Faster market growth will go to the companies that can take the new things they learned during Covid and use them to amplify important pillars of their strategy. By weaving them into their systematic operations, retailers can deliver consistently great customer experiences.

Trendwise

In addition to the abundant tech solutions at the show, we noticed several key trends.

Getting Physical.
The trend for digitally native and direct-to-consumer brands going physical amplifies the importance of brick-and-mortar locations. Ethan Chernofsky of Placer.ai called out the trend of “taking it to the streets” as shoppers return to old routines or start new ones. He pointed out that brick-and-mortar presence is critical for DTCs and DNBs looking to build brand awareness, streamline distribution, and drive consumer engagement. Lucille DeHart of Columbus Consulting agreed that reinvention of the store is key to optimizing physical retail in the context of unified commerce. “It’s at the core of brand definition and differentiation. Robotic automation, from manufacturing to delivery will play a key role.

Security vs Service.
Despite all the new solutions that can enhance retail precision and performance, the experience on the streets of Manhattan offered a different view. Security was evident everywhere and, in some instances, the product was inaccessible behind lock and key. Chain drugstores in particular have added more barriers to more product categories, making it impossible to shop without a staff member. Customer service is dysfunctional when shoppers watch in disbelief as staffers leave their registers to help other shoppers access relatively mid-priced items such as shampoo and hairbrushes. I saw one visibly agitated shopper who had been waiting to purchase large bags of chips abandon her items as the associate didn’t return to the register for what seemed an eternity. Seriously, when Oreo cookies are locked behind bars, the industry must reconcile customer experience with security. While tracking shopper traffic isn’t new, behavioral data continues to be optimized on multiple fronts. I spoke with Dan Natale, VP of Clients at Kepler Analytics. He offered a different scenario. “Consumer presence, where they are in the store and their movement patterns helps retailers place their associates in the right place. This can address the ‘Oreos behind bars’ issue. The in-store data then optimizes the customer experience.”

Checking Out.
Neil Stern, CEO of GoodFood Holdings put it succinctly, “Many of the trends we saw on the show floor aligned with our initiatives. Solutions that offer frictionless (or no-line) stores to deal with the reality of fewer available frontline workers are important to us. As high-quality grocery operators in neighborhood locations, we also see increasing customer preference to control the shopping process. We’re looking at all aspects, from self-checkout to fully autonomous stores to deliver on these issues.”

I reached out to Corin Denninson Head of Retail Risk/Profit Protection at adidas and Principal Consultant at Insight Retail Risk to shed some light on the exponential growth in fraud. Like luxury goods and designer apparel, the athletic footwear category has been repeatedly hit by fraud and counterfeit schemes. According to Denninson, effective retail fraud prevention is a balance between offering consumers a frictionless experience and protecting product. “Current global socio-economic conditions are clearly driving an increase in dishonesty and theft within retail. This in turn challenges the traditional trading environment. In order to reduce the P&L impact, retail risk professionals must innovate. The challenge is to provide business solutions that mitigate the ‘new norm’ risks while delivering on consumer-centric retailing.” Stern added that smart vending ( showcased at NRF by a number of companies including VSBLTY and ViaTouch) and the Zabka autonomous store powered by Synerise at the Microsoft booth could be part of the solution to protect high value/high-theft merchandise.

Facial Recognition.
So, what AI tech is being leveraged to protect stores? Dave Jenkins of IterateAI described how NCR and other major infrastructure providers at NRF were touting their facial recognition capabilities, especially in loss prevention. Almost all the solutions he described were centered on facial recognition of so-called ‘known shoplifters’. The practice is ethically questionable, and it will just be a matter of time before legislation prohibits these practices. Therefore, facial recognition can’t be a long-term solution to loss prevention.

Computer Vision.
Computer vision that tracks products and watches the shelves is a scalable and ethical solution to facial recognition issues. Inventory can be tracked from the shelf to the point of sale. “If something’s missing in the count, then we can alert managers to an abnormality. Tracking body language and posture can assist in this tracking while avoiding the facial recognition ethics conundrum,” explains Jenkins. He adds that tracking products with computer vision AI (versus tracking people) could be part of the solution both in retail and warehouse environments.

Abuse Prevention.
An unintended consequence of fraud vigilance is the number of legitimate consumers who are turned down for transactions. Ecommerce can create as much friction in the shopping experience as locked products in the local drugstore. Companies such as Signifyd offer “abuse prevention” software to shoulder the payment risks from retailers. New applications for machine learning in the fraud prevention arena facilitate conversions and customer experienc.

Media Networks.
Most retailers are looking to build out their retail media networks for incremental revenue. But unlike the old days, customer experience is the cornerstone. Kristi Argilyan, head of Albertson’s Media Collective, talked about the “invisibility” of retail media as a criterion for success as they seek to reduce in-store friction. Aaron Dunford, the Sr. Director of Digital and Marketing at Nordstrom resolved it quickly by saying “We don’t see a tradeoff between advertising and customer experience – customer experience wins.”

Partnerships.
As Walmart’s GoLocal is well underway supporting local business partners as a delivery service, a number of partnerships have emerged that align one organization’s capabilities with another’s logistical needs. Helping the larger boxes in the “pre-owned” world is on the rise. Following Real Real’s partnership with Burberry, Paige Thomas, CEO of Sak’s off Fifth talked about their entry into this category with the help of Rent the Runway.

Connecting the Dots.
In an era where consumers demand an enhanced experience across all formats and platforms, retailers have to connect multiple technology systems and understand how operations, inventory, security and loss prevention align with and ultimately support a true customer-centric experience. Stern states that AI is driving smarter stores and smarter decision-making but also pointed out that some of the obvious steps needed to get there, like improving and lowering the prices of technology. He adds, “What will be key is creating the Connected Store where these processes are not independent from one another but work together seamlessly. All of the tech exists, but it does not necessarily talk to each other yet.”

The Store Is Back

From an analyst’s perspective, the market is rewarding companies that stay true to what they do (less metaverse and more spreadsheets). Bryan Gildenberg, Managing Director N.A., Retail Cities said that retailers at NRF talked about focusing on core strengths and integrating their business models to allow those strategic choices to best come to life. “Most businesses have growth goals that exceed how their respective categories grow as a whole. So faster market growth will go to the companies that can take the new things they learned during Covid and use them to amplify important pillars of their strategy. By weaving them into their systematic operations, retailers can deliver consistently great customer experiences.” This may be the guiding principle for a retail industry faced with a myriad of new technology solutions, rising costs, the challenges of loss prevention, and the mandate for enhanced customer experience.

Coming off a year where shoppers endured endless lines to enter big box retailers along with painful issues of inventory and staffing, the range of digital technologies that track shoppers and detect logjams have become even more relevant.

The State of Retail

The uneven attendance of both brands and retailers raises the question about how representative this industry event really was. Did it accurately reflect the current and future state of retail?

With these thoughts in mind, I met up with Manolo Almagro, managing partner at Q division, a digital transformation consultancy. Manny has spent much of his career evaluating and deploying new tech in retail. When I asked him if there was really anything new at the show, he initially said no, from a tech standpoint. But we did agree that there were interesting iterations and integrations of technology at retail. In a race to become more nimble, retailers are taking a hard look at what can be autonomous, how to deploy talent, and ways to enhance the shopper experience, particularly when so much can be done from home.

Thought Leadership

Brian Cornell, CEO of Target, talked about the supply chain challenges that will continue into 2022. He says the short-term fix is to use technologies to gain better visibility into the pipeline to be able to anticipate future problems. Being able to be agile and pivot is key as supply chain wildcards continue to appear. More on that with TRR’s podcast. Cornell also discussed keeping the customer at the center of decision making and the importance of vendor partnerships like Ulta Beauty and Apple. Providing one-stop convenience and a wide variety of product categories to their shop is a unique value proposition for Target.

Pete Nordstrom, President and Chief Brand Officer at Nordstrom, discussed supply chain and the focus of looking at SKU management and understanding the number of units being put through an already strained supply chain. He says executives need to pay attention to the number of units being purchased along with margins and ROI of individual SKUs. Nordstrom also discussed the balance of digital and physical along with the importance of unified commerce; customers want to shop both online and in stores with the balance probably settling around 40 percent for online. He discussed high quality vendor partnerships and Nordstrom’s ability to bring in new vendors, and expanding product categories in existing brands that are the customers most loved brands. Speed to market for a fashion brand and for Nordstrom is a key differentiator and focus for the company. Lastly, the balance of off-price and full price at the Rack compared to the full line stores was a topic of debate. He said the challenge is to get the balance between the two at the right levels. He also noted that an online presence for Rack was not significant or widely needed.

Retail’s Metaverse

Speaking of home as mission central, this leads into the hype around the metaverse. As previously reported by TRR, the metaverse connects physical and digital worlds. As Dave Marcotte of Kantar put it “The metaverse is by definition a virtual creation with no gravity, and time can run backwards if need be. Very cool and great potential for innovation but conflicts directly with the 100 years of how retailers have taught shoppers to move and buy in a predictable space. So, replication of a store is user friendly, but lacks the excitement of drawing shoppers into a real new experiential shopping trip.”

Although it’s early days for the retail metaverse experience, Estee Lauder presented a Metaverse Experience for gamified beauty shopping. It offers a social shopping opportunity in a highly sensory landscape. Beauty is a category where augmented reality makes sense. Ditto for furniture. But it’s quite a leap to go from AR/VR deployments that assist in visualizing one’s lipstick or sofa selection to a full-up metaverse store. But it’s coming and next gens are already in the metaverse game.

Trending Innovations

Amar Singh from Kantar described the show as, “Most vendors are creating integrated ecosystems of automation tools, interactive digital shelves, and AI solutions to drive operational efficiencies and shopper engagement. The successful execution of predictive analytics and digital interaction within both metaverse and in-store environments will drive future success for retailers.”

Optimizing the physical space in the real world was a hot topic throughout the sessions and in the exhibitor halls. Coming off a year where shoppers endured endless lines to enter big-box retailers along with painful issues of inventory and staffing, the range of digital technologies that track shoppers and detect logjams have become even more relevant. They deliver value on both operations and customer experience fronts. And they are becoming more nimble and less expensive.

Rather than investing in new cameras and sensors, tech providers are leveraging existing equipment. For example, Pathr.ai is a technology company that uses spatial intelligence to best understand movement in physical spaces like stores, distribution centers, and shopping centers. It announced a partnership with VIVOTECK to deliver spatial intelligence to existing security cameras. Makes sense to optimize existing assets and ramp them up to improve the customer UX. “NRF is the premier retail event to connect with leading retailers and innovative minds in the industry. Pathr.ai was very proud to attend this year’s event despite the challenging times we’re still facing. It was a great experience to share more about our spatial intelligence solution that enables retailers to drive in-store growth and empower retail staff on the floor to effectively engage with their customers,” said George Shaw, Founder, and CEO of Pathr.ai.

On the voice commerce side, Vocalytics’ “listening” software can be deployed within existing camera infrastructure to capture shopper sentiment, monitor in-store safety, and identify upsell opportunities. Since many of the big tech companies were not present, developments of voice throughout commerce appeared to be underrepresented.

