DIpil Das
We present an edited version of our conversation with Katie Finnegan, Chief Consumer Experience and E-Commerce Officer for Rite Aid, from the Coresight Research & Blue Yonder Open for Business webinar held on May 13, 2020.
JoAnn Martin outlines four major themes in retail that Blue Yonder is seeing in the current environment
Source: Coresight Research [/caption] Deborah Weinswig: Thanks, JoAnn. For those of you who don't know, Katie Finnegan recently joined Rite Aid as the Chief Consumer Experience and E-Commerce Officer. Katie was also the founder and principal of Store Number Eight, which is Walmart's incubation arm. She also launched four portfolio companies in under three years, including Jet Black Walmart and Home Delivery, Walmart's intelligent retail lab. Katie brings a real passion for retail entrepreneurship to incubation, which we've always admired. She joined Walmart via the Jet.com acquisition, where she was the head of Corporate Development Strategy and Investor Relations, reporting directly to CEO Mark Lori. Katie joined Jet in 2014 with the acquisition of Huckster, the retail tech startup she co-founded in 2012. With that, we'd like to welcome Katie. Appetite for Innovation Deborah Weinswig: Today, we are going to discuss innovation, the retail supply chain and what the new normal might look like. I think the big questions on everyone's mind right now is, “What is in the retail world globally, and what is its appetite for innovation right now?” Katie Finnegan: I think the appetite has shifted not too dramatically for the long term, but what you're really seeing in the market is a bifurcation, where the appetite is actually accelerated in some places—such as solutions that can really add value to today's new norm and today's customer needs—and potentially decelerated solutions on things that are a little bit further out and not nearly as relevant for today's consumer’s needs. Take curbside delivery, for example. There are companies that have had that on their roadmap for years and years, and some companies managed to set that up in a matter of 72 hours. Maybe not everything is optimized perfectly, but that's really the definition of minimum viable product. So, you're seeing a lot of large companies that maybe wouldn't necessarily take as much risk do something in an “ad hoc minimum viable product” way… and it's really been great: They are able to adjust and serve consumers in the way they need to be served today based on the new norm and the world of Covid-19, and a lot of these things are probably not going to drastically go away in six or 12 months from now, even when there is a vaccine.
JoAnn Martin: Katie, when you look at the technologies that are out there with these innovations, which are most prevalent and really important to focus on for retailers, and where should they be looking to technology to help?
Katie Finnegan: I would say there are probably two main areas. My point of view is that it is less around experiential retail as it has been in the last three to five years. I'm still a big fan of AR [augmented reality] and VR [virtual reality], but I see that taking a little bit of a backseat to solutions and innovation around supply chain inventory control and on demand manufacturing; those seem to be bumped up in need and priority based on what's going on. Again, in a post-Covid world—however we define that—I don't see that changing.
You're really seeing what consumers spend their money on, and some of that is the economic and financial climate—fewer experiential goods, less defensible income and more essential services.
Deborah Weinswig: Katie you've been a real hero for many of the retail tech startups; you've breathed life into them, and you've helped drive awareness. What do you think is the appetite for large organizations to work with startups right now in this very uncertain environment?
Katie Finnegan: I think that there is actually a huge opportunity, probably more so than there has been. Getting to my earlier point about seeing large companies issue minimum viable products to roll out… I think the risk tolerance is higher, and they are really just looking for fast solutions. So, for startups that really focus again on those areas—I would say around supply chain, last-mile delivery, manufacturing and on-demand inventory—I think there is a lot of opportunity. Other places where it is more experiential is not as much of a priority today.
It is interesting to see in these last couple of months where we're really yearning for human connection and community building and engagement. I do believe the store can serve a very interesting and unique purpose where customers do want to come together: They want to learn; they want to experience; they want to have fun while shopping. That's not going to be solved by virtual reality in its totality; people want to actually see other people
To me, the physical footprint is less about proximity to goods, which I think is what it has been for the last generation. Because, to your point, that's being solved and streamlined pretty quickly with the Instacarts of the world and other things like that. It's more about education, experience and a personalized human connection.
You're seeing the blurring of lines between content commerce and experience hospitality. It’s just a way to solve a need, right? It is really just about a holistic approach to what you want and what you need, and retailers (or even these hospitality players that are turning into retailers) just want to be the place that you go to for that thing. Sometimes we make direct margin on it because we sell stuff, but other times we basically increase lifetime value and stickiness of the customer because we pointed them in the direction of, I don't know, a therapist that could help them that maybe we don't actually make money from—but we created that connection and therefore we are your trusted/go-to advisor. I think the community piece is really important, and it really plays on this fact that customers just want the friction to be removed, and it's less about a one-to-one transaction.
JoAnn Martin: When you think about the role of a store associate, how do you see the enablement of the associate changing as we transition through these times and the role start to change?
Katie Finnegan: So, there are two pieces right there. The roles of our associates really boil down to operational roles, and there is a lot of time management that goes into that as well, and they’re not feeling fulfilled on that aspect. There is a lot of great technology that will help reduce that friction for out-of-stocks on shelves and things like that—even online cash and pay-and-go technology. However, I think the other side of the role is increasing in importance. So, instead of having this concept of a general athlete where everyone does everything, we want associates to be a strong representative of the brand, and when the brand stands for great fashion, they have to really understand fashion. If the brand stands for health and wellness, they have to understand it. The two real ways you see that is, one, obviously your hiring process and practices but, two, is turnover. What do you pay your associates and what are your retention mechanisms? I think there is going to be a lot more focus on that. That is the number one reason as to why you don't have this deep expertise at a mass scale.
In terms of technology, there will be a lot of technology—hands-free augmented-reality technology with AI that can serve up information in a pretty seamless way. It's coming from the mind of an associate, but they don't have to memorize everything themselves.
Deborah Weinswig: To bring up what we see in other parts of the world, in the East, there are about 12 touchpoints with a consumer before they convert. It is about four touchpoints in the US… It will be interesting because the assumption on my end would be that the consumer is ready to convert when they are in a store—they want to purchase something to solve a particular need. But they do need the help of an associate, I think, in many cases to decipher what the best product is. You're going to have to have the right specialist in your stores who will be experts on topics. They can really help the consumers make decisions faster. With that, what technology do the associates need to enable them so that they can appear to be those experts that the customers need?
Katie Finnegan: There are probably two things. There is one technology that helps with upfront education. Walmart has had a lot of success with virtual reality and simulation in staff training, and they actually have a 37% higher retention rate of information because you're a character in it, experiencing it, so you're not just passively watching a screen and learning things; it's almost like playing a video game. The retention is just exponentially higher, and if you look at some of the virtual reality that goes into some of these programs for training associates, it is still in the pretty early stages from a fidelity and content perspective. If you compare that to the fidelity and sort of gamification that exists in video games, then that 37% can actually be significantly higher over time.
I think the second piece is that you have to figure out a way to not make it creepy! I think there is an opportunity to have some hands-free augmented reality. I actually loved what Air New Zealand did. It was a little bit before its time, but Air New Zealand had these AR glasses that their flight attendants wore… They used facial recognition so they could identify customers and their personal preferences. There is opportunity to do that: You can do it from facial recognition, but also just hands-free information—so you can have audio listening to the customers. You could use AI to answer customers’ questions, but there is always going to be those pieces that you need a human in the loop, or you need to follow up with customers.
JoAnn Martin: There are a lot of conversations now about not just how the role of stores is transitioning, but the location of the store, given all of the omni-capabilities available, such as “buy online, pick up at curb” options. Do you see it being advantageous for freestanding stores, more so than mall locations, to gain traffic through some of these services being offered?
Katie Finnegan: It is a good question. The mall has a really great opportunity, whether it's an indoor, traditional mall or a shopping center like a lifestyle center, which I know is more of the growth mechanism these days. Then there is a really great opportunity to have some sort of consortium, because what the mall provides is access to diversity at a much smaller footprint. So, I think there are probably some really cool things you can do to reduce friction for the customer and allow them to cross shop.
How can you make it super easy for me to get it with one curbside pickup? That obviously requires the mall operator to probably drive that rather than the individual stores, but they have to be willing to do so in the first place. In a perfect scenario, I would have one card that I would use to check out across multiple stores. Retailers may be willing to do that now, maybe not a year ago, but actually maybe now. To me, if you can do that as a differentiated value to the customer, it would be incredible, but it can't have the friction of having to go multiple places.
