customer success

Retail Roundup: Asking the Right Question, Retail ‘Nightmares’

Retail Roundup: Asking the Right Question, Retail ‘Nightmares’

Excerpts from the article by Teresa Rivas on Barrons.com

Last year, retail stocks were walloped as investors worried that e-commerce was taking over the world; this year the sector has climbed on evidence that brick-and-mortar stores aren't going extinct. But stores--and investors--still aren't asking the right questions.

"Retailers are mistakenly see the issue as e-commerce versus brick and mortar, but that's not the problem," says Tien Tzuo, chief executive of enterprise-software firm Zuora. "Online, in-store, it shouldn't matter, it should all be blended: Consumers can shop wherever they want--it's the retailers that build one-on-one relationship customers that will win."

Tzuo tells Barron's that the subscription model, like Amazon.com's (AMZN) Amazon Prime, has already reshaped retail, and traditional stores simply haven't realized it yet--to their own detriment. "Amazon isn't successful just because it's an e-commerce site, but because it knows how to think like its customers," he says, noting that he can search his Amazon purchase history going back more than 20 years, while a retailer such as Walmart (WMT) has no data about the roughly 100 million customers that walk through its doors every week. This is a huge lost opportunity, he says. Instead of framing the state of the industry as an e-commerce versus physical-store issue, and spending big sums of money to acquire Jet.com and a stake in FlipKart, Walmart should instead create a universal Walmart ID, so it can collect data on its customers--the first step to establishing an omnichannel relationship.

Of course, this isn't a radical concept--grocery stores have been tracking purchases with loyalty clubs for ages. But Tzuo says that while this was a great first step, many haven't taken the next one--making the club ID usable on a grocer's website, sending tailored coupons to a user's email.

That said, Walmart and supermarkets aren't alone as they struggle to connect with consumers: He's hard pressed to name a large retailer that is getting it right. "There's no Macy's (M) Prime, there's no Walmart Prime." Best Buy (BBY) is close, he says, as it's trying to redefine the in-store experience and tracking consumers' purchases, "probably because they were threatened the most by Amazon" early on. He also notes that Starbucks (SBUX) has worked to make its omnichannel experience seamless--encouraging consumers to order via an app--and connect all purchases back to a user's ID. But the company's also removed the ability to buy coffee beans from the Starbucks website, because it wants to drive store traffic, for the brand experience. "That's the role of physical stores; not as shelf space, but as a place for retailers to build relationships with consumers over time," says Tzuo.

Read the full article on Barrons.com

Walmart’s problem isn’t Amazon — it’s a lack of interest in who its customers are

This story was written by Zuora CEO and Founder Tien Tzuo for VentureBeat.

This week investors held a collective freakout over the fact that Walmart’s online sales grew at just 23 percent over the fourth quarter of 2017, down from 50 percent the previous quarter. They tanked Walmart’s stock by 10 percent, its biggest one-day decline in several decades.

While I also happen to be bearish on Walmart, I think its investors are missing the bigger picture here. E-commerce accounts for less than four percent of Walmart’s business. This is a company with much bigger problems.

Unlike the rest of Wall Street, I do not agree that Walmart’s problems begin and end with Amazon. The Walmart-versus-Amazon battle is typically framed as a clash between an ascendant e-commerce business and a dying retail industry, but that’s nonsense.

Selling products to strangers doesn’t cut it anymore. To succeed in retail today you need to start with the customer, not the product. You need to flip the script. Let me explain.

Nearly every American spent money at a Walmart last year. The vast majority of us live within 20 minutes of a Walmart store. The company has almost 5,000 retail locations, over two million employees, and over 140 million customers.

But let me ask you a simple question: What was the last thing you bought at Walmart? Walmart certainly can’t tell you. Got any receipts handy? Once you walk past the cash register at Walmart, you’re gone.

Walmart is still essentially a product company. It has decades of institutional experience with supply chains, transport logistics, and inventory management. It knows how to buy and sell products. That worked fine for a long time. It doesn’t anymore.

In the old product model. You built a product, put it into as many channels as possible, and hoped there were customers waiting at the end of those channels. In the new service-based model. You start with the customer, understand their wants and needs, and then wrap your service around that customer via relevant channels. No more pushing units to strangers.