Understanding the value of how locations perform was a central theme among the champions of physical retail. Industry leaders and entrepreneurs are reimagining urban retail stores and malls as more shopping takes place online. With precise location data, Placer.ai analyzes traffic, movement, and performance of physical assets. This creates a robust dataset to help set leasing prices and guide redesigns. Benjamin Pitman, VP Sales Strategy and Development at Placer.ai was optimistic about their experience at the show, “NRF is such a significant part of the retail calendar, and having it back was valuable. While we’re certainly looking forward to seeing larger numbers in 2023, the ability to bring the retail community back together is an important step forward.”

Retail media continues to be another strong theme as the industry moves from hard-wired networks to dynamic content at the shelf edge. New to NRF, Tokinomo demonstrated how their in-aisle sensors can activate any FMCG product a shopper passes by. A far cry from the metaverse but perhaps one of the most practical uses of technology at the show. And media in its broadest term is on the minds of retailers as they become advertising, marketing and media agencies for their customers.

Agile is more than a buzzword. Clearly retailers had to become more agile to navigate the pandemic with heightened demand to continually adjust and redeploy resources. From physical optimization to the labor force, NFR 2022 showcased tools that help managers respond in real-time to store demands. With endless streams of information, the key is to use data to prioritize the right missions. Quorso presents a simple app for helping managers be more effective in supporting their employees. This is integral to a larger strategy of the need for C-suite leaders to get closer to the needs of their teams. CEO Julian Mills says, “We thoroughly enjoyed being in the Innovation Lab. By far and away the busiest area, with everyone wanting to know the best innovations NRF had selected for retail. In our conversations with retailers about Quorso, what resonated most was the urgent need to help their district and store leaders who are overwhelmed by the information and tasks being sent to them. It was a great forum to showcase our new features that personalize and map out every leader’s next-best-actions every day.”

Plum Slice (Digital Wave) demonstrated a software solution that provides product information management software enabling consistency in product information across all channels including digital and social media.

UK-based Dressipi uses AI and machine learning to personalize the shopping journey and data to improve the buying and merchandising process. Sarah McVittie, co-Founder says, “We didn’t know what to expect from our first time exhibiting at NRF but the feedback we got for our fashion AI technology from both retailers and other exhibitors has been exceptional. The turnout may have been low but those retailers who were there were buying. We had good, high-quality meetings with key retailers in the fashion and apparel space. We saw three major shifts that were apparent at NRF: 1. The permanent shift to online (10 percent to 20 percent in the U.S., 30 percent+ in UK) is driving a greater demand for data/algorithmic-led retailing. 2. All retailers we spoke to were investing in digital and personalized relevant customer journeys. 3. The shift from monolithic platforms to headless commerce is definitely underway with the larger retailers interested in the APIs we can deliver. Sustainability was a key theme too but easier to swallow if it can be delivered whilst still growing the revenue and profit line. As the only fashion/apparel-specific personalization engine we were delighted to be able to showcase the huge benefits we bring to fashion retailers including increasing incremental revenue by 12 percent and reducing returns by 15 percent. We are also the only sustainable choice as we are able to reduce return rates and increase full-price sell-through rates at the same time. And obviously we LOVED New York. See you again, same time, same place in 2023!”

2022 Themes

On a macro level, NRF focused on emerging tech, innovation, automation, integration, and inclusion.

• Unified commerce and enabling technologies support the synergistic approach across various platforms including digital, physical and social media.
• Hybrid shopping as a result of pandemic accelerated shopping behaviors has established online shopping, curbside pick-up and buy-online-pick-up in store with a plethora of technologies to support the hybrid shopping models.
• Purpose-driven consumerism continues to grow in terms of the number of consumers that look for companies and brands that align with their own values and promote health and wellness. Viral commerce and the rise of social commerce will act as a catalyst for growth in purpose-driven consumerism…consumers become evangelists for brands and retailers who are making a difference beyond profits.
• Sustainability is a focus for consumers and the gap of intent of purchasing sustainable products and the action of doing so will lessen. In a recent study by IBM in association with the NRF, showed that while 50 percent of consumers say they will spend more on sustainable products, fewer than 1 in 3 consumers actually spent more than half of their purchase on sustainable products.
• As a final note, there was an entire hall dedicated to inclusion along with presentations along these lines. The imperative is to get the retail organizations to reflect the diversity of their customer base and ensure their workforce mirrors that diversity. This is a means to understanding the diversity of shopper needs and challenges and ensuring that a retail organization is in touch with all its stakeholders

Bifurcated Business

The idea of Macy’s spinning off their ecommerce business shows how investor goals can undermine a retailer’s growth trajectory. Many of today’s successful retail startups praise their investors for patience and autonomy. Privately owned groups look at a range of objectives, including innovation to assess business health. Yet Macy’s investor appears to be pushing for a restructuring that could jeopardize Macy’s near-term and long-term success.

[callout]It wasn’t that long ago that Macy’s senior team was almost apologetic for their slow start into ecommerce. Once things started moving along, former CEO, Terry J. Lundgren, boasted at many NRF conferences that their omnichannel strategy was key to future growth.[/callout]

There was precedent for this maneuver. Earlier this year, privately held Hudson Bay Company split its 40 Saks Fifth Avenue stores from its online unit to form two separate businesses.

In doing so, it sold a $500 million minority equity stake to a private investor, Insight Partners.

The move was controversial, although HBC insisted the Saks brand experience would not change. But how could this be? Every other prominent retailer aims to integrate their online to in-store shopper journey.