Katie Finnegan joined the Open for Business webinar to discuss the future of physical storefronts
Source: Coresight Research [/caption] Deborah Weinswig: “If you didn't have the ability to do BOPIS [buy online, pick up in store] or touchless, what designs or operations would you implement?” Katie Finnegan: Off the bat, I would work with Instacart and Uber Eats. It depends on what you sell, but there are a lot of marketplace services that can provide things to you overnight. I mean, maybe in a week or what have you, but pretty seamlessly, leveraging physical in-store inventory and getting orders to customers in a very fast timeframe. JoAnn Martin: One of the questions is really surrounding privacy and just overall impact to privacy concerns of customers as we're talking about this final mile and delivery. Katie Finnegan: It is interesting because privacy concerns are real, but they also create a lot of friction. If we actually knew who you were, we can make your experience better, and so my point of view is that you have to find that right balance as to whether I'm just stealing your data to add value to my company or to create financial gain. I do believe that if I'm leveraging your data in a way to actually reduce friction and make your life easier, it should be beneficial. You see this more so with younger consumers that will eventually be a majority of the income being spent in the market. If I can provide tangible value to you, then the customers seem to be more interested in it. To me, we’ve just got to find the right balance as to how I'm making your life better by using that data. Obviously, that equals financial gain, because if I reduce friction then you buy more from me, but I'm doing it from a principal perspective to make your life better first and foremost, and then the financial gain sort of flows through as a result of that. Deborah Weinswig: This is an interesting question: “If a retailer doesn't have a significant online presence, how should they think about leveraging their physical footprint?” Katie Finnegan: Buy online and pick up in store. It depends if it’s a national retailer or a more localized retailer. I've seen a lot of really interesting campaigns around social media and leveraging foot traffic, and so I'll give you one example. This weekend it was Mother's Day, so, on Sunday, I went for a walk with my mom and my sister, and it was a beautiful day. I'm on Long Island. We walked by this restaurant that was doing curbside pickup deliveries for people that pre-ordered for Mother's Day. They set up a bar outside in the parking lot. Everyone is outside or on the road; it's almost like you play leapfrog if you're trying to avoid people. In a rural community, people usually aren't walking around, but because people need to get out of their house and want fresh air, they are. So, they weren't doing a bar with people sitting there and drinking—obviously, they couldn't do that—but they attracted visual attention to it. You could buy of bottle wine or even make cocktails in little cups, but it brought in so much more traffic because people just saw it. It was interesting. It was just really like an outdoor display, and they weren't breaking any social distancing roles or anything like that. So, I've seen a lot of creative ideas to create buzz and drive traffic. The curbside, I think, is the way to go so that marketing is the top of the funnel and then the execution is picking from store and just the contactless delivery method. JoAnn Martin: “How are you getting insights around what is the right way to run retail and stores in each community? What kind of visibility, and what data are you leveraging as a result?” Katie Finnegan: There are obviously systematic ways to get that. First and foremost is leveraging the managers and the store associates on the ground. I think too often that they are underutilized and, actually, back to my days at J.Crew, Mickey used to bring in store managers. We would have line review and we call meetings every quarter where we present the line… It was the store managers that he brought in. They would say, “Yeah, that's very cool, but no one would buy that.” Then you get that human perspective of what it is like on the ground—what really happens. You might sell that in the Fifth Avenue stores, but you're not going to sell whatever it may be across the chain. I think too often people write off the people on the ground that have so many insights and ideas—if you are looking for quick wins, the operational efficiencies are the way to save money. That should be your first place to go—talking to the boots on the ground. There are systematic ways, but I think just picking up the phone and seeing what's going on is very valuable and underutilized. Deborah Weinswig: Could you just give us some parting words of wisdom as we think about the future of retail and the future of innovation? Katie Finnegan: Scary times, right? Completely unknown, no matter what industry or what vertical and retail you serve. So, I would say, don't cut off your nose to spite your face. You have to make the right move to grow your business. Take a long hard look at things. Be a little bit more discerning then you usually are. Do you need to do this a certain way, or can you actually do this in a minimum viable way? Or a cheaper way. Or a faster way. Start getting consumer feedback quicker before you invest in some big solution. I think we, as an industry, need to do more of that, and this unfortunate situation has been a positive catalyst that leads to that piece. Deborah Weinswig: Thank you, Katie, for your insights and your wisdom. JoAnn, thanks as always and we look forward to seeing everyone next week. Be well. JoAnn Martin: Thanks, everyone. Katie Finnegan: Thanks, all.
Introduction
Deborah Weinswig: Good morning, and welcome to Open for Business. Today, I'm honored to be joined by my co-host JoAnn Martin, who is the VP of Retail at Blue Yonder. JoAnn has extensive strategic retail experience and a proven track record across apparel footwear and accessories—including at L brands, DSW and Luxottica. In her role at Blue Yonder, she has been the industry thought leader for retail. Her expertise also includes merchandise planning, item planning, planning allocation and omnichannel inventory enablement. I'll turn the call over to JoAnn now for some opening remarks. Thanks, JoAnn. JoAnn Martin: Hello, Deborah. I'm super excited to be here with you and Katie today to talk through some of the challenges and opportunities we're seeing within supply chain. Blue Yonder, which is an end-to-end supply chain platform company—formerly known as GTA—get the benefit of talking to customers globally, both in manufacturing and retail, about their supply chains and about challenges they are experiencing. We are seeing four major themes, whether it be through our customer engagement or through other conversations we're having within the industry.- One is supply chain visibility and resilience and trying to understand disruptions in the supply chain and how retailers and manufacturers are proactively diagnosing those and then being able to manage them with exception-based management.
- One of the other themes is forecasting and replenishment. How do I leverage ML [machine learning] and AI [artificial intelligence] to have more predictive forecasting and demand within my supply chain?
- Another is workforce. So many things are going on with workforce outside of safety of associates and managing those trends. We are working through scheduling optimization, as well as balancing the skill sets of workers out in the environment today, whether it be essential or nonessential [retail], and trying to manage tasks efficiently.
