Trading Places - Retail is Where Cyberspace Meets the Marketplace.

By Tim Manners | 3/2012

How do you see the future of retail?

Kensuke Suwa: The gap between what is sold in the store and what is sold online is getting smaller and smaller. More people are becoming accustomed to operating the smartphone and also e-commerce. So, the ratio of sales coming out of e-commerce is becoming bigger and bigger.

For Uniqlo, this means the online experience has to improve, because you can't try on clothes online the way you can in the store. That is the biggest challenge for us. What is the best way to buy something without touching it? That is more difficult compared to what we do at the store level. It is a big part of the future of retail.

Jon Abt: We definitely see more e-commerce, especially for a single-store retailer like us. We see unlimited growth potential in e-commerce, driven by an increase in the assortment of products we can offer. E-commerce allows us to expand from our bread-and-butter — and we've been doing that a bit in the store, as well.

Most important, people want instant access to customer service. They don't necessarily want to have to drive to a store or pick up the phone. We've recently started a 24-hour customer sales and support line, so customers can reach us 24-hours-a-day.

Christophe Garnier: Over the past four years, we've seen tremendous growth in the number of online discount businesses like ours, which is a flash-sale site for moms, selling all sorts of products and services, from pregnancy items to baby and kids' items for children up to age eight.

We work with a lot of brands that don't have any online presence and they are leveraging us as a new marketing vehicle to reach their audience. We have about 15 different brand sales every day that last for an average of three days. Our 1.7 million members receive an e-mail every day announcing new sales on different brands as well as coupons for services that can be redeemed in stores.

Our blogging and social-media activities drive traffic to our website on a large scale, lowering our overall customer acquisition costs dramatically. These new marketing strategies will continue to be a crucial factor for success in the future of retail, whether your business is online or offline.

Stephen Hoch: I think that most of retail is going to stay the same. Obviously, the thing that's on top of everybody's mind is the online space. Because of computing power and creativity, online provides retailers with many marketing options they didn't have before.

Most retailers have had to rely upon their physical stores to create a brand because very few of them spend money on brand advertising.

Now, with online capability, retailers can create a more complete brand by complementing what goes on in the store.

However, the increase in online emphasis is not going to happen uniformly across the retail landscape. It's going to happen mostly with products where either there is a digital element that obviates the need for any physical access, or where the assortments are very large and physical stores can carry only a small selection.

Tina Manikas: The great thing about the future of retail is that it's going to benefit the shopper more than anybody else. That's because of the blending of types of retail: It's brick-and-mortar, it's online and it's in your pocket via mobile. The future is going to be about new channels and convergence of those channels.

Technology is also empowering a more personalized shopping experience because it gives shoppers more options, better ways to make decisions and a deeper, more interesting experience. The idea is not to let technology lead, but to let technology empower the personalized shopping experience.

What is the best kept secret of great retail?

Suwa:I think there really is no secret to achieving a great retail experience. Here in Japan we say "kaizen," which is the improvement of the customer experience in the store, basically the everyday things.

Whenever our personnel notice something, they will report it whether it's a good experience or something that needs to be improved. Then we will share this with everyone so that personnel in our other stores can do the same thing.

It's also important to notice that some stores are lively while others are really quiet. This depends on the personnel who are working at the store and who give you the impression that the store is lively or not. To give shoppers the spirit of the brand and then execute that experience at the store level is the most important aspect of retail.

Abt: Keeping it simple, focusing on the customer and listening to them is a secret of great retail. On the back end, the secret is empowering your employees to take care of customers without having to ask a supervisor. That's what's worked for us for the last 75 years.

We've also been doing classes in our stores for the past 20 years because we want to make sure that people know how to use what they buy. Our store is a real experience, too. We've got a huge fountain in the back, and there are brand boutique and specialty stores set up throughout the store. It's about showing people how products connect with each other.

Garnier: At Totsy, our consignment model — which means we aren't buying any inventory — has been a secret of our financial success. We don't have any inventory in-house for more than 12 hours, as it's already been sold.

Avoiding returns is also something we have been able to accomplish, even though users can return any item. The secret is that we focus exclusively on the parenting segment, and kids are too young to ask to return something their parents bought for them. Also, many of the items we sell, like strollers and other baby products, are not the kinds of items that usually are returned.

Hoch: One of the best-kept secrets about retail is that grocery shopping is one of the most efficient tasks out there. The grocery store is very well organized and delivers quality merchandise that people need at a very low cost. That has only improved over time. Even though people say that they hate going grocery shopping, in fact it is a very efficient experience.

But I don't think there are a whole lot of secrets in retail. Unlike other kinds of industries, it is very easy to observe exactly what your competitors are doing. It's very easy to then incorporate those elements into your own operation.