Industry thought leaders have long critiqued the organizational siloes that wall off ecommerce teams from their counterpoints running the brick-and-mortar business. Often the online teams and innovation labs are located in separate cities, justified by where top digital talent resides.

Macy’s in the Rear-View Mirror

It wasn’t that long ago that Macy’s senior team was almost apologetic for their slow start into ecommerce. Once things started moving along, former CEO, Terry J. Lundgren, boasted at many NRF conferences that their omnichannel strategy was key to future growth. After overcoming its early inertia, Macy’s has proved to be an innovator on several fronts:

• Serving shoppers when, where, and how they want to purchase
• Appealing to younger shoppers who are harder to attract, given today’s myriad of choices
• Capturing data to personalize offers and enhance loyalty rewards
• Utilizing physical stores to fulfill online orders, thereby reducing drastic end-of-season markdowns

They also experimented with some engaging technologies that may have been a little too early. Remember Macy’s Backstage Pass with QR codes that brought the Tommy Hilfiger shirt thread count to life? Tests like these may not have been game-changing, but the learnings informed omnichannel strategies.

Haven’t We Seen this Movie Before?

In 2005, hedge fund prodigy Eddie Lampert inserted himself into retail by orchestrating the merger of K-Mart and Sears. Referred to as an “asset stripper,” he claimed real estate holdings, not same-store sales, were the true metric for valuation of the business. Sales continued to fall year after year and the legendary brand filed for bankruptcy in 2018. The last store in Illinois shut its doors a week ago.

Lampert sold off the Sears portfolio one limb at a time, while Amazon redefined the future and continued to innovate new formats such as Amazon Go’s cashless urban convenience stores. What seemed like a novelty just two years ago became an asset in the Covid-19 touchless environment. Amazon is predicated on capturing purchase data wherever their customers go. With more physical stores (such as Amazon Fresh) that compete with traditional formats, they can utilize hyper-local geofencing tools to identify customers entering the parking lot, moving through their store, and checking out. They can also link the in-home experience through voice commerce interactive devices.

The Fork in the Road

As Macy’s works with management consulting firm Alix Partners to assess the ecommerce spinoff proposal, how will they evaluate this new business model? Are they doing what’s best for a handful of large shareholders — or are they positioning the business to serve customers?

By separating the channels, they will certainly have to contemplate a future without the ability to stitch together each contact point of the shopper journey. If Macy’s aim is to truly serve shoppers, personalization, localization and insightful data analytics may have to take a back seat. Honestly, how can this serve customers who are calling the shots and expect to be catered to as the single point of sale, when where and however they want to be served? This approach puts profits before people, which seems the antithesis of Macy’s current slogan: Believe.

The Consumer Mindset

Navigating the global health crisis \”stay at home\” directive has been extremely stressful, especially for those in urban areas. Initial panic buying demonstrated consumers\’ fear of the unknown. This of course led to out-of-stocks of essentials, which was incrementally alarming and frustrating to shoppers. Then came the financial fears.
Just looking at the U.S. Covid timeline, we saw job losses beginning to rise sharply mid-March. By April and into May, consumers were cutting back, postponing purchases and buying for the near-term. Spending that had been trending up for the past five years on experiential categories such restaurants, concerts and travel came to a screeching halt.
Consumer adoption of online purchasing accelerated beyond what any analyst had predicted. The industry has seen rapid growth both in home deliveries and click and collect. However, mission-driven shopping often leaves experience behind.

Reimagining Experience

During this pandemic, many retailers who have shown tremendous agility were able to pivot to meet consumer\’s fundamental requirements. The next stage is to reimagine the experience proposition. To begin this process, it\’s important to revisit shoppers\’ needs and wants. Right now, shoppers need a sense of safety. They need to know what policies are in place to keep stores safe — including the requirements for other shoppers entering the store. (How many of us have observed both shoppers and employees ignore the basic protocols such as arrows marking one-way aisles?) The anxiety many shoppers have in situations they can\’t control leaves them frustrated. Often, they can\’t really explore the merchandise as they lose patience darting and dashing past other shoppers. Retailers now need to give shoppers a new experience that aligns with their Covid-19 induced emotions.

[callout]It’s time to think of physical retail as a tech-savvy combination of out-of-home media and interactive shopping platforms.[/callout]

Safety and Convenience

Consumers who brave shopping in the real world often fight for their parking spot and stand in line outside the store until there is room for them to get in. We all saw the photos last spring of lines wrapped around stores like Costco, where people were separated six feet with their shopping carts. While we see shoppers returning, we may well be due for another Covid-19 setback. When temperatures fall and when the snow hits, the industry in colder regions must rethink the total experience of shopping.

With geo-location tools already in use today, shoppers can be easily identified as they reach proximity of a store. As they enter a retailer\’s parking lot, they should immediately be assigned a number to enter the store. Once parked, shoppers could use a combination of voice and visual devices from their car to build their baskets with their typical replenishment items. This could also be done online in advance from home. The retailer could be fulfilling the order, allowing the shopper to allocate the time they spend in store to explore more aspirational merchandise.

In this scenario, the investment in proximity shopping capabilities delivers on experience by reducing anxiety and freeing shoppers to spend their time in a discovery mode, versus a mission mode. This in turn leads to higher margin purchases.

Experience Capital

The urgency to deliver better experience has never been greater. For the past five years, Kantar\’s BrandZ valuation has reported that brands with \”High Experience Capital\” scores were directly linked to more value growth than those with \”Medium Experience Capital\” scores. Those businesses with \”Low Experience Capital\” scores actually declined in value over the same period.

To bring experience back into retail, technology is a means of both facilitating safe transactions and inspiring shoppers with imagery and engagement. Over the past five years, successful retailers accomplished the latter with a mix of pop-ups, events, and social media initiatives that brought \”social\” to shopping in many forms.

