We present an edited version of our conversation with Bjoern Petersen, President at Sensormatic Solutions, from the Coresight Research & Blue Yonder Open for Business webinar held on June 3, 2020. The webinar was co-hosted by Deborah Weinswig, CEO and Founder of Coresight Research, and JoAnn Martin, VP of Retail at Blue Yonder.

Bjoern Petersen is the President of Sensormatic Solutions, the leading global retail solutions portfolio of Johnson Controls—featuring the premier Sensormatic, ShopperTrak and TrueVUE brands. Petersen’s role is focused on improving the ability of Sensormatic Solutions’ clients to consistently deliver their brand promise by enhancing the shopper experience and maximizing business outcomes—through analytics-based inventory intelligence, traffic insights and loss prevention.

Covid-19 Challenges

How has the Covid-19 crisis impacted Sensormatic Solutions during this time?

Bjoern Petersen: We are going to market in over 100 countries in the world, so we have seen this crisis in different geographies—starting obviously in China, where we were impacted first, and then it has rolled for us through the rest of the world. Currently, the hardest impact is in Latin America, while the markets in North America and in Europe are starting to show some recovery.

We are a vertically integrated company, so we are manufacturing, distributing and installing our own goods, and because of that, we had some issues with the supply chain early on in the crisis. In our case, it is the electronic components that we are sourcing and raw materials; we ran into supply issues on about 650 components pretty quickly into the crisis. We had to diversify our sourcing capabilities and our supplier base. We then ran into issues on transport and shipping routes, so we needed to reroute goods to get them in time to market. We needed to use our government-relationship team quite heavily regarding our production facilities, to maintain them open and in production. Given that governments around the world actually locked down manufacturing sides, we were deemed to be an essential business, and hence we could work through this relatively unscathed compared to some others.

It went from there into demand changes. Obviously, our customer base was, and is still, severely impacted, so we have seen patterns of demand change. Our collaboration on demand forecasting inside the company needed to improve dramatically, so that we get the demand sequence right, and we don't get into an inventory overhang—which many companies are facing right now, especially in apparel, footwear and accessories.

Can you compare and contrast the challenges that essential and nonessential retailers are facing right now?

Bjoern Petersen: We obviously saw that the essential retailers—predominantly grocery, mass merchants and DIY—stayed open in most countries, whereas all the nonessential retailers were closed. On the essential aside, I think what we saw is a dramatic demand spike. That was not planned, obviously, and that stressed the supply chain on those retailers.

 

I have to say, if we wanted to emphasize something positive here, I believe the global food supply chain actually held up remarkably well if you consider the spike in demand. Obviously, we had out-of-stock issues on some frozen goods—famously on toilet paper—but the food supply chain itself I think held up very, very well and is probably a testament to global trade, because it actually worked. I think all of those customers that we have in that space were extremely busy in getting goods in the store and back out of the store, essentially. That was the number-one focus; they did not do any other project activities in this time. Obviously, they were very concerned about the security and safety of the customers in the store.

I believe that they have seen huge upticks in volume and very impressive financial results, more so on the top line than on the bottom line. Some of that bottom-line profit has been lost because of supply chain issues that they had to work through on short notice, but generally speaking, they have seen a huge inflow of funds. If you look at a large players in the US like Walmart and Target, a huge amount of hiring has happened in that space, and they have absorbed some of the people that could no longer find jobs in the hospitality industry, for example. I think that was very positive.

If you compare that with nonessential retailers, they were basically reliant on the e-commerce business to keep afloat, because the stores were locked up. I think consumers actually gravitated over to e-commerce, but there was no increase in volume of nonessential goods purchases. The consumer is reacting to the crisis on their own terms: They decide when they go back into the store; they decide when they spend and what they are spending on. We can try to influence that, but ultimately, the consumer will decide what their safety profile is and what they will do. The government gives a framework, but the consumer is ultimately in charge.

Omnichannel Retail and Inventory Accuracy

From an e-commerce standpoint, what do you think that the major shift foreshadows for stores?

Bjoern Petersen: It will accelerate the shift of the channel. E-commerce has been the channel that has gained in volume; stores have been relatively flat over the last several years in volume. The shift to e-commerce will accelerate, but that does not mean the store goes away. The store in an omnichannel world is still a major differentiator. If you want to have a store base, you need to be mindful of what store base you have, how many stores and where they are located, etc.—and you need to be able to be extremely effective when it comes to omnichannel retailing. The issues that we have seen prior to the crisis were down to inventory distortions, especially in the last mile in retail. The brand promises that we make as retailers regarding omnichannel fulfillment and the reality of our ability to fulfill those promises are disconnected: There are too many omnichannel orders, and we basically can’t fulfill as promised, and we need to get on top of that.