Now let me ask you another question: What was the first thing you bought on Amazon? It’s sitting right there in your order history. Go ahead, open up a new browser tab and look it up. I bought “The Seven Habits of Highly Effective People” and “Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge” on January 11, 1997.

Amazon is beating Walmart because it knows its customers. That’s the reason. Plain and simple. So does this mean e-commerce is bound for glory, and retail is doomed to failure? Will it be all retail apocalypse and zombie malls from here on out? Of course not.

Right now, there are at least a dozen new companies in the midst of opening hundreds of new retail stores. And why are they doing this? Because the stores they currently have are making money hand over fist.

You’ve probably heard some of the names: Allbirds, Casper, Birchbox, Boll & Branch. According to real-estate data company CoStar Group, these online-first stores have increased their retail space tenfold over the last five years. Warby Parker is averaging $3,000 per square foot of retail space, which is almost as good as Tiffany’s (!).

Why is this happening? Well, one reason is that it’s really hard to operate as a standalone e-commerce vendor. Almost two thirds of all online sales are owned by just 15 giant e-commerce marketplaces. RetailNext CEO Alexei Agratchev recently told me:

“As an ecommerce vendor, you have really high variable costs around shipping and returns. On the other hand, Amazon is an amazing logistical machine, and they’re not even running at a profit most of the time. … And the other question is, how do you really differentiate yourself online? Anything you do on your website, a competitor can steal pretty easily. But you can actually create really cool experiences in stores.”

As a result, retail is changing in all sorts of interesting ways. Take a look at b8ta, a new personal technology chain. It has hip, minimalist stores that let you try out the latest gadgets. What’s even more interesting is that b8ta doesn’t make any money from product sales. Product manufacturers pay a subscription fee for access to its customer base.

And as for those malls? Well, the ones that are doing well are doing really well. As old retailers are replaced by new online-first stores that are doing two to three times more business, the malls benefit from the increased foot traffic and attract better brands. Everyone wins.

Again, it’s never been just about e-commerce versus retail. It’s always been about flipping the script — starting with the customer as opposed to the product sale, and wrapping both your e-commerce and your retail channels around that customer experience.

Walmart is a product company that still views its e-commerce efforts as a distinct channel, a separate line of business. That’s not too surprising, considering the vast majority of its e-commerce business has been bought, not built: Jet.Com, Bonobos, ShoeBuy.Com, Moosejaw.Com, etc.

Walmart tried to buy its way in. But it doesn’t seem to be working out. The leopard can’t change its spots.

BMW and Mercedes-Benz Will Also Try Out Subscriptions

Excerpts from an article by Zac Estrada on The Verge

Not to be left out by rivals, BMW and Mercedes-Benz appear to be joining the world of automotive subscription models that cover all of the fees required with car ownership or leasing under one payment.

Both BMW and Mercedes are expected to announce pilot programs for a subscription service that covers not only car payments, but maintenance and insurance, Automotive News reported on Tuesday. They would join the likes of Audi, Cadillac, and Porsche in offering customers a simplified payment structure and the flexibility to swap to a newer car sooner than a traditional lease or finance plan, or a higher-quality vehicle than a daily rental from the airport. BMW Group and Daimler, Mercedes’ parent company, already run car-sharing firms.

“We are in the phase of looking at it and evaluating together with BMW Financial Services,” BMW of North America CEO Bernhard Kuhnt told the publication this week at the Detroit Auto Show. “And if we are going to do it, we are going to pilot it first to learn more about it.”

Read the full article on The Verge

Why retailers are signing up to the subscription model

By Ruth Cooper in retailbiz

Do you dream of wearing expensive watches but don’t have the means to drop $28,000 on a German timepiece? Ten years ago your only options were probably to attempt to save up enough money for that kind of capital investment, rob a bank, or forget the dream altogether. Not so for today’s consumer.

Thanks to the Eleven James subscription service, all your watch fantasies can come true. Members pay a monthly fee (starting at US$149) to have a different luxury timepiece delivered to their door every three months. Once the rotation is