Bridging Virtual and Real

Now that we have to keep social at home for the time being, we have to reimagine how to bridge online with the physical. How do we look at store fronts as interactive shopping surfaces that both bring brands to life at the perimeter and capture data? It\’s time to think of physical retail as a tech-savvy combination of out-of-home media and interactive shopping platforms.
AI-powered customer engagement tools can merge physical and digital space to close the gap between online to offline, and identify new ways to engage shoppers, get to know them, and facilitate transactions using tech solutions incorporating facial recognition and voice.

These innovations allow retailers and brands to leap-frog their current format constrictions and respond to consumers\’ adoption of new tech-enabled shopping rituals.

Content Platforms

Curating content that helps shoppers accomplish their goals is another innovation to reframe a retail experience. While in isolation, many consumers tackled home improvement projects — from their closets to enhanced outdoor living spaces. People aspired to learn how to cook new dishes and learn new things. On social media we saw Pinterest boards on how to celebrate Easter and graduations at home. Retailers can provide inspiration that elevates their relationship with shoppers by creating trusted content that provides personalized experiences.

Seamless Transactions

As shoppers accelerated their use of mobile platforms, online purchasing and touchless payments they demand that these tools work seamlessly together. New forms of access to goods and the connection of physical and digital experiences will continue to evolve and scale. Shoppers will expect more from every touch point leading to purchase. They will also think differently about shopping for everyday replenishment items versus inspiring, tactile products — be it food, lifestyle or fashion. Shoppers won\’t want to navigate aisles of product that can be fulfilled weekly or monthly. Retailers need to invest in personalization, inspiration and experiences that humanize a Store of the Future that is more automated and safer. The design and implementation of enhanced experience in the current/post-Covid-19 environment will be a key competitive edge. If retailers aren\’t activating these innovations now, they will be left in the wake of the pandemic.

• Of note was a keynote speaker most everyone has already heard of, Michael Dubin, founder of Dollar Shave Club. His company was part of the movement of retail entrepreneurs who envisioned better ways to sell goods. When I interviewed Mike nearly five years ago, he was focused on the delivery of one product: men\’s razors. He singled out this grooming item because of the pure frustration he personally experienced when trying to purchase razor blades. Not only did he feel the available products were needlessly expensive and over-designed, but the process of shopping for them was a hassle. He questioned why it was necessary to locate a sales assistant in order to unlock a case referred to as the “razor fortress” to access an everyday item. At this year\’s Shoptalk, Michael shared his company\’s journey from launching an idea based on one product, to evolving Dollar Shave Club to a full line of men\’s grooming products for \”regular guys.\” He says his Act Two is to fulfill the high-minded mission to help guys be the best versions of themselves. He says he has a soft spot for real men, normal guys, with feelings, and his Club is designed to engage with real men in a digital space. As a direct to consumer business, he amasses considerable data on a hard-to-reach audience, which in part sparked the interest and recent acquisition by Unilever.

Other industry entrepreneurs presenting at Shoptalk Europe have taken a page from the innovator’s playbook to launch all types of new subscription and direct-to-home delivery concepts.

• Joris Beckers, co-founder of Picnic, based in the Netherlands, has an idea inspired by the sentimental Milkman model to deliver groceries to your doorstep. This is a darling in the startup world, having raised 100 million Euros in fewer than 18 months. Unlike other online food delivery schemes, Picnic has a neighborly face with their friendly \”runners\” who drive the eco-friendly delivery trucks and become part of the community. Picnic developed electric delivery trucks that move at about four miles an hour, adding to the retro charm of the original milkman delivery system. But don’t kid yourself that this is an old-world model, Picnic is highly rationalized with sophisticated data management making the inventory, supply chain and delivery process efficient, cost-effective, nimble and satisfying for customers.
• Cheryl Kaplan of M.Gemi took aim at traditional Italian upmarket leather goods to launch a line of high-quality shoes at reasonable prices. She didn’t want to disrupt the supply chain but rather disrupt the pricing of luxury brands. Her mantra, \”made the old way, sold the new way\” is groundbreaking in an era of promiscuous shoppers who value great style and great value. M.Gemi is lighting up social media with shares of their elegant boots, shoes and sneakers.

Don\’t just sell it better, make it better! Given the surge in online retailers, the new disrupters also need to innovate superior products.

• Casper co-founder and CEO, Philip Krim, shared their journey as they set out to transition sleep as a fundamental need to a platform for wellness. While the health and wellness space is crowded with exercise and nutritional players, Casper elevates the role of sleep in our daily routine. They also challenge the mysterious pricing and branding practices of an industry that makes comparison-shopping almost impossible. And creating a new category of sleep/wellness, they innovate with new mattress designs that enhance the quality of sleep. Target is now an investor and sells a limited assortment of Caspar bedding (pillows and sheets) in store.

Collaborations between entrepreneurs and legacy retailers (such as Target) highlight some of the inspiring retail concepts shared at Shoptalk. Everyone knows change is a mandate. But it takes creativity to deliver meaningful innovation. The range of new ideas shared from re-imagining the neighborhood milk truck to augmented reality and conversational commerce raise the bar for retailers and technology partners alike.

You can rely on Shoptalk for a provocative conversation with speakers who predict new levels of collaboration that will mix technology, culture, personalization, entertainment, wellbeing and, of course, shopping in creative models that fulfill the unmet needs of consumers, worldwide.

Gwen: We’ve talked about how data has become the most powerful tool in today’s marketing world. Jeff, can you give us some context on how you’ve changed in your approach to targeting customers?

Jeff: Neiman Marcus had a catalog business that started about 50 years ago. The reason that I bring that up is because to run a catalog business you have to be paying attention to segment-level detail, and analyzing it to improve. I think that culture of analytics positioned us well for when the website started around 1999, as data really began to grow very rapidly in a much more complex way. Fortunately, numerous technologies were advancing at the same time that we leveraged to help us analyze that data and act on it. Those technologies, both in-house and vendor partners, are enabling us to use things like artificial intelligence to iteratively learn how customers respond to further personalize. That journey has really led us from high-level segments years and years ago to today, where on a weekly basis there’s over millions of messages that are going out to literally just one person at a time.

Gwen: Building on that, we have terms today we’re calling “predictive, prescriptive, selling.” How are your teams approaching this?

Jeff: I think the better we can predict what the customer’s needs are, the better we can better fundamentally serve what she’s trying to achieve. I think we all know from experience just navigating and trying to get done what you want on a mobile device is much more challenging than doing so on a desktop. And so we ask ourselves, “How do we solve that for the customer by leveraging data and things she’s told us through her behavior?” One of the things we’ve recently implemented in our emails is a feature we call “Quick Links,” where we predict the likely places a customer will try to navigate to and put those personalized links directly in her email so she can go straight there and doesn’t need to navigate extensively on her phone to find what she wants. At the end of the day, the goal is simply trying to make it easier for the customer.

Gwen: Building on the relationship theme, are you seeing a shift from the traditional media segmentation to more relationship-driven strategies? I think of relationship-driven programs as a hallmark of The Neiman Marcus Group.

Jeff: In my mind, that relationship-driven strategy is almost the next frontier. Where we say how do we not just manage for what we think she’s going to do now even if we can customize that message, but really what’s the optimal mix of things to send her over a length of time. I think there are not a lot of folks out there that I’m aware of who are doing that very well. We’re starting down that journey. I think a number of other companies are as well, and it’s really exciting. As some of the technologies develop, and the ability to optimize them becomes very complex. I’m really excited to see what comes in the area of capturing the customer journey.

Gwen: Do you categorize types of customers in “behavioral buckets” rather than each and every behavior of an individual?

Jeff: We do have some high-level segments still that are used to inform reporting and strategy-type decisions. At the end of the day, I think the focus is really trying to get as close to personalizing that communication, then, eventually in this relationship-driven piece, personalizing the relationship. Some of that even involves, again, having our sales associates as part of the mix. Our sales associates have apps, and we can send them information to help them expand their reach. A human can only remember so much. If we can supplement that with data on the customers they don’t interact with as much, that can also help enhance that relationship.

Gwen: The speed has probably increased in terms of how much data you have.

Jeff: When it comes to ROI, especially in media, we look at how what is each dollar of spend driving to our business. We started on that journey probably about four years ago or so. Really as we’ve done that, we have made fairly sizable shifts in some of our media allocation between different channels. What I’ve found exciting is over that journey we’ve managed to drill down to specific channels and for some channels down to specific partners. I think as we’ve progressed on that journey one thing that we found useful is to start to be able to look at optimizing multiple different metrics. There are times where you’re going for ROI, there are times you are going for sales, there may be times when you’re going for new customers trying to optimize the longer-term value. I think that’s one of the important things to take a look at. How do we align the analytics to match the strategy and be able to support multiple objectives?

Gwen: Can you talk a little bit about the difference of this media-mix modeling versus some attribution modeling that’s being talked about today?

Jeff: When I think of media-mix modeling, I think of it as a very high-level approach looking at spend buckets. It is especially good at managing the mix of digital and traditional media, pretty effective at very high-level budget planning. On attribution, there are multiple types. There is multi-touch, last click, and first click. We use multi-touch, which I think is best for most use cases. In our case, we work with a vendor partner who helps us but is essentially algorithmically allocating credit at a customer level across the various media channels.

Gwen: I wanted to ask you to comment on how you see your organization, in particular your marketing department changing when you have to take in all of these new points of information. Have all of these new tools, have all of these new analytics. How do you see your staff changing? How do you see your capabilities evolving? What does that look like and feel like to you?

Jeff: The rate of change is absolutely amazing. I started at Neiman Marcus a little over 12 years ago in the analytics team, and at that point there were about 1 or 2 toolsets that we used. Now, the team is managing 10–15 toolsets and needs to be learning new algorithms and new approaches almost on a monthly basis. It’s a real challenge to keep up, and I think it forces us to have to really prioritize and identify what the things are that we want to develop ourselves versus what the things are that we want to partner with the best-of-breed vendors out there to really help escalate our roadmap.

Gwen: How are you looking at data to fuel personalization?

Jeff: Before I address that about the data piece, I like to think about just the personalization piece. We have great sales associates in our stores, and they’re a great analogy of personalization. A good sales associate is going to personalize the experience. They’re going to observe what the customer is doing. They’re going to listen to what they are saying, see their facial reactions, and listen to their preferences. Then they’re going to act on that information by recommending products or a different item that might fit differently. And to really benefit from the relationship over time, they’re going to remember information about that customer. So now, if we translate that to your question on the data piece and go online, we can go through those steps and ask, “How do we observe online?” We observe through things like views and clicks, how much time they’re spending, how they’re interacting with marketing. But that’s just data collection. The action is a little bit harder, because that’s a basic heuristic, like if this is a “new customer,” I’m going to do X, or this is a “best customer,” I’m going to do Y. But it’s here where we see the strength of the algorithms. I think this is what I’m most excited about—seeing the advances in the technology and how we’ll combine the rich behavioral and purchase data with the style of a great associate to really “wow” the customer and make her life easier.

