Tomorrow’s retailer will have more data scientists than merchandisers
The advertising industry is going through a wave-change, and buckle your seatbelts, retail is next. The new era of advertising is called “programmatic”, which simply means the work done by yesterday’s ad agencies and media buying firms is now done by computers. We’re entering the programmatic era of retail, and the survivors will be masters of the digital domain. It’ll apply to both online and in-store, disrupting everything from assortment planning to marketing. At the end of this paper I’ll also include information about your new job. It’s the one you’ll have after the A.I. invasion.
Technologists realize that much of what we say sounds like Charlie Brown’s teacher. Wah wah data Wah wah software Wah wah. Rest assured I’ll explain the next era in plain-speak, focused more on why it’ll happen, and what you can do about it.
It starts with a step-change in retail velocity. If you’re running on the retail treadmill, someone just jacked up the speed. We used to have 14 weeks for each season, but now aggressive players are moving to 4-week cycles. Fast fashion is becoming the norm. The fast trend is enabled by computer aided design tools, nimble off-shore contract manufacturers, 3-D printing, robotic assembly, and new supply chains. The next time you’re crossing a bridge and see a large container ship, be amazed that huge ship has a crew of only 20 people. It’s almost a supply chain drone. Cost and time are being wrung out of the system, and next will be China’s belt and road initiative. It’s intended to further compress shipping times in the supply chain.
Closely related to velocity is a recognition that millennials and Gen Z love “new”. They’re the high velocity generation, rapidly consuming news feeds, multi-player games, and new fashion. Trader Joe’s, the most profitable grocer in America, and the Millennial’s favorite grocer, serves as an example. Freakonomic’s completed a study that reveals TJ’s drives $2,000 in revenue per square foot, compared to $1,200 at Whole Foods, and only $600 at Walmart. One of Trader Joe’s secrets is to constantly surprise customers with new products. They only have 3,000 items in their assortment, compared to more than 50,000 items at competitive grocers, and they rapidly swap out old with new. In the Freakonomics study a customer referred to shopping at Trader Joe’s as “a variety seeking exercise.” In other words, finding new things at TJ’s adds variety and interest to her life. (As a reminder, we’re still talking about grocery shopping).
At Trader Joe’s, new and interesting is a core strategic plank. A recent IBM study revealed that 62% of Generation Z are frequently attracted to new and fun brands. The fast fashion apparel makers like H&M, Zara, and Uniqlo, are targeting this love of novelty. If you point your browser at the Gap or J.Crew, things look pretty much the same as 10 weeks ago. At H&M, you’ll see new and interesting things every week. They’re becoming the Trader Joes of apparel.
Today’s customer wants new and different, and we now have the supply chain infrastructure to quickly deliver cool new things. What’s the problem? The last step in the supply chain is the non-Amazon retailer, still operating on yesterday’s 14-week model. Think about the way the Internet has changed how we consume content. Believe it or not, consumers now read more words than ever on a daily basis. We’ve just changed the way and speed we consume sentences. Instead of books and newspapers our sentences are delivered in high velocity tweets and news feeds. Fast news…fast fashion, is there a difference? Maybe Instagram is the new shopping mall.
Yesterday’s retail was the location, location, location, industry. Choosing the right mall or street corner was a success determinant. Tomorrow’s retail model will replace those words with data, data, and data. We’ll go far beyond personalization, using data models to assort products, acquire customers, personalize experiences, and expand customer relationships. If your company has a merchandising department, it will eventually be dwarfed by the data science department. They’ll be developing the machine learning models of your Retail 2.0 strategy.
We’re deep in the data trenches with a few retailer customers who are pivoting to programmatic retail. We’re helping them overcome the sparse data challenge, a critical success factor in the programmatic world. The ad industry has been transformed into something we now call “ad-tech.” Today’s new car is a computer with wheels, and tomorrow’s retailer will be a data rich computer, that also has stores.
Now, about your future job. Hardly a day goes by without a headline saying A.I. will replace people, and our jobs are doomed. You may have read that IBM’s Deep Blue machine has become an accomplished chess player. In fact, it defeated Gary Kasparov, the reigning world chess champion in a six-game set. You might be surprised to learn, despite beating all challengers, Deep Blue still isn’t the world chess champion. As it turns out, if you form a team made-up of an accomplished chess player and Deep Blue, that combo will win the match. There’s still an important role for the computer between your ears. Prepare for the future when you’ll be teamed with data and computers.