What are the trends going forward in terms of returns and shrink?

Bjoern Petersen: Generally speaking, returns are costly to the industry, so it would be good if we could reduce returns. However, if returns happen and they happen in the store, that is actually a good thing, because you at least have a chance to influence consumers to make an impulse buy, creating an opportunity to sell something that is not pre-planned.

How you manage returns is an interesting conundrum. Two years ago, we had a prototype automatic-returns kiosk, because we know that different formats want to optimize their labor allocation towards the return process. That was an interesting concept and had created a lot of noise on the show floor, but ultimately not to execution in real life, which was interesting. I think that will be a trend—to automate the return process if possible—but having consumers in stores making a return is not a bad thing: It gets traffic back up, and you have a chance to make impulse sales.

However, if you receive goods back into the store and you do not have item-level inventory capabilities, then you actually get two more distortions, because you do not know where your merchandise is. So, I’m going to make another commercial here for our ID technology, because that is essentially the most effective and cost-effective way you can get that under control.

Shrink is really an issue that surprised me prior to Covid, because generally speaking, we had expanding GDP almost everywhere we had expanding employment everywhere; we had expanding consumer confidence and available discretionary income. So, we were in a really good spot as a world economy, particularly in the US—meaning super low unemployment. When I looked at the shrink patterns at that time, it was actually hard to comprehend how much shrink we had when the economy was booming—and it was predominantly driven by organized crime, which is extremely hard to combat.

I think what we are having now is an extremely different scenario. Organized crime has not gone away, although they are trying to figure out how to take advantage of this crisis, but the average person is impacted in a way that nobody had foreseen. We are seeing 15% unemployment in the US, and my personal prediction is that even by year-end, we will be at around 10%, so this will be a long tail around consumer confidence from an income point of view. We will also have an increase in casual shoplifting. At the same time, all the executive teams in retail need to manage costs, and we have seen a shrinking of the loss-prevention departments inside retail organization over the last year. So, you'd have less manpower that you can distribute across your store base and deal with these issues, which means you need to have better information to understand what is happening in your store. I think where the industry needs to go is to become truly a precision industry, with the information so that we can have a real-time impact on what is happening in the store, instead of a weeks-later, post-event, analysis situation.

[caption id="attachment_112762" align="aligncenter" width="700"] Bjoern Petersen joins Deborah Weinswig and JoAnn Martin to discuss the retail recovery post Covid-19.
Source: Coresight Research[/caption]  

During this crisis, how do we think about inventory availability and accuracy, and how does RFID help us with that?

When it comes to item-level inventory accuracy, RFID [radio-frequency identification] is the most available and cost-effective technology solution. I think the crisis has highlighted that people who have the capabilities have fared better. If you take an example like Lululemon, they have corporate-wide RFID capabilities, so when the stores went dark, they could actually manage their inventory, which other retailers could not.

When it comes to the decision-making around this, people who work in the store (store managers and associates) understand it and see the benefits. Executive teams, on the other hand, need to balance all kinds of investment needs that are hitting them from all fronts of their corporation, and they need to prioritize. That is a very hard task to go through. If you build a business case for RFID, you will see that you have a bottom-line impact: You have a better out-of-stock situation than what you had before; you have better returns; and you have lower labor costs, which a lot of people do not believe. Then you have a top-line impact as well. I think a lot of people struggle with how they balance that in their business case, especially on the top line, because the top line can be influenced by so many things.

Unfortunately, without inventory accuracy, it is extremely hard to compete against companies like Amazon, which have amped up their apparel presence dramatically because they know exactly their inventory position and can make a consumer promise that they usually fulfill 100% of the time—so it is difficult.

If anybody is confused about this topic, I would encourage you to call Sensormatic Solutions; we are happy to help you with anything. It is a lot of change management. We have a ton of experience.

What other technologies do you think retailers are seeking right now?

Bjoern Petersen: I think conversion matters more than ever. Before the crisis, you were trying to drive traffic, and you basically assumed that a percentage of that traffic will translate into conversion. Now, you have an artificial dampener on traffic because you have ordinances and regulations that basically give you store-occupancy limits. Anything that you can do around traffic analysis, traffic patterns and in-store behavior therefore becomes even more important—so that your merchandise presentation is right, you can see how long it takes before a customer is being engaged by an employee and how the employee engages the customer, etc. We can solve these things with technology today to improve your conversion.