Manikas: The best-kept secret of retail is that it's not about the products; it's about the offering and the purpose that you're creating for the shopper.

It's about the combination of things that you're putting together versus just the products on a shelf. Retailers win when they think about the whole experience, whether that's online or in a store.

The other secret of retail — and this could be a good thing or a bad thing — is that shopper expectations are different than in the past.

Shoppers have become so used to immediacy in the online world that they now expect it offline, as well. It doesn't always have to be a technology empowering the experience, but there are opportunities to create more immediacy at retail.

What frustrates you most about retail?

Suwa: In the apparel industry, it sometimes takes time to respond to customer needs. For example, an item may be missing from a store and we need to find it in our inventory so we can deliver it to the customer. Or, if the customer wants to have a certain product, it will take us some time to create and then deliver it. That is difficult.

Quick response to the customer is, of course, our mission. So, the customer always comes first, and we provide the best possible service. Giving more attention to the details of customer service is the biggest challenge, but it also makes the biggest difference.

Abt: In our space, the frustrations are a handful of things. There's price erosion, because as the technology gets mass-produced the prices come down. That's good for the end-user, but now we've got to sell a lot more of those pieces to make our numbers. The increase in price regulations from some of our partners is also frustrating.

We're now also competing with some of our vendors, who have become retailers themselves. Some of them are doing it right and some seem to be faltering, but it's never nice to compete with someone you know has an advantage from a profitability standpoint.

Garnier: Innovation is always a challenge because it requires education. When we launched Totsy in 2009, only very few parenting brands knew how the flash-sale model worked. The few flash-sale sites were focusing on the fashion segment, so we had to play the role of an evangelist in the parenting industry and explain to our brand partners how to embrace it.

Brands eventually realized it was not only a great way for them to get rid of their unsold inventory, but it was also a unique way to engage their audience. More recently, we have started helping brands launch new products or collections. So, what should have been a bit frustrating ended up being a great adventure.

Hoch: Unfriendly people frustrate me. I've never understood why grumpy people would go into retail. There are only two positive things about going into retail. One is the employee discount and the other is you get to interact with people. Research shows that people who deal with other people normally are happier than people who are solitary. So, I'm surprised when retail employees are not friendlier.

A lot of retailers don't do as good a job as they could with taking care of their employees. It's difficult to do in a multi-billion dollar company with lots of stores, where you might lose the personal touch.

But some retailers have figured out how to create the kind of culture where the employees are happier and therefore treat customers with more dignity and respect.

Manikas: Knowing your same-day sales is both a blessing and a curse because you tend to focus on the short-term instead of the long-term. That's really frustrating because you're never going to get ahead if you're always focused on the short-term. And you can't be creative.

I think many retailers are under-utilizing creativity and its power to drive their brand.

For example, the Homeplus campaign, where Tesco created a virtual grocery store in a subway, was so creative. Commuters could scan QR codes from a billboard depicting various products and have them delivered to their home. That was such a great way to change shoppers' perception of who Tesco is as a brand.

What do you love most about retail?

Suwa: Retailers can see the customer response, both physically and otherwise. We can see customer needs through the receipt of sales, and our people can respond to customer needs at the store, on an everyday level. That's what is best about retail — that we can see the customers' need or insight.

Uniqlo operates not only in New York but also in London, Paris and many of the Asian countries. Even though the nationality of our staff is different, the brand experience or philosophy has to be shared by our team members to execute it in the right way with the right timing to the right customer.

Currently, Uniqlo has one thousand stores all around the world, and they are not all exactly the same. But if they are all the same spiritually or philosophically, that is okay, because that is our understanding of our brand. To maintain that every day is difficult and it is the greatest challenge in such a competitive market.

Abt: What I love most about retail is the opportunity to educate our customers and help them choose. They come in with an idea of what they want, but we really have a strong staff here that is able to help our customers make better-educated choices. We're trying to incorporate many of those qualities through our website to make it easier for our customers to interact with us.

We are a family-owned business and have been since my grandmother started it in 1936. My three brothers and I all worked here growing up; we played around in the office and the store and then we worked here through high school and college.

But post-college we were not allowed to work for the company. We were all required to explore other things and work for others. And I think it really helped. It made us who we are today. We each come to the table with our own managerial styles and we all complement each other.

Garnier: The proximity we have to our customers is what I love the most about retail, but this means two things for me. First, a good retail business is in eternal contact with its customers so it can continuously improve its overall experience. This means responsive customer service and developing customer insights to keep up with the always-changing tastes and preferences of customers.

The second thing is brand participation, which means leveraging our findings via customer service and insights to determine the future of our product offering. Understanding our consumer to better serve our purpose is a very exciting part of the retail business, whether it is online or offline.

Hoch: Some of the best examples of excellent retailers today are those who basically can do two things well — figure out how to provide both really good value and offer some element of what I call "discovery."

When you think about which retailers really excel in discovery, you think of luxury retailers, like Nordstrom, Coach and maybe Apple. Not only do they provide consumers with information and education, but they also provide them with entertainment and sensory stimulation.

It doesn't necessarily have to be the Ritz Carlton version of discovery, but there needs to be some element of it.

Manikas: Retail is real, tangible and it's live. That's what I love about it. No matter if it's online or offline, it's about dealing with people and there are so many nuances to work with.

It's different with a product, where you make your product and you're done with it. With retail, your product is everything. It's the offering, the people who are selling and the store format. It's the experience of walking in. It's what you do all around you.

Retail has a great opportunity to be the thing that people hunger for most. That gets me excited. Retail is the number-one leisure activity. Think about it that way. People go to the store for reasons other than just to buy things. It's entertainment and it's social.

Which retailer inspires you most?

Suwa: In Japan, there is a very small shop that gives you a detailed shoeshine and repairs shoes. This shop gives personal service to each of its customers. The owner of the shop loves the shoes and treats them upon your request.

There are many big retail chains, like clothing chains or food chains, but to keep the perfect service to the customer is always our challenge. If we can create that kind of customer-oriented service, that would be a fantastic scenario. Whenever I go into the little small shops, the way they give you joy and happiness fascinates me.

Abt: Our main inspiration comes from people outside the retail industry. When I go to a hotel, what I'm interested in is the type of service it provides. So, I look at five-star hotels and see how the people working there interact with the customers — from the lady sweeping the floors to the people behind the desk to the managers.

Costco is an inspiration, even though they are so different from us. Their CEO talks about how they "dirty up" the stores to make them look like they're not spending a lot on them so they can offer better deals to their customers. That is very ingenious. I certainly admire people trying to do something different.

Garnier: Many retailers come to mind, but one in particular is Home Shopping Network. They have done an incredible job of building many retail brands in addition to the brands that they also promote. Their ability to embrace branding, positioning and innovation has enabled them to become the leader in their category.

Their shopping experience is tailored to their audience and their product selection is very close to their brand DNA. They have been able to respond quickly to fast-growing market demand for new technology platforms, including e-commerce, iPad, iPhone, gaming, and so forth. This sets them apart from any other large retailer. They remain on the edge while being a huge company.

Hoch: Trader Joe's, Costco and Target are really good retailers. At Trader Joe's, the merchandising strategy is on the quirky side, obviously, and when you go there it's just a little bit different compared to the typical grocery store.

Costco has high-quality merchandise at the lowest possible price and every so often there is a little treasure-hunt type of thing. It's interesting that Costco and Trader Joe's do zero advertising. They have been able to build their brands with their stores and succeed because they provide both value and some element of discovery.

I'm not necessarily inspired by Target, but I give them credit for figuring out how to go head-to-head with the 800-pound gorilla and somehow survive the muscle of Walmart.

Manikas: Ikea continues to do a great job. One awesome thing they did was de-mystify pillow purchasing. If you walk into their stores, they've actually organized pillows for people who sleep on their side, back or front. Then, within each one of those categories, the pillows are arranged from large to small or the most expensive to the least expensive. It's brilliant.

I think Uniqlo is doing a great job, and I also love Zara. We always say that Costco is about the treasure hunt, but every retailer today should be about the treasure hunt. What I love about Zara is that they change their merchandise every so often so you're trained to go back to see what's new on a regular basis.

That's going to be more important because if you can buy everything online at home, what makes anyone want to go into your store? Retailers need to make shoppers long for the experience. It's like ROI: It's the shopper's Return on Involvement. If I'm going to spend time in your store, you better make it worth my while.

THOUGHT LEADERS:

KENSUKE SUWA is director of global marketing and communications for Uniqlo, a Japanese-based designer, manufacturer and retailer of casual apparel and accessories. He began his career at Itochu Co. Ltd., an import/export business.

JON ABT is co-president of Abt Electronics, one of the largest independent, single-store appliance and electronics retailers in the country. He led development of the store's e-commerce offering, now a quarter of its total business.

CHRISTOPHE GARNIER is co-founder and chief marketing officer of Totsy, a private-sale site for parents. He previously built e-commerce and m-commerce strategies for various retail, media and entertainment companies.

STEPHEN HOCH is the Laura and John J. Pomerantz Professor of Marketing at the Wharton School, University of Pennsylvania, and is internationally known for research on retail merchandising, assortment, pricing and promotion.

TINA MANIKAS is global retail and promotions officer for Draftfcb, where she crafts strategic, integrated ideas and develops tools to optimize the retail experience. She can be reached at [email protected]