- Finally, the biggest conversation that’s emerging is the surge of e-commerce. How are we leveraging omni-capabilities, and what is the impact to the supply chain for the final mile?
JoAnn Martin outlines four major themes in retail that Blue Yonder is seeing in the current environment Source: Coresight Research [/caption] Deborah Weinswig: Thanks, JoAnn. For those of you who don't know, Katie Finnegan recently joined Rite Aid as the Chief Consumer Experience and E-Commerce Officer. Katie was also the founder and principal of Store Number Eight, which is Walmart's incubation arm. She also launched four portfolio companies in under three years, including Jet Black Walmart and Home Delivery, Walmart's intelligent retail lab. Katie brings a real passion for retail entrepreneurship to incubation, which we've always admired. She joined Walmart via the Jet.com acquisition, where she was the head of Corporate Development Strategy and Investor Relations, reporting directly to CEO Mark Lori. Katie joined Jet in 2014 with the acquisition of Huckster, the retail tech startup she co-founded in 2012. With that, we'd like to welcome Katie. Appetite for Innovation Deborah Weinswig: Today, we are going to discuss innovation, the retail supply chain and what the new normal might look like. I think the big questions on everyone's mind right now is, “What is in the retail world globally, and what is its appetite for innovation right now?” Katie Finnegan: I think the appetite has shifted not too dramatically for the long term, but what you're really seeing in the market is a bifurcation, where the appetite is actually accelerated in some places—such as solutions that can really add value to today's new norm and today's customer needs—and potentially decelerated solutions on things that are a little bit further out and not nearly as relevant for today's consumer’s needs. Take curbside delivery, for example. There are companies that have had that on their roadmap for years and years, and some companies managed to set that up in a matter of 72 hours. Maybe not everything is optimized perfectly, but that's really the definition of minimum viable product. So, you're seeing a lot of large companies that maybe wouldn't necessarily take as much risk do something in an “ad hoc minimum viable product” way… and it's really been great: They are able to adjust and serve consumers in the way they need to be served today based on the new norm and the world of Covid-19, and a lot of these things are probably not going to drastically go away in six or 12 months from now, even when there is a vaccine.
JoAnn Martin: Katie, when you look at the technologies that are out there with these innovations, which are most prevalent and really important to focus on for retailers, and where should they be looking to technology to help?
Katie Finnegan: I would say there are probably two main areas. My point of view is that it is less around experiential retail as it has been in the last three to five years. I'm still a big fan of AR [augmented reality] and VR [virtual reality], but I see that taking a little bit of a backseat to solutions and innovation around supply chain inventory control and on demand manufacturing; those seem to be bumped up in need and priority based on what's going on. Again, in a post-Covid world—however we define that—I don't see that changing.
You're really seeing what consumers spend their money on, and some of that is the economic and financial climate—fewer experiential goods, less defensible income and more essential services.
Deborah Weinswig: Katie you've been a real hero for many of the retail tech startups; you've breathed life into them, and you've helped drive awareness. What do you think is the appetite for large organizations to work with startups right now in this very uncertain environment?
Katie Finnegan: I think that there is actually a huge opportunity, probably more so than there has been. Getting to my earlier point about seeing large companies issue minimum viable products to roll out… I think the risk tolerance is higher, and they are really just looking for fast solutions. So, for startups that really focus again on those areas—I would say around supply chain, last-mile delivery, manufacturing and on-demand inventory—I think there is a lot of opportunity. Other places where it is more experiential is not as much of a priority today.
The Changing Nature of the Workplace, Shaped by Covid-19
JoAnn Martin: Where do you see customer buying behaviors changing during this time, and how do you expect that to transition coming out of Covid? Katie Finnegan: Over the last five-plus years, it has really been about mass retail and grocery in general merchandise—those are more essential categories. Really, if you just look at the way consumers live, that is affecting changes. Twitter announced today that its employee base can work at home for the indefinite future, for example. That really changes what items they have to have in their closet and what their daily routine looks like. What do you do if you're not going to an office—do you bring your pet to day care or do you actually take care of it? There are so many underlying things that change as a result of that one tweak of everyday behavior. I'm not saying that every company will move towards an indefinite work-at-home situation, but I do think there is going to be a real shift, and with this, the concept of having to be available in person over video calls 24/7. This does not mean that everything is remote, but there is probably going to be a balance that will really impact every piece of the customers’ day-to-day life… and spending behaviors. Deborah Weinswig: You bring up a really important point. You have joined Rite Aid during this time that we are all working from home and physically separated. How do you think this is for new employees in general? How challenging is that, and how are you finding companies at large integrating workforces and helping employees right now? Katie Finnegan: For the younger employee base, it is probably a little bit more natural. They are very used to digital communications. There is definitely this concept of “Zoom fatigue,” and I know there have been several articles about it, but it is such an odd concept compared to when we were in person. It is a different psychological demand, being constantly on video. It just has a different impact, and I think part of it is just not having the time to walk from one office to another office. You don't have that 30-second break where you can just clear your head; you are literally going from video chat to video chat. Things like Slack have been amazing to create that “water cooler talk” environment, where you can still have jokes and get to know people's personalities outside of the transactional zoom chats. I also think we need to get much better at blocking 15-minute windows every two or three hours. Honestly, just for going to the bathroom or getting a glass of water. I think that's really been the big drain on people. There really isn't this separation of church and state anymore. And personally, I can say the joke about pouring yourself a glass of wine at the end of the day, because you're at home. You have to find more sustainable ways to bifurcate your life so that work is not omnipresent in your life. You're able to turn things off and turn it on when it's the right time for you, which, with kids at home especially, now might not be nine to five. I would say, from what I've heard anecdotally, that most employers have been very understanding about that. I think it is really important to let people know that when I'm working isn't always when you're working, and I'm okay with that. I don't need a response just because you're always online; I don't need a response within 12 seconds.Value Proposition and the Role of the Physical Store
JoAnn Martin: Thanks, Katie. That's a great perspective. You introduced the concept about on-demand manufacturing. There are a lot of conversations about assortments and how we're narrowing, but can you expand upon that? How do you see demand manufacturing impacting retailers today and what could some benefits of it be or what could it look like? Katie Finnegan: We know we just need to get smarter about inventory levels in certain places. I don't believe the demand for personalized or unique or special products will go away, but the need to have that inventory replicated across 40,000 stores, or whatever your physical footprint looks like, is always present. You don't necessarily need it physically there to sell it—whether there are digital experiences or ways that you introduce the SKU—but personalize it in a way where you can offer same-day delivery to the consumer, which is now the new norm. If you can find a way to really rationalize your overall inventory position but still have that “long tail,” I think that is going to be essential for the financial health of, in particular, fashion and dispensable income industries and retail. Deborah Weinswig: Thinking about optimization, how do you think retailers think about choice and national brands versus private label? What do you think about the in-store offering? We still see a lot of differences between online and offline, whether it's from a merchandise perspective, even pricing or on brand. How do you think about that in terms of where we are and where we're going? Katie Finnegan: I would answer that with a framework versus a direct answer, where I believe each retailer has to have a distinct value proposition that they stand for. So, what is their pricing strategy assortment strategy? What is their experience strategy, and how are they able to get it across? For example, “What am I known for with regards to pricing?” To your other point, private label—what products might be my accessible price point that is still high quality? What am I known for, and what drives traffic to me? You really have to think about what's differentiating you that you're delivering across those different pieces. Outside of the Amazons of the world and some of these other mass players where you will not be the best price, or you won't be for long, because you won't be able to afford to do so, what is the reason for coming and shopping with you? What is the reason for coming and shopping with you in store versus digitally? You need to have a distinct value proposition for the customer—and it's not always price. It can be unique exclusive product, but it could also be an amazing experience with amazing editorial content and education that then that becomes part of the buying process. JoAnn Martin: When you think about that then you start to think about the assortments and what they stand for. How do you see the role of the store changing? Katie Finnegan: I think that depends largely on the actual company and the store, and again, what value it is driving in the eyes of the customer. What are they doing differently from every other option that that customer has available to them? Overall, I believe strongly that the store’s physical footprint… will change. We will have to figure out a way to do things in a post-Covid world where it's clean and it's safe and all those things.
It is interesting to see in these last couple of months where we're really yearning for human connection and community building and engagement. I do believe the store can serve a very interesting and unique purpose where customers do want to come together: They want to learn; they want to experience; they want to have fun while shopping. That's not going to be solved by virtual reality in its totality; people want to actually see other people
To me, the physical footprint is less about proximity to goods, which I think is what it has been for the last generation. Because, to your point, that's being solved and streamlined pretty quickly with the Instacarts of the world and other things like that. It's more about education, experience and a personalized human connection.
You're seeing the blurring of lines between content commerce and experience hospitality. It’s just a way to solve a need, right? It is really just about a holistic approach to what you want and what you need, and retailers (or even these hospitality players that are turning into retailers) just want to be the place that you go to for that thing. Sometimes we make direct margin on it because we sell stuff, but other times we basically increase lifetime value and stickiness of the customer because we pointed them in the direction of, I don't know, a therapist that could help them that maybe we don't actually make money from—but we created that connection and therefore we are your trusted/go-to advisor. I think the community piece is really important, and it really plays on this fact that customers just want the friction to be removed, and it's less about a one-to-one transaction.
JoAnn Martin: When you think about the role of a store associate, how do you see the enablement of the associate changing as we transition through these times and the role start to change?
