retail news in context, analysis with attitude



Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week's topic: The gap between retailers and technology innovators, and between good intentions and implementation.

And now, the Conversation continues...


KC: When you talk to retailers, what do you find their priorities are in terms of what they seem to need and want?

Tom Furphy:
This is an interesting one. While there are some retailers still stuck in the dark ages, the impact of e-commerce and the demands of the new shopper are prompting most retailers to respond. In the course of our businesses, most every retailer that we work with is interested in doing something innovative or strategic to survive or thrive in this changing environment.

KC: What tend to be their priorities?

TF:
They revolve around the following themes:

New shopping technologies. We see retailers looking for ways to better connect digitally with the shopper and to enable new shopper experiences. This could be ways to use voice or scanning to create lists, mobile and digital coupons, e-commerce, replenishment or subscription or ways to take digital into the store.

A new e-commerce model to serve the shopper. We see many retailers experimenting with a variety of e-commerce models. Many retailers are testing “full basket” programs. In some cases they handle store pickup or local delivery themselves. In many cases they are experimenting with third party services such as Instacart, Curbside, Shipt or Uber. We are also seeing retailers experiment with “box” subscription programs such as Amazon Prime Pantry or Boxed.

Using loyalty data to drive deeper relationships. We are seeing more and more retailers look to harness their customer loyalty data in new ways beyond cardholder specials. They may be looking for deeper analytic capabilities or “big data” solutions. We are seeing retailers use their shopper data for better recommendations or to offer benefits such as free delivery, rebates or special discounts. We also are seeing the data being used to drive recommended replenishment lists to “lock-in” repeat purchases. In many of these cases, retailers are looking to drive membership or subscription themes similar to Amazon Prime.

Meal solutions. We also see retailers, particularly in grocery, wanting to become a more important part of the “What’s for dinner?” discussion. We see them testing with recipe content partners and seeking better list-building capabilities. We see competitive analysis and modeling toward being able to compete or partner with the boxed meal services such as Blue Apron and Plated. There seems to be large appetite to innovate in this space, but I don’t think anyone’s yet cracked the code.

KC: When I talk to retailers who are exploring the potential and possibilities, it often strikes me that there often is an enormous gap between intentions and the ability to actually innovate. Though I guess that's where you and your folks come in.

TF:
We love working with retailers as they grapple with their strategy. But you're right - despite their great intentions, many retailers are simply not wired to be successful in an industry that is moving faster than they realize, and faster than anything they've ever before experienced. It is unfortunate, but most of these retailers are still so entrenched in legacy ways of doing business, that it will be very difficult for them to innovate on an acceptable timeline.

We see decision cycles that should take weeks or months run out to months and even years. The traditional annual budget cycle makes it difficult to free up funds for experiments. And even when a project is approved, the business and IT teams inside many retailers are very slow and deliberate to execute, often without the urgency and precision that is required. Despite their best intentions, they cannot get out of their own way.

This leaves us pretty much convinced that most retailers will struggle to compete with the innovation cycle of Amazon. In the time it takes most retailers to move forward a month, Amazon moves forward two months. For example, PrimeNow went from concept approval to launch in 111 days. We often see contract negotiations and project planning that take longer than that.

KC: That sounds like a recipe for potential disaster. I'm also curious about something else - whether companies like yours, which are made up of technology innovators and entrepreneurs, are focusing on the same things as the retailers with which they are working.

TF:
Entrepreneurs tend to prioritize within their own domains. They don’t really sit back like a retailer and decide what they need to prioritize. They usually have a bold vision and are ready to rock the boat. Their priority is getting their product or service to market as quickly and completely as possible. Sometimes that means taking their offering directly to consumers – such as a company like Blue Apron or Instacart when it launched. However, more often, bringing an innovation to market means working through existing retailers and/or manufacturers.

A common problem that we see among entrepreneurs in the retail tech space is that they often build things that they think the customer wants, without proper assessment and understanding of the market. Entrepreneurs usually rely on a skill from a prior role or a new technical capability that they’ve developed and hope that the market will embrace their innovation. They are in love with their solution. However, when they start calling on retailers or manufacturers who all have existing priorities and product roadmaps, they are often dismayed to find that they are greeted with blank stares.

KC: Retailers can be tough customers, no question.

TF:
Absolutely. Retail is a hard industry to sell into. Many Silicon Valley VCs won’t even touch the space because of the unpredictability of industry trends and the inconstancy of the retail sales process. However, we have found that many successful technologies and companies share some common attributes.

First, they are laser focused on a compelling value proposition. Retailers are busy. They have to easily see the technology’s value proposition and understand the benefit that it provides for them and their customers. Ideally the tech company has a case study of a successful implementation in the market. There aren’t many retailers that are willing to be first, so having proof of success or at least an existing reference can be important. The technology needs to deliver value to the shopper, the retailer or the manufacturer in a way that is both incremental and differentiated.

Second, the solution must be relatively easy to implement. As we discussed, retailer IT teams are slow and naturally risk averse. Any solution that a tech company presents has to be able to be tested and implemented with as little disruption as possible.

Third, successful tech companies shouldn’t over-rely on the timing of one or a few retail customers. It’s easy to be excited because a top retailer is showing interest in your product. It’s forgivable to allow the great things they are saying about it to trick you into a false sense that they will implement it next quarter. They won’t. It will take 3 to 4 times longer than expected. It’s important to have several retailers engaged so that you can endure the long decision cycles. If not, the time and cost drain that occurs can be fatal to a young company.

KC: Helluva way to make a living.

TF:
I don't mean to sound like it is all doom and gloom. Innovating and driving change is very exciting. We love it! But it’s not all glamour. These are just the realities that we and others like us are confronted with every day.

The Conversation will continue...

KC's View: