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.

Today, evaluating the meaning behind new checkout-free store openings, the ability to effectively use the data generated y such stores, and fresh moves y Walmart/Jet.

And now, the Conversation continues…

KC: There have been a plethora of stories over the past week or two about checkout-free store pilots that are being done in San Francisco (by Standard Cognition and Zippin), as well as recent opening of two more Amazon Go stores in Seattle and another in Chicago, plus news that they’re planning to open one in New York, in addition to plans to open one in San Francisco.  I’m curious if you think that all this news means something … not that we’re approaching any sort of tipping point, exactly, but do you think that somehow we’re turned a corner and will see a lot more momentum in the short term?

Tom Furphy:
I do think we’ll see more momentum in the short term. These concepts are obviously deep in hardware, software and machine learning and thus have taken a few years to develop. The initial closed alphas and public betas have gone fairly well and allowed these early players to identify and work through the issues. And customers have shown that they love the experience. Now it’s about trying more of them, in more places, with different product offerings, to determine the sweet spots of what’s working and to make more refinements to improve what’s not working. As that’s accomplished, these companies will learn how to replicate and scale the model.

I don’t think anyone knows for certain how pervasive these technologies and formats will become. But they clearly are solving a significant pain point. Once you shop in one of these stores, you are struck at how wonderful the experience is. These are not immersive retail experiences where you are engaging with experts to help solve your needs. However, they are perfect if you want something quick and easy without the hassle and delay of the checkout line. There likely is something quite sticky here. I think the next few years will sort out which environments these stores best work within and which use cases they best solve.

KC: My other question about checkout-free stores is this:  I’ve been thinking about them primarily in terms of the ease of shopping and elimination of a significant customer pain point.  But the more I think about this, the more I think that the other enormous advantage they provide is a cascade of data about customers and their shopping habits.  To make them work, you actually have to have good data, and the willingness and ability to translate data into action.  Seems to me that the companies committing to checkout-free experiences really are committing to a data-driven approach that, if properly executed, will give them an enormous advantage.

Gathering customer data and effectively using it to deliver a better experience is tough. We see very few retailers today that use data to actually deliver a better experience. Some use it to offer targeted discounts. Others drive basic personalization online. Using data to drive better personalized experiences can be very powerful. Amazon, while they could certainly be better, is the best in class. Most others online pale in comparison, with brick & mortar retailers even further back in the pack.

I can see the shopping data generated by these formats to be useful in shaping store layouts and designing merchandising displays. Configuring stores based upon how shoppers navigate the trip could result in better customer experience and larger baskets. Being able to track how shoppers engage with products and information at the shelf, and how that influences their buying decisions, could end up to be a very significant breakthrough. How that compares to the benefit of traditional personalization online I cannot estimate. But I bet there’s something there.

That said, retailers need to commit to a data-driven approach regardless of the format. Consumers today demand to be served digitally and personally. Algorithmic businesses are hammering analog businesses across most sectors of our economy, delivering better shareholder value and cultivating brand loyalty among customers. Think Amazon vs most retailers, Google vs New York Times, Uber vs Hertz, Netflix vs Comcast, Airbnb vs Hyatt. The growth and scale of these businesses show that customers prefer to be served digitally and personally. Retailers that can deliver this experience across stores and online stand to do very well.

KC: I’m fascinated by what Walmart seems to be doing with Jet -  not the site redesign so much, but the repositioning of it as an urban-centric business, which allows it to have a dedicated business model that caters to a market in which Walmart is underrepresented … to a demographic that may find Walmart less appealing than, say, Amazon … and positioned to take advantage of a cultural trend that has people moving back to the city, marrying later and having fewer children, and living in smaller abodes and maybe not even owning a car.  To me, it seems like a real willingness on Walmart’s part to build a tomorrow-focused business … am I making too much of it?

Since its initial launch I have not been shy about my reservations toward Jet and its business model. The original notion of the Smart Cart, where customers got better prices by building larger baskets, was interesting, but the user experience was pretty bad. However, I must say, the Smart Cart is inherent in the new site launch and it works very well! Kudos to the Jet team for the improvement.

I think that the overall offering and site design is quite good. It’s a clean user experience, chock full of modern design elements. Search seems effective and navigation is intuitive. The reorder function is ranked based on frequency and makes finding past purchases easy. It’s as good as it gets while stopping short of auto replenishment. While functionality and design alone does not create a business model, Jet has made great strides toward it not being an inhibitor.

I don’t think you’re making too much of the new positioning. It does seem to be on trend to cater to the cultural shift toward city living, downsizing and simplifying. It is tough to tell how much of that positioning is deliberate versus it being a match to the business model of having facilities close to dense population areas or a creative use of the existing asset. But regardless, it shows Walmart’s willingness to support multiple ecommerce formats to serve a range of shopper needs. I think that’s very smart.

The Conversation will continue…

KC's View: