The retail landscape is transforming faster than ever in the wake of the COVID-19 pandemic. To find out what’s next, Judith Aquino speaks with Steve Rowen, managing partner at Retail Systems Research, about the technology trends that have been accelerated, retailers’ customer experience priorities, and emerging innovations.

Key takeaways:

• Before you can deliver value, you must be able to define it.
• Customers have different value to a business and they value different things from a business. Make sure your definition of value comprises this two-way street.
• We'll see a radical change in how businesses configure themselves and define customer value in the next few years.
• Avoid customer value “shortcuts” when interacting with your customers.

Transcript:

Judith Aquino: Hi, welcome to the CX Pod. I'm Judith Aquino. Today we'll be discussing the evolution of the retail customer experience. In retail, technology and customer experience trends that have been years in the making are now being propelled at a faster pace in response to the pandemic. So what will retail look like in the months ahead? Joining me to explore this topic is Steve Rowen, managing partner at retail systems research. Welcome to the show, Steve.

Steve Rowen: Happy to be here. Thanks so much for having me.

Judith Aquino: So as we slowly emerge from the pandemic and a new normal starting to take shape, what would you say the new normal looks like for retailers? What are they prioritizing?

Steve Rowen: Well, you kind of hit the nail on the head just in the intro there, that there's been an accelerant. Right? The trends that we've seen coming for quite some time. We've been in business since 2007. And somewhere around that timeframe, with the advent of smart mobile technology, we started in our research seeing a lot of trends on the retailer side where there was this hesitancy to do anything all that cutting edge, while on the consumer side it was just the opposite. Right? Consumers wanted to shop in all kinds of new ways. They want it to take fulfillment of products in ways that were previously unthought of or even unheard of. Or the other way around. But you get my point. And what the pandemic has done is really accelerate that trend of consumers pushing, and retailers being hesitant, saying, "Well, this is going to cost a lot of money. There's an awful lot of human resources that we need to throw at any one of these new, exciting ways of fulfilling consumer demand."

So this sort of pent up, think of about a hose with a kink in it, all of a sudden along comes the pandemic and the hose is sort of burst open at the seams now, right? And retailers are really scrambling to try to answer that very question: what will shopping look like in the coming months and years? And so this trend of consumers pushing and retailers holding back is no longer viable. And I think retailers are becoming, our research shows it, it's not just my personal belief, right, our research bears out that retailers have been rapidly awoken to the fact that what they've been doing does not work. And we need to change at a fundamental level, right? They need to think about not only the products that they're providing, and that becomes its own challenge when no one can really predict what the next big shortage will be or what the next great demand segment will be, but not just the products that they used to have to think about, but how they deliver those products and how consumers are going to take delivery of those products.

Judith Aquino: Mm-hmm (affirmative). Right. And so it was really interesting to see how agile, I guess, when push comes to shove, that the retailers quickly shifted to things like curbside pickup and other services. So do you think retailers will be able to maintain the agility that they demonstrated in 2020?

Steve Rowen: I think they have to. I mean, it's the exact right way of looking at it. Right? For years, essentially, and when we can go back in time as long as you want, but the focus has always been on efficiency. Right? Not agility. And what this worldwide event has done is completely flipped that on its ear, that those retailers who are able to be most agile are those who are able to maintain relevance in consumers' lives. Those who were not, and again, this is assuming that the playing field is equal, right? This is assuming that all retailers are able to be open at this point. But those who are able to maintain agility for today's standards will probably continue to survive for today's standards. But who knows what's around the corner. Right?

So to me, the most important lesson of all of this has been not just, how do we solve for, okay, people need to buy online and pickup in store because it's unsafe to go in stores right now. That's a very pragmatic solution to a very today problem. I think the more forward thinking retailer's going to recognize that the future of this planet is as uncertain, if not more uncertain, than it was in the past 18 months. So how do we not just solve for the problems that we're reacting to, but how do we build into the framework of our business the ability to be agile, so that if there is another series of political unrest, or if there is another outbreak of some really highly contagious and deadly disease that might be even more dangerous or more deadly or more contagious, how are they going to not have to undo everything they've done? And that's not an easy task, right? That becomes much more of a business process than it is a technological response to a today issue.

Personally, I don't think retailers get enough credit for how quickly they were able to turn on a dime. I mean, we saw some pretty creative solutions to some right now problems, starting around March of 2020. And if you attended this year's National Retail Federation show, which obviously like everything else was virtual, as opposed to the big gala event that it normally is with 40,000 people smashed into a conference center, all sweaty and shaking hands with one another, that was not going to happen. But to me, the most important takeaways from some of the sessions that I saw there were retailers who were able to say, "Okay, previously marketing hasn't really like... supply chain, supply chain hasn't really liked IT. How do we get all of these people to sit in a room and figure out a way that we're going to be able to adapt right now so that three months from now we're still in business?" And that to me is the absolute essence of going forward.