Live Poll: Demand Forecasting and Loss Prevention

What is most important for successfully delivering your omnichannel fulfillment services during the ongoing Covid-19 pandemic and beyond?

• 56% said “visibility of inventory.”
• Roughly equal split between “accurate demand forecasting” and “other.”

Bjoern Petersen: Demand forecasting is difficult. I mean, we have historical data; we know what our demand is, and you can overlay that with changes in population, changes in demographics and your community, etc. What we are trying to do now is look forward, because we are in a crisis that nobody has seen, which is really hard.

One thing that we are doing is taking general mobility data from mobile phones; we are looking at the mobility trends that we see in the population. We are overlaying that with data about Covid cases in these communities, so that we can see what the Covid pattern is and how the pandemic is impacting mobility cases—then we are comparing it with our traffic market index. We have the highest amount of traffic data for in-store traffic in the world. We are looking at 5 billion shopper movements per year. So, we understand on a per-subsegment level what the traffic patterns should be and what they are—you get the shape of a community and how it is impacted.

The beauty is that you can compare that with other communities that might be further along in their cycles through Covid, and you can start to make predictions of how this is shaping up, depending on how other countries are doing that process through the crisis. If you take China as an example, they locked down extremely hard, and we saw an immediate drop of 80% in traffic from January, which lasted about eight weeks. Then, we started to see a little bit of opening of the traffic pattern back. We now have foot traffic back to about 90% in China. We have mobility data back to healthy mobility data, but what we do not have yet is consumer spending: Consumer spending patterns are not yet back to what they used to be. So, you can start to overlay that with other countries and their Covid pattern, and you can start to make predictions about demand.

What steps are you taking to combat shrink and organized retail crime for when your stores reopen?

• 44% are investing in technology solutions.
• 19% are not doing anything.

Bjoern Petersen: This is obviously difficult, because when you reopen stores, there is a lot of pressure on the financials and you will not have more staff. My advice would be to have a rigorous tagging strategy because of the very real risk that casual shoplifting will increase substantially. You can do this through resource tagging or in-store tagging. Even the hard tag will probably see a revival, because it is a good mechanism to prevent casual shoplifting.

To the degree that you have loss-prevention offices available, make sure that you have the information backbone behind these hardware solutions that you can point them to the hot spots at the right time.

Audience Q&A: Supporting the Community and Gaining Actionable Insights

How do you think customer sentiment towards smaller offline stores may change in the post-Covid era?

Bjoern Petersen: I believe that we all realize how important it is to have a healthy community. That means small-to-medium enterprises matter, because if they were to disappear, the community would look very different. Consumers are actually going out of their way to help some smaller players: They want to purchase from these stores, because they want them to survive. At the same time, the very same consumer is spoiled by the technology investments that big players like Amazon and Walmart can make. So, it is necessary for smaller players to have an appeal and consumer experience that is somewhat comparable at a much lower expense point. If they can get that, I think the consumer will disproportionately try to support the small-to-medium enterprise, because we all understand how important they are to the future of our communities.

How can retailers best position themselves to have actionable insights, as there are a lot of persistent problems around unification of data and its correct interpretation?

Bjoern Petersen: That is a huge issue, because we build these IT systems over decades; we build them in silos, and the one source of truth is still eluding many retailers. There is no easy answer to that one: Depending on your IT footprint, there is probably a specific answer for you. I think what we have seen is that you can combine data between disparate legacy systems and then draw conclusions, instead of trying to have the systems talk to each other. That is an opportunity, but in most cases, it is not in real time. Ultimately, it requires an investment into modern IT infrastructure. That is a multi-year program, it consumes capital and resources, and every retailer will have to try that out for their specific case.

How do you think retailers can push towards having real-time inventory information?

Bjoern Petersen: RFID is the technology that you need to look at, which means you need to have a tagging strategy. You need to understand what you need to do from a hardware point of view, and you need to do something around your point-of-sale system to integrate RFID. You also need to have the software. You build your business case on a use case; you implement the use case; you learn from that; and, once the technologies are out there, you have an understand of your inventory.

There are so many things that you can do around merchandise presentation. I would say that the number-one thing in getting started is to have a conversation with people who have done this before, like Sensormatic Solutions, to help you understand what your use-case journey is and what makes sense for you. The biggest thing that you have to manage as a retailer is change management of the behavior of your people in the store. The best technology does not help you if you do not apply it correctly and rigorously. I can do most of the technology side, but the change management will be with the retailer.