The Future of Retail Looks a Lot Like Tech

Why some retailers are starting to think more like startups when it comes to evolving their businesses.

Today, startups have infiltrated nearly every part of our lives—from how we watch movies, to how we get around town, to how we shop.

If you’ve ever worked for a startup (or watched Silicon Valley) you know it’s unlike any other workplace. There’s a never-ending list of acronyms, always-changing jargon to stay on top of, and at least one ping pong table. However, what seems intimidating, complicated or different about startups is also what makes them innovative and successful.

As sluggish retailers face major losses, forward-thinking retailers have adopted some of tech’s signature methods to keep up with their customers. Let’s take a look at the startup best practices most likely to move the needle when it comes to retail.

Staying agile

Startups have developed their own set of philosophies and processes. Among them, agility—or the ability to pivot—is key. This means that a startup can change course quickly as new technology emerges or objectives shift.

Newer retailers, especially ones like Casper and Warby Parker, which started as pureplay ecommerce, are retaining their digital agility but still opening brick and mortars, because they want to attract customers who are hesitant to shop exclusively online.

It’s trickier for retailers that are bogged down with a lot of legacy processes, as they tend to be sluggish and slow to adapt. However, Walmart and Target are “swapping big box thinking for a startup-in-a-garage mindset,” according to Forbes, with some inspiring results:

  • Walmart U.S. eCommerce sales grew 40%
  • Walmart U.S. Q2 grew 4.5% compared to the same period last year
  • Target.com saw 6.4% traffic growth
  • Digital sales at Target grew 41%, on top of 32% growth the previous year

Failing fast

Because startups are agile, teams can quickly experiment, measure and adjust if the experiment isn’t going well. No harm, no foul.

Traditionally many retailers are laggards when it comes to change, whether in technology, strategy, or revenue streams. Because they’re typically playing catch-up, they barely have the resources to maintain their tech stack, let alone deploy daily experiments or spend time strategizing new ventures.

Kroger, the largest supermarket chain in North America, is an outlier in this arena. As one part of their new growth plan, Restock Kroger, they’re reinventing their financial model. Two new revenue streams are proving to be very lucrative: Kroger Personal Finance, which had a record year for profits in 2018, and Kroger Precision Marketing, which saw revenue increase more than 150% year-over-year.

Kroger is also investing in their digital grocery experience, with online sales and both pickup and delivery options. On top of that, their in-house brands, which have a superior profit margin, made up over a quarter of both unit sales and sales dollars in Q3 2018—a new record.

Kroger’s frequent, low-risk experiments are paying off, and they’re growing as a result.

Being disruptive

Everlane was the first fashion retailer to truly blur the line between startup and retailer with their direct-to-consumer model and “radical transparency” when it came to their prices and supply chain. When Everlane finally opened a brick and mortar store six years after launch, it was after doing $51 million in ecommerce sales the previous year.

Twenty-five-year-old Michael Preysman founded the San Francisco-based retailer in 2011. He was a startup employee who really had no business creating a clothing line, but Preysman saw “the potential to reinvent how brands engage with their customers.”

To stay relevant, traditional retailers need to tune into this new reality and create truly enriched experiences for their customers. There’s no shortage of tactics to choose from: same-day shipping, free returns, subscription services, loyalty programs, contests, giveaways and buy-online pickup in-store, to name a few. But getting a growth strategy in place, one that’s based on customer wants and needs, must be the first step towards reinvention.

Data-driven decision making

Amazon is a prime example (pun intended) of a company that uses data to drive their decision making. They started by disrupting the way people shop for books and, using data from their many customers, have been able to dominate the marketplace.

The convenience Amazon offers isn’t a fluke—it’s based on real-time customer behavior that’s collected, analyzed, and used to experiment.

Brick-and-mortar retailers struggle to even collect this type of data and have been forced to rely on opinions or anecdotal evidence instead—not ideal for a world that’s rapidly changing. However, if retailers initiate new tech partnerships and truly focus on the customer, they will be able to compete again.

Strategic outsourcing & acquisitions

Knowing when to outsource is key to the health of many startups. Just because you need something done, doesn’t mean you need to hire full-time in-house. Building partnerships with companies who specialize in specific areas mean startups can get the expertise they need without the overhead.

In the past, retailers have trended towards hiring in-house as much as possible. This can lead to high overhead and has caused many mass layoffs, and restructurings in recent years.

Lately, we’re seeing retailers not only outsource but also acquire startups as they start to better understand their customers. Target’s purchase of Shipt and IKEA buying TaskRabbit are two examples. However, there’s still a lot of progress to be made in this area.

A technology-led culture

Startups are often led by developers or tech teams. It’s not unusual for entire companies to exist for years before they even have an MVP in the market, so there is usually a huge emphasis on technology and innovation rather than product, marketing or sales—as is often the case with retailers. In a startup, even the CEO might have a technology background rather than just a business background. Because they’re so heavily skewed to an industry that iterates rapidly, startups are predisposed to think outside the box. They experiment with new technologies, and often eschew the status quo.

Be bold: think differently

Lastly, startups look at the world differently, seeing opportunity through a different lens. Amazon’s data-driven, tech-first approach has been so successful that they’ve shifted the retail paradigm—something every retailer has had to reckon with. Conventional thinking leads smart marketers to try and compete with Amazon on price and convenience. But is that different enough?

H&M is closing 160 stores, Macy’s is cutting 100 executive-level staff, and Gap is splitting from Old Navy. Amidst the retail doom and gloom, there is one retailer who took a decidedly different approach: Kohls.

A few years ago, they were circling the drain with an aging audience and flat revenues. Their e-commerce efforts paled in comparison to Target, but their brick-and-mortar stores were located in good areas. Instead of trying to compete with Amazon, they did something completely different and decided to partner with them. Kohls began accepting free returns for Amazon products, meaning that customers could walk into any Kohl’s location and return an Amazon purchase. In this way, they leveraged assets they had: good locations and fulfillment capabilities. In return, they figured out a new way to drive customers (new and old) to their stores. They’ve seen positive sales growth by thinking differently and riding the Amazon wave, rather than fighting it.

After a few tough years in retail, we’re finally seeing some of the major players start to incorporate startup strategies into their business models, and that’s a good start. But it’s not just a few strategies and tactics—thinking like a startup (and staying competitive) means a cultural shift throughout the entire organization.

Surviving today’s retail challenges requires investment in innovation and taking risks check out my blog about breathing new life into retail for some additional insight or email me to talk enterprise retail strategies.

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About Glenn

Glenn Pingul is Managing Director of our Scientific Marketing Practice, where he helps enterprises achieve their KPIs and better connect with their customers. Prior to joining Amplero, he was a co-founder of the online video advertising ad tech company, Mixpo, where he was VP of marketing. He has an extensive background developing digital marketing, analytics, and loyalty and retention strategies while serving in executive level positions at T-Mobile USA, Nordstrom.com/Inc., AirTouch Wireless (Verizon Wireless), Starbucks.com and The American Express Company.

About Amplero

Amplero’s Automated Message Optimization Platform enables global brands to maximize the value of their campaigns automatically and at scale. Driven by KPIs, the Amplero platform uses advanced, patented machine learning algorithms to discover valuable new micro-segments and determine the most relevant, compelling messages for each.

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