Gwen: Thank you for this insight. It’s worth pointing out that while data becomes the new oil for retailers, consumers are already using algorithims as they navigate their day. Apps like Wallet.AI and SPIRE allow them to be financially responsible and health-aware. Retailers will certainly shift marketing efforts as they sell to preferences rather than demographic groups and post-purchase experience rises in priority. We’re looking ahead to more innovations in technologies, changes in media consumption, and more predictive algorithims. Hold on to your hats!

More recently, the call was to move into Brazil, Russia and South Africa, the balance of the so called “BRICS” countries. No longer labeled “emerging markets,” BRICS offered opportunities for fast growth from both new money and the promise of government investments in infrastructure.

However, recent political and economic developments, including unstable currency and concerns about corruption, have caused retailers to rethink where and when to expand across borders. Many have postponed moves into what otherwise might be promising expansion markets. Much of Africa fits this description of potential shaded by high risk. With the possible exception of India, so far none of these regions look very promising in the next few years.

Enter Mexico, where we’ve recently taken a deep look into what we  believe are tremendous opportunities for  U.S. businesses. There is a longstanding though complex set of relationships between the two countries, intensified by the mechanics of free trade (NAFTA) and substantial migration across borders. And clearly there is the influence of each culture on the other, with Latino traditions becoming well known in the U.S., and U.S. holidays, brands and entertainment quite familiar within Mexico. All of this makes setting up shop in Mexico far easier for a U.S. retailer than moving to most other countries.

Why the Time May Be Right for Mexico

Many positive developments and indicators make Mexico worth considering as an expansion site. First and foremost, there is a growing middle class.

Until recently, there were two economic tiers in the country, the very wealthy and the very poor, providing little promise for U.S.-style retail, which serves busy, two-income households, The poor wouldn’t have been able to afford to shop there and the rich, with their big houses and staffs of domestic help, didn’t need it. However, the rapid expansion of middle- and high-quality manufacturing in the last decade has created a growing and educated middle class comprising almost half the country. Mexico now looks quite different than it did in its bipolar past. Mexican shoppers want to shop, and they want good retail experiences.

Suburban Sprawl

This larger middle class is driving an overall shift of the population to the suburbs, along with a move to dual incomes in most cases. Not only do they want to shop in nicer stores, they want to do so after work and on weekends, which is at odds with the traditional informal retailers. Sound familiar? This is exactly where the U.S. was four decades ago, at the start of its big phase of retail sales growth.

Though malls are on a general decline in the U.S. as they age and lose out to online retailers, in Mexico about 50 malls per year, averaging a million square feet each, are being added. Since the new suburbs lack the infrastructure for large shopping areas, and the older cities have real physical constraints to being able to support these requirements, the new malls are being built on commuter routes between suburbs and cities, to give access to both.

The Palacio de Hierro and Liverpool department store chains have been remodeling and expanding their existing malls, and plan on adding five new ones each year between them. The supermarket chains Chedraui and Comercial Mexicana have similar plans.

Mexican shoppers are tuned in to American brands. Hundreds of shopper groups each month take organized bus trips from Mexico to Southern Arizona to stock up on merchandise that is unavailable at home or that is perceived as better priced stateside.

Since the burgeoning middle class does not have household help, there are more home furnishings and kitchen stores. The department stores and malls are creating destination food courts for these time-pressed and experience oriented shoppers.

The Wealthy Want to Shop, Too

Not to be outdone, the very wealthy are flocking to their own new malls in cities like Cancun, Xalapa, Polanco (within Mexico City), Santa Fe and Monterrey. Carlos Slim, the most successful businessman in Mexico, is committed to creating more of these mega malls and integrated shopping experiences such as those on the north side of Polanco, where he has rebuilt the entire area around the old rail yards into multiple malls, with entertainment centers that include a world-class art museum and aquarium. Crate & Barrel, Saks Fifth Avenue and Gap are now in Carlos Slim’s Plaza Carso development.

Viva American Brands

Mexican shoppers are tuned in to American brands. Hundreds of shopper groups each month take organized bus trips from Mexico to Southern Arizona to stock up on merchandise that is
unavailable at home or that is perceived as better priced stateside. But overall these trips are less about pricing and more about experience. The malls, shopping centers and retailers that receive the bulk of these visitors provide a superior shopping environment. It is telling that the older shopping plazas on the south side of Tucson and in the border town of Nogales have lost much of the Mexican trade on which they were built, as Mexican shoppers drive past them to shop at Macy’s, Nordstrom Rack and the major lifestyle malls.

Challenges Remain

This is not to say that Mexico is an automatic route to success. While we’re not exactly saying “Mexico is the new China,\” there are several challenges to doing business in Mexico.

Corruption in Mexico has come more into the glare of the public eye than in the past. However, though still a reality, it is not  necessarily on the increase. Key services, such as water and the building of infrastructure, continue to be distorted by ‘unseen hands’—but the government has become far more active (and successful) in reducing the impact of bribes and racketeering in some other areas. The police and public security organizations continue to improve, the oil industry has been made partially public, and even the Teachers Union has been challenged. Social Media has played a large part in driving public opinion to force these changes and is providing a backdrop of “social shaming” that has had some effect.

Infrastructure is improving more quickly, starting with the modernization of ports on the Pacific and the Gulf, along with the land ports on the U.S.-Mexico border. Rail freight and intermodal containers have improved greatly in the last ten years, resulting in a huge increase in air freight and commercial travel, particularly at the smaller airports. And although the highway system has enjoyed the biggest improvement, it has not kept pace with the increase in passenger cars and trucking. Home delivery remains challenged, with the last 1000 meters from the transportation network to the home still a problem.