Katie Finnegan: So, there are two pieces right there. The roles of our associates really boil down to operational roles, and there is a lot of time management that goes into that as well, and they’re not feeling fulfilled on that aspect. There is a lot of great technology that will help reduce that friction for out-of-stocks on shelves and things like that—even online cash and pay-and-go technology. However, I think the other side of the role is increasing in importance. So, instead of having this concept of a general athlete where everyone does everything, we want associates to be a strong representative of the brand, and when the brand stands for great fashion, they have to really understand fashion. If the brand stands for health and wellness, they have to understand it. The two real ways you see that is, one, obviously your hiring process and practices but, two, is turnover. What do you pay your associates and what are your retention mechanisms? I think there is going to be a lot more focus on that. That is the number one reason as to why you don't have this deep expertise at a mass scale.
In terms of technology, there will be a lot of technology—hands-free augmented-reality technology with AI that can serve up information in a pretty seamless way. It's coming from the mind of an associate, but they don't have to memorize everything themselves.
Deborah Weinswig: To bring up what we see in other parts of the world, in the East, there are about 12 touchpoints with a consumer before they convert. It is about four touchpoints in the US… It will be interesting because the assumption on my end would be that the consumer is ready to convert when they are in a store—they want to purchase something to solve a particular need. But they do need the help of an associate, I think, in many cases to decipher what the best product is. You're going to have to have the right specialist in your stores who will be experts on topics. They can really help the consumers make decisions faster. With that, what technology do the associates need to enable them so that they can appear to be those experts that the customers need?
Katie Finnegan: There are probably two things. There is one technology that helps with upfront education. Walmart has had a lot of success with virtual reality and simulation in staff training, and they actually have a 37% higher retention rate of information because you're a character in it, experiencing it, so you're not just passively watching a screen and learning things; it's almost like playing a video game. The retention is just exponentially higher, and if you look at some of the virtual reality that goes into some of these programs for training associates, it is still in the pretty early stages from a fidelity and content perspective. If you compare that to the fidelity and sort of gamification that exists in video games, then that 37% can actually be significantly higher over time.
I think the second piece is that you have to figure out a way to not make it creepy! I think there is an opportunity to have some hands-free augmented reality. I actually loved what Air New Zealand did. It was a little bit before its time, but Air New Zealand had these AR glasses that their flight attendants wore… They used facial recognition so they could identify customers and their personal preferences. There is opportunity to do that: You can do it from facial recognition, but also just hands-free information—so you can have audio listening to the customers. You could use AI to answer customers’ questions, but there is always going to be those pieces that you need a human in the loop, or you need to follow up with customers.
JoAnn Martin: There are a lot of conversations now about not just how the role of stores is transitioning, but the location of the store, given all of the omni-capabilities available, such as “buy online, pick up at curb” options. Do you see it being advantageous for freestanding stores, more so than mall locations, to gain traffic through some of these services being offered?
Katie Finnegan: It is a good question. The mall has a really great opportunity, whether it's an indoor, traditional mall or a shopping center like a lifestyle center, which I know is more of the growth mechanism these days. Then there is a really great opportunity to have some sort of consortium, because what the mall provides is access to diversity at a much smaller footprint. So, I think there are probably some really cool things you can do to reduce friction for the customer and allow them to cross shop.
How can you make it super easy for me to get it with one curbside pickup? That obviously requires the mall operator to probably drive that rather than the individual stores, but they have to be willing to do so in the first place. In a perfect scenario, I would have one card that I would use to check out across multiple stores. Retailers may be willing to do that now, maybe not a year ago, but actually maybe now. To me, if you can do that as a differentiated value to the customer, it would be incredible, but it can't have the friction of having to go multiple places.