How do we break a lot of the siloed, "This is my job, this is the way I think about the world," and how do we think in a much more pragmatic way for when the next big disruption invariably comes down the pipe?

Judith Aquino: Mm-hmm (affirmative). So it sounds like what you're saying is, at the height of the pandemic, maybe that was more about the retailers just scrambling to adjust. And now it's about fine tuning and stabilizing these changes.

Steve Rowen: 100%. Yeah. I mean it's two-fold, right. It's about fine tuning the changes that we have now. Because I mean for example, right before the pandemic began, one of my partners, Brian Kilcourse and I, we did a research report around buy online pickup in-store and buy online return in-store. And one of the things that we found at that point was, everyone who was sort of worth their salt as a retailer was accepting both of these things in some capacity already, particularly buy online return in-store. But the system by which it was handled was not elegant. Right. I could buy five shirts online, five different sizes, pick the one that I like, go to the store, and return the other four. And the retailer was absolutely committed to the fact, "Yeah you can do that. We understand that's a new shopping behavior." But what would happen with those shirts once they showed up at the store was, really, it was a fairly arcane solution. It was just, "We take them, we throw them in the backroom, we'll figure it out some other day."

To your point, buy online pickup in-store at that time was kind of seen as a nice to have. Sure, maybe we'll get there someday. It would be a great thing. And it was just serendipitous. We just happened to get that snapshot of what the world looked like in February, 2020. Fast forward 60 days, and now everyone has to do both of these things. They have to do buy online pickup in-store and they have to buy online return in-store. Neither one has yet become particularly elegant. But because of the function, to your point, of what necessity required, they were forced to accelerate and adapt processes and offer things to customers that they probably would not have otherwise for at least another two or three years.

So yes, one side of it is making those systems much more cost efficient, much more energy efficient, much more efficient really from soup to nuts. But the other side of it, and to me probably the much more difficult side, is that integration between areas of the business, so that when the next thing comes we don't have to just have a, "Okay, let's throw this particular solution up. Let's make it work somehow. We'll figure out how to make it efficient later," but that it can be enacted with a little bit more efficiency from the jump because there was more of that flexibility, that agility built into how decisions get made. Not just what decisions get made and then how we make them work, but actually in the process of how decisions do get made.

Judith Aquino: And speaking of making decisions. So I noticed that a recent RSR survey found that 41% of retailers said they have inadequate access to meaningful data. And so if you can't fix what you can't measure, what are you seeing retailers do to solve their insights problem?

Steve Rowen: So that's a really good question. Again, if we go back in time just to late 2019, early 2020, the talk of the town in the retail industry was what AI was going to be able to offer to retailers in the sense of how do we, one, make sure that we're collecting the right data? Two, analyze that data in a way that is meaningful to us? And then three, and act on that? And to your point, if you have dirty data, none of that really matters. And at that time this became something that retailers were talking about. We'd love to get to this. Right? This is somewhere three to five years down the pipeline. We would like to make sure that we're ... we want to collect as much consumer information as we possibly can. That much they had ... there was consent among all retailers. We're going to collect everything we can. Maybe a little bit down the road we'll figure out how to clean it up. And then maybe a little bit down the road we'll make it actionable.

What I see that this particular pandemic has caused is an acceleration of every part of that, that the interest and the budget that is being put aside for AI technologies to, one, ensure that this data is being analyzed in a proper way, and two, that analysis is actionable. The investment, we just did a report that hasn't even come out yet, it actually was going to release next week, where we asked that very question. Because of how the world has turned, where has your budget flipped? And that is one of the most fundamental issues that we've seen, is that all of these analytics capabilities that were seen as, "Meh, maybe we'll get to it someday," those are now places where retailers are heavily either investing currently or fighting tooth and nail to get dollars to invest in them so that data becomes a little bit more reliable and offers more insight.

Because when you think about it, how do you forecast? If retailers have typically forecast what they're going to sell next year based on what sold last year, how do you do that right now? How could you possibly envy the role of a merchant trying to figure out, "What am I going to order for fall of 2022 based on what I saw in fall of 2020?" I mean, it's a tall order to try to wrap your head around from an into intuition point of view. So the more assists they can get from technology and the smartest technologies on Earth at that, the better.

Judith Aquino: And does that mean that there's going to be more of a demand for these automated type solutions, or is there still a demand for the human, for the data scientist, for the people who can provide that expertise?

Steve Rowen: The data scientist is probably first and foremost, even before the solutions at this point, because of everything that we've been talking about here. Again, you could put a machine against a chess player and sooner or later the machine is going to be smarter than the chess player, but it needs to have those early interactions to learn. And from everything that our data is telling us, the bigger the retailer, particularly when you get to general merchandise, some of the big box retailers that we all know by name, they are investing heavily in data scientists for that very reason. Because right now the smartest solution in the world could, they could be given an action that doesn't necessarily jive with everything they're supposed to be doing because it's still early days.

So you need that human interaction now. Will we always need that? I hope so. I hope my chess analogy doesn't prove too true, that sooner or later there's not a person that can beat the machine anymore. But I think as long as we are pushing the bounds of what is creatively possible, there will always be a need for that human element to make sense of the data. Because data by itself, while it's a powerful tool, it's just that, it's a tool that needs to be put in the hands of a skilled craftsman.

Judith Aquino: Mm-hmm (affirmative). Right. And going back to what you mentioned about pushing the bounds of what's creatively possible, what are you seeing in terms of the innovations that will continue? And also, do you think it will be largely part of the e-commerce boom, or is that going to go away?

Steve Rowen: I mean to me some of the most creative things that I've seen, we took a briefing last week actually with a company that was based in Sweden that was taking everything that we saw from sort of the live political world from 2020, fundraising world, from the sort the, "You can't go to a concert, so what's the best way that we could sort of live simulcasts events," and applying that to the retail world. I think we're going to see a lot more creativity around, "Okay, you might be able to leave your house now," especially as we all approach these vaccination levels, particularly in this country where we're fortunate enough to be there. I mean, elsewhere in the world we can all see what horrible things are still happening. But assuming in the US market that tends to dominate a lot of these conversations, assuming that people approach a level where they can go shopping, it doesn't necessarily mean they're going to want to anymore.

So some of the creativity I see around is, "Okay, people have sort of become accustomed to this notion of, 'Well, maybe I don't want to leave the couch today. Maybe I don't have to go to the office, so maybe I don't need to stop by the store on the way.'" So how are we enacting that sort of marriage of physical and virtual, and bringing not just like a substitution for something that we've already done before, but something that could actually be even more exciting than the process of visiting a store or attending a live event or attending a live event at a store. I think we'll see an awful lot more of that. I don't think that takes away from e-commerce. And if anything, I think it only adds to the fact that we're social creatures, and even when we were locked in our houses we were finding ways to interact with one another.

So just because we necessarily don't want to go out and fight traffic and go find a parking spot and go to a store, it doesn't mean we don't still want to engage with one another. And I think that e-commerce is going to play a massive role in our ability to fulfill both of those functions at the same time. Where we're home, we're comfortable, we feel safe, but at the same time we're engaging with other people, we're buying the things that are new and exciting to us, we're discovering new trends. We're learning about not necessarily influencers, I kind of hope that trend goes away, but experts. We're getting expert information from people who know products and services the way that some person on Instagram who just has a lot of likes doesn't necessarily have that level of expertise.

Because to me, that's what's been missing from retail for so long. We've been chiding retailers since we started writing this research back in 2007. Your stores have gotten pretty boring. There's not a lot of expertise in there. There's not a lot of reason for me to get off my couch long before there was any safety concern. There wasn't a lot of reason for me to leave and go to a store if every question that I asked was going to be met with a, "I don't know, check your phone." So I think, again, I keep using cliches here, but because necessity is the mother of all invention, I think the fact that just because we can leave doesn't mean we're going to want to, and I really hope that that does push the boundaries of what is creatively impossible in that marriage of both physical and digital.

Judith Aquino: Mm-hmm (affirmative). So in other words, retailers will finally, I guess, focus on being customer centric, if that's still [inaudible].

Steve Rowen: Yeah. They'll probably always be a step or two behind, just based on the way their consumer technology morphs these days so quickly. But yeah. I would love to plant that flag someday. Right? Retailers are finally customer centric.

Judith Aquino: I hear the jaded laughter.

Steve Rowen: No, it's just it's what makes our job so difficult, right? For so many years we've just been like, "Please, please take this seriously. Sooner or later there's going to come a time where it's not just you're only running as slowly as the guy next to you, that somebody is going to pick up the pace." And that somebody in this case didn't tend to be some whizzbang retailer, it happened to just be a global pandemic that forced everyone to pick up the pace.

Judith Aquino: And is that likely to be a retailer that's already a big box retailer, or could it be a D-to-C type company?

Steve Rowen: Oh, I think all of the above. I don't think we're done seeing ... I mean, I don't have the stats in front of me, but everybody had a startup starting somewhere around April, May of 2020. I think we're going to see a wave of innovation coming, both within the big halls, as well as from some of these yet unheard of, "We are here to disrupt the X industry," types. We'd seen a large wave of that probably 10 years prior with the Harry and David, or [inaudible 00:18:20] and Dollar Shave Club and things like that. We're going to see a wave of D-to-C disruption, absolutely, coming up.

Judith Aquino: Well thank you, Steve, so much for all your insights. I really appreciate it.

Steve Rowen: It was my absolute pleasure.