Violence from the drug cartels is very real, but has lessened greatly in most areas also. It can flare up quickly, however, so it needs to be monitored accordingly. Organized crime is still a concern for business and for individuals in most parts of the country, and retailers have become remarkably quick to shift to a far more nuanced and effective security network to offset this challenge.

eCommerce Still In Relative Infancy Although the middle class shopper in Mexico is highly engaged with online activities, including social media tools such as Facebook and Twitter, Mexico’s ecommerce sector has barely gotten started. The Latin American pureplay online retailers of Linio.com and MercadoLibra.com do reasonably well, but they also experience limitations in fulfillment due to the evolving infrastructure and perceived dangers of home delivery.

Amazon has announced it will be launching a Mexico site, and is aligning with the large distributor and retailer FEMSA—which not only  owns 13,000 OXXO convenience stores and close to the 1,000 drug stores, but is also the largest distributor to the small retail store in the market. Being able to deliver to every neighborhood of any size in the country on a daily basis will be crucial to establishing a stable eCommerce business in Mexico, as will the ability to provide credit to Mexican consumers. So the opportunities in Mexico are primarily in the brick-and-mortar sector, at least for now.

Any U.S. retail brand considering expansion into Mexico must first ask itself a few  key questions: How  does the brand translate into the Mexican culture? How does the retail and brand experience offered serve unmet shopper needs? Are the broader infrastructure issues something the retailer is willing to deal with?

The growth in Mexico’s middle class, increasing demands on consumers’ time, and expanding payment options offer a sweet spot of opportunity for  many retailers today, and should not  be  ignored.

Don’t let the challenges of Mexico scare you. The ultimate reward might be more than worth the risk.

Q&A with Miguel Flores, American Eagle Outfitters Mexico, who gives further insight into how a U.S.-centric brand can succeed in Mexico.

Gwen: How did you decide to launch in Mexico?

Miguel: Many retailers don’t pick Mexico as they consider expansion early on. They go to Asia or they go to Europe. At American Eagle Outfitters, we fielded a global study that told us Mexico was an obvious choice. We also knew that Mexicans love our brand and were already transacting heavily in tourist destinations and border stores. Culturally it\’s embedded in the lives of Mexicans to go to the U.S. to shop for better value, better service, and better quality. So they are familiar with U.S. retail brands and we knew that AEO as a brand fit right in with Mexico’s teen and young adult aspirations. “Real Clothes for Real People” really strikes a chord with them.

Gwen: What hurdles did you see?

Miguel: The challenge for us was to overcome the unfortunate perception that you might not get the same quality of service in Mexico as in the U.S., and that the pricing is unfavorable. Shoppers were skeptical that our pricing would be fair. We maintain the same price with currency exchange from one country to the other.

The second issue was that many brands that have a certain positioning in their home market come to Mexico pretending to be something they are not. For consumers who know the brand, they always end up saying \”You know, it\’s not the way I expected it to be here.\” So we needed to deliver the same standard of experience within the store and online.

Gwen: How do you evaluate if particular campaigns originated in the U.S. will play well in Mexico?

Miguel: It’s always a fine line. We are a U.S.-based brand, and we want to have the same campaigns, but occasionally they don’t translate. For example, for holiday last year, the U.S. windows featured down jackets with the line \”Get Down.\” That would not play well, so we substituted a very typical Mexican phrase that means \”We\’re Warming Up.\” So we keep the brand’s DNA and the essence of the promotional message while making it relevant for he local consumer.

Gwen: Tell us more about how the AEO brand fits within the competitive set in Mexico.

Miguel: The denim market is a 1.7 billion (USD) market in Mexico. We thought that was very attractive. We knew the market was being dominated by traditional players, brands launched over 20 years ago, but that a lot of new brands were also coming, like GAP, Aeropostale, Hollister and Abercrombie. But consumers told us, “I don\’t like to be told what to wear, I have my own style but I still need some inspiration.” They also said they liked our everyday fashion and unique styling. So we loved that positioning. It gave us an amazing opportunity, and we looked at this and we said this is exactly where we want to be. We saw that we could capitalize on our brand strengths and connect with Mexican consumers’ personal sense of style.

Gwen: Can you describe your launch? Did you have a spokesperson from Mexico?

Miguel: The fact that we don’t use celebrities worked well for our launch. We opened 18 stores in 12 cities throughout Mexico. Again, “Real Clothes for Real People” allows us to showcase great lifestyle and fun people in everyday life. The trick was to create buzz in social media before we were ready to launch an ecommerce site.

We did his by taking a pop-up experience to universities and malls around the country. We invited people to try on the jeans and share their love of the great fit with their friends. We gave them coupons to redeem at a physical store.

We started with 817,000 people that were already following us on a corporate Facebook page before opening in Mexico. In only two years, we\’ve been able to grow that base to over 2 million people. And then we opened our Twitter organically and already we are at almost 100K people.

Gwen: Any advice you would like to share?

Miguel: First, we invested the time required to really understand the brand in the context of the Mexican market and our core shopper. We did not rush, in and this was key. Second, we capitalized on our brand’s strengths relative to the lifestyle our consumer in Mexico aspires to. Third, we showed respect for the community. We started a campaign to fund public spaces where our consumers go to meet and have fun.

So we heard them, we asked them, we looked at them, and we followed them. We decided on how to approach our customers. We engaged them, we got them to go to the stores, and now the big challenge is to keep it going, to continually exceed our metrics for traffic and conversion.

Note: at the time of article publishing Miguel Flores has moved on to other endeavors and is no longer Country Leader for AEO.