Live Poll: Leveraging Technology and Forecasting Demand
Deborah Weinswig: Now, we will go through and share our poll question results. “What tech areas is your company investing in?” 42% said supply chain logistics; 58% said customer experience; and 0% in AR and VR, which is pretty consistent. Any surprises there? JoAnn Martin: I am a little bit surprised about the customer experience, unless, as I think about that, it's more about accessibility and visibility for the customer—understanding where the products are. I tie them hand in hand with forecasting. Can you give a different perspective, Katie? Katie Finnegan: My gut is that customer experience is with regards to operations and friction—paying on the go and self-checkout and things like that, more so than the front-end experience or the discovery process. That was my gut. Deborah Weinswig: “As a retailer, are you narrowing your assortments, and if so, by how much?” 50% are moderately narrowing, 25% extensively and 25% minimally. What do you think about that? Katie Finnegan: It is a hard question to answer. Broadly, it really depends on the sector you're in, and again, I think there is an opportunity to not narrow your format but narrow your inventory. I don't know how people perceive that question, but that could be part of it too. It doesn't really even matter what sector it is—getting your product turnover to be faster should be one of the top three priorities. JoAnn Martin: I would agree with that. We are seeing and hearing a lot about SKU rationalization and contracting of assortments, but I would say it is at the beginning stages of that and trying to understand how significantly that will impact assortments versus the composition of assortment based on what everyone is saying, so it doesn't surprise me that much. Deborah Weinswig: Last question. “How are you developing your demand forecasting?” Only 8% are using ML and AI solutions, which is obviously a significant opportunity, and 92% are still statistically based. It is a huge area of opportunity. JoAnn, is that consistent with what you would have thought? JoAnn Martin: It is not consistent with a forward-looking conversation. Historically, most people have used statistical forecasts, and I've seen the challenges that it has imposed to their supply chains during times like this pandemic. Our conversations have shifted, and I think it accelerated the technology curve significantly in AI and ML, from where it was. Everybody was trying to figure out, “What does it look like, are we moving there, and how should I think about it now? It's a necessity, and how quickly can I do that?” So, I think the conversations are shifting. I'm not surprised on where they are right now, from a demand forecasting standpoint, but I think that statistic will most likely look significantly different in a year's time. Deborah Weinswig: Katie, what do you think the appetite is for retailers in terms of investing in these technologies? I feel like we've been talking about it extensively for 18 months. How does the current environment change that one way or another? Katie Finnegan: Again, I just think the openness to needing to do things differently has really accelerated and so retailers are doing things with minimum viable product and testing and learning. The issue really is underlying with retail and mass retail. I think digitally native brands definitely were cut from a different cloth, but generally, people see that this is valuable, but they don't have the talent in house, and they don't truly understand where to go and how to do it. I’m a big fan of AI and ML, but I started my career as a merchant at J.Crew under Mickey Drexler. I have my Mickey Drexler hat on, where there is a huge risk and concern with swinging the pendulum too far. There is this qualitative benefit that goes to merchandising and curation and assortment that you can't lose. The concern I've seen with solutions that are from startups or Silicon Valley tech companies is that they're truly approaching it 100% from an engineering point of view and they don't have that sort of merchant insight. I'm not saying that merchant insight has to be a human intervention, but that has to be an input into the algorithm. So, you're losing a little bit of the human point of view. I don't think retailers have probably tested with it enough, but there comes risk or, probably, the initial feedback is too simplified. A lot of the time, the people that are going after these solutions don't have a retail background. You need to find that comfortable middle ground… You need to get the right talent in house so that you feel you're owning those solutions; this can't be something you outsource to a team. Then you get this magic crystal ball back.Q&A: Dark Stores, On-Demand Manufacturing and Data Privacy
Deborah Weinswig: JoAnn, do you want to kick off our Q&A? JoAnn Martin: Our first question, and I think you've addressed this a little bit, but we'll just revisit it really quickly, is, “What are the top three priorities for store managers, and do they have the tech to support them?” Katie Finnegan: Right now, store managers are number one. Today's environment definitely requires maintaining operational viability. I hear time and time again, “How are you protecting your associates? How are you making them feel comfortable coming to work?” Because again, there is really high turnover… People feel scared to go to work. How do you create an environment where you want people to want to be there? That will then flow through to the customer experience. So, doing that in a super stressful environment where sales are often down is not easy, and there are other operational considerations taking over an overwhelming degree of time for store managers today. Deborah Weinswig: How much movement do you see or anticipate toward the growth of dark stores? Katie Finnegan: It's funny, we never seem to talk about their status in China. It's a very successful model there. I think there is an opportunity with it, and again, I haven't spent extensive amounts of time modeling this. What I think is really exciting or where I'd want to spend my time is looking at that four-wall box and understanding how I'm allocating space. What's experiential? What's front of store? What is “dark store?” You can have a robotic picking station if you have enough volume to warrant that, but I don't think you necessarily need to. I think there are inefficiencies in last-mile delivery and in, quite honestly, the opportunity of providers to fix that. You don't need to be within two miles to get a two-hour delivery service level at scale. I don't think you need tons of little places. It depends on the company and the footprint they have, but generally speaking, it's more so just reconsidering how you're laying out the space. If you have a really large pickup-from-store model, picking from the shop floor is very inefficient; it's costly. So, it might warrant that you layout the picking area or actually automate the picking area in a back room and decrease the amount of square footage that customers can engage with. What I don't know is