reader that competes with the likes of Square, compatible with both Android and iOS devices.  This new foray fits the "fast follower" pattern we've seen with Amazon for tablets, streaming content, set-top boxes, etc.  When they see a need that's not being filled, or in this case can be filled better, they dive in.  Where Square charges 2.75% and PayPal charges 2.70%, Amazon will initially charge 1.75% then eventually 2.50%.  This will put added pressure on Square, which is already struggling.  Amazon picks a business then drives down prices, which customers love and competitors hate.

But all these payment companies are giving away most of their revenue to the likes of Visa, MasterCard, and Amex.  In fact, most of emerging payment technologies are still backed by credit cards, so the processors can't be avoided.  A few, like PayPal, have tried to rely on ACH, which a cheaper way to process payments.

One of my favorites in this area is Dwolla, a payment processor I first wrote about in 2011.  They charge a flat $.25 for transactions over $10 and payments under $10 are free.  Today, CEO Ben Mine was on Fox Business Closing Bell to say he didn't mind the competition from Amazon.

Just as eBay acquired PayPal, Amazon should buy Dwolla or a similar payment network.  It certainly would help keep costs down if Amazon could cut credit card companies out, something all retailers want.  By that same token, perhaps MCX might consider a similar move.  Retailers are desperate for a secure, convenient way to take payments without high fees.

Wednesday Aug 06, 2014

Data Breaches Becoming Common

Here we go again.  This time a Russian cyber gang has stolen 1.2 billion user records from various sites across the world.  The New York Times was able to verify the authenticity of claims made by Hold Security, the company that uncovered the theft. Its becoming really hard to thwart these hackers from overseas.  As I explained in a previous post, its just a matter of time before your site is breached, so we all must hope for the best but plan for the worst.

To put things into perspective, take a look at the chart below.  If have to wonder if retailers stand a chance when even high-tech companies can't protect their own systems.

Infographic: Large-Scale Data Breaches Affect Millions of Users | Statista
You will find more statistics at Statista

When systems are compromised, hackers monetize in three basic ways:

Banking -- This is where ATM theft, wire fraud, and identity theft come into play, and the payoffs are big.  Using "mules" around the world, they coordinate simultaneous attacks to withdraw as much money as possible.  I've had friends have their identity stolen, and its a mess.

Social -- The least sophisticated area is spamming using stolen email, Twitter, and Facebook accounts.  They get paid for referrals like a typical marketing company.

Retail -- There are online stores where criminals can purchase bundles of stolen credit card "dumps," and they can even buy insurance to help guarantee the cards are still active.  Then they buy goods and either return them for cash, sell them on eBay, or ship them overseas to be sold.

Aside: My favorite scam to steal from a retailer doesn't involve cyber crime at all.  A guy in Florida stole over $300,000 in merchandise from Apple using social engineering.  When the clerk swiped his card for a purchase it would be declined.  He then would call the bank, but instead of actually talking to the bank, he would just tell the clerk the bank fixed the problem and the offline authorization code is "873538".  The clerk would override the system as if an authorization by phone had been done (remember the old days before the internet?).  Enjoy your new Mac and have a nice day.  Go to next Apple store.  Repeat.

Target's Christmas data breach costs them $148M, which is only .2% of yearly sales, but it cost the jobs of several executives and continues to create bad publicity.  I imagine it costs banks a bundle to replace all the stolen cards as well.  The numbers just keep getting bigger.

Unfortunately, many of these hackers are protected inside their countries because, frankly, they bring in lots of money.  The US is left to wait for them to slip up and travel outside the country before they can be arrested.  It has the feel of a cyber mafia with plenty of palms being greased.

PCI guidelines help.  New EMV chip cards will help.  More sophisticated firewalls, encryption, and computer forensics should help.  But vigilance is required throughout the system, of which retailers are just one part.

Monday Aug 04, 2014

Preparing for the Next Cyber Attack

Cyber attacks are occurring more frequently, and retailers are certainly a top target.  The ARTS Board (which includes yours truly) recently had a sit-down with Kim Peretti (pictured), Partner, White Collar Crime Group Alston & Bird LLP.  Ms. Peretti gained fame when she successfully prosecuted Albert Gonzalez for his TJX heist of credit card data.  Her insights into thwarting and prosecuting cybercrime are known word-wide.

I have to say I walked away thinking cybercrime was unstoppable.  What concerned me most was that many of the criminals have been identified but remain protected by other uncooperative countries.  One bright spot is that the NRF has established an IT Security Council and is actively working on an Information Sharing and Analysis Center (ISAC) dedicated to the retail industry.  The hope is that by sharing details of attacks, retailers can better protect themselves.

Must focus has been given to implementing best practices to prevent attacks, which is still extremely important.  But I walked away from the meeting thinking that over time its impossible to be 100% secure, so the second step is preparing for the worst.  Retailers must have a response plan that includes at least the following:

  • Contact numbers for a small response team.  When a threat is detected, you'll want the right people on a conference call to quickly determine next steps.  This should include representatives from Legal, Public Relations, and of course IT.
  • Contact numbers for the FBI and Secret Service.  You may also want to have a cyber forensics specialist in mind as well.  You can't afford to waste time before asking for help.
  • Contact numbers for key vendors that might be able to assist.  This might include e-commerce, POS, and credit card processing vendors. Have these relationships established before you need them.
  • A general plan to isolate systems and stop the breach.  An over-reaction can also be costly, so make sure there are lots of options available, with far ranging effects.
  • The outline for a marketing plan to address the public's concerns.  Are you prepared to notify affected customers?  How can you quickly re-establish trust?

When I was with Circuit City, I was part of a quick response team that handle a major virus outbreak.  The key is being prepared and having the right people available to make and execute on decisions.  Its probably worth simulating an attack just to test the response plan.  Watch Ms. Peretti's 2013 presentation for more information on cybercrime.

Friday Aug 01, 2014

Advocating for Retailers

I just returned from the NRF's Retail Advocates Summit in Washington D.C. and learned quite a bit.  There were several issues discussed, which I've summarized below.  Of course all these are focused on the US and the positions are from the NRF (not necessarily Oracle).

Sales Tax Fairness

Retailers need clear rules on how sales tax should be collected.  The inconsistencies between brick & mortar versus pure-play online tax rules, as well as the sheer number of different taxing authorities, creates an unfair market.  Congress needs to establish fair and clear rules.

Data Security

When (and notice I didn't say "if") a data breach occurs, a retailer has to deal with 47 different rules for informing customers in different states.  We need a federal, preemptive data breach notification law so retailers can better manage the process.  And because the retailer brands are well known, they seem to bear the brunt of the criticisms when breaches occur, but actually breaches occur in many other areas as well.  We need to be sure that retailers are treated fairly within the entire ecosystem.  One last point: chip and signature is a joke.  Chip and PIN is the most secure option within EMV.

Patent Litigation Reform

We need meaningful and comprehensive reform to deter patent trolls.  The retail industry seems to be a favorite target of trolls, sending their demand letters accusing retailers of being in violation of a patent without any specific details.  Its always cheaper to pay the license fee rather than fight in court, so this amounts to extortion.  We just need a little common sense introduced, like demand letters must not be fishing expeditions, perhaps fee shifting when trolls lose in court, and perhaps faster patent reviews to revoke nonsense patents.

There were other issues discussed, but those were the top three in my mind.  Having retailers tell their stories directly to congressional staff was a powerful way make sure the impacts to retailers are known.  Since Congress will adjourn at the end of the week for their summer break, don't expect anything in the short-term.  But if we keep the pressure on, perhaps we'll see some progress eventually.

David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.

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