if you necessarily need to put up tons of dark source to do that. I think you look at your current footprint and actually just decide whether you really need to be customer-facing versus not. JoAnn Martin: The next question is, “What is the greatest challenge for on-demand manufacturing?” Katie Finnegan: I haven't looked at that, probably for two or three years. We did do some work with it at Store Eight. I would say that it just didn't seem to be there yet from a technical standpoint, or it wasn't there in a broad enough set of categories. So, there were certain things that it could do pretty well, but it wasn't enough that it would drastically impact inventory turns and holding costs. To me, that's the big challenge. I think there is also a huge opportunity to do on-demand manufacturing. There was this one company we looked at called Appeal Sciences, where they can actually speed up or slow down the ripening of produce. So, if you look at food—and food is a big category—about 50% of it goes to waste. That's all just based on not having the right inventory levels at the right time to meet demand. If you can actually manipulate it in a safe, holistic way that doesn't do anything bad to the produce, then if you could manipulate the ripening process, that becomes really interesting. [caption id="attachment_110778" align="aligncenter" width="700"] Katie Finnegan joined the Open for Business webinar to discuss the future of physical storefronts Source: Coresight Research [/caption] Deborah Weinswig: “If you didn't have the ability to do BOPIS [buy online, pick up in store] or touchless, what designs or operations would you implement?” Katie Finnegan: Off the bat, I would work with Instacart and Uber Eats. It depends on what you sell, but there are a lot of marketplace services that can provide things to you overnight. I mean, maybe in a week or what have you, but pretty seamlessly, leveraging physical in-store inventory and getting orders to customers in a very fast timeframe. JoAnn Martin: One of the questions is really surrounding privacy and just overall impact to privacy concerns of customers as we're talking about this final mile and delivery. Katie Finnegan: It is interesting because privacy concerns are real, but they also create a lot of friction. If we actually knew who you were, we can make your experience better, and so my point of view is that you have to find that right balance as to whether I'm just stealing your data to add value to my company or to create financial gain. I do believe that if I'm leveraging your data in a way to actually reduce friction and make your life easier, it should be beneficial. You see this more so with younger consumers that will eventually be a majority of the income being spent in the market. If I can provide tangible value to you, then the customers seem to be more interested in it. To me, we’ve just got to find the right balance as to how I'm making your life better by using that data. Obviously, that equals financial gain, because if I reduce friction then you buy more from me, but I'm doing it from a principal perspective to make your life better first and foremost, and then the financial gain sort of flows through as a result of that. Deborah Weinswig: This is an interesting question: “If a retailer doesn't have a significant online presence, how should they think about leveraging their physical footprint?” Katie Finnegan: Buy online and pick up in store. It depends if it’s a national retailer or a more localized retailer. I've seen a lot of really interesting campaigns around social media and leveraging foot traffic, and so I'll give you one example. This weekend it was Mother's Day, so, on Sunday, I went for a walk with my mom and my sister, and it was a beautiful day. I'm on Long Island. We walked by this restaurant that was doing curbside pickup deliveries for people that pre-ordered for Mother's Day. They set up a bar outside in the parking lot. Everyone is outside or on the road; it's almost like you play leapfrog if you're trying to avoid people. In a rural community, people usually aren't walking around, but because people need to get out of their house and want fresh air, they are. So, they weren't doing a bar with people sitting there and drinking—obviously, they couldn't do that—but they attracted visual attention to it. You could buy of bottle wine or even make cocktails in little cups, but it brought in so much more traffic because people just saw it. It was interesting. It was just really like an outdoor display, and they weren't breaking any social distancing roles or anything like that. So, I've seen a lot of creative ideas to create buzz and drive traffic. The curbside, I think, is the way to go so that marketing is the top of the funnel and then the execution is picking from store and just the contactless delivery method. JoAnn Martin: “How are you getting insights around what is the right way to run retail and stores in each community? What kind of visibility, and what data are you leveraging as a result?” Katie Finnegan: There are obviously systematic ways to get that. First and foremost is leveraging the managers and the store associates on the ground. I think too often that they are underutilized and, actually, back to my days at J.Crew, Mickey used to bring in store managers. We would have line review and we call meetings every quarter where we present the line… It was the store managers that he brought in. They would say, “Yeah, that's very cool, but no one would buy that.” Then you get that human perspective of what it is like on the ground—what really happens. You might sell that in the Fifth Avenue stores, but you're not going to sell whatever it may be across the chain. I think too often people write off the people on the ground that have so many insights and ideas—if you are looking for quick wins, the operational efficiencies are the way to save money. That should be your first place to go—talking to the boots on the ground. There are systematic ways, but I think just picking up the phone and seeing what's going on is very valuable and underutilized. Deborah Weinswig: Could you just give us some parting words of wisdom as we think about the future of retail and the future of innovation? Katie Finnegan: Scary times, right? Completely unknown, no matter what industry or what vertical and retail you serve. So, I would say, don't cut off your nose to spite your face. You have to make the right move to grow your business. Take a long hard look at things. Be a little bit more discerning then you usually are. Do you need to do this a certain way, or can you actually do this in a minimum viable way? Or a cheaper way. Or a faster way. Start getting consumer feedback quicker before you invest in some big solution. I think we, as an industry, need to do more of that, and this unfortunate situation has been a positive catalyst that leads to that piece. Deborah Weinswig: Thank you, Katie, for your insights and your wisdom. JoAnn, thanks as always and we look forward to seeing everyone next week. Be well. JoAnn Martin: Thanks, everyone. Katie Finnegan: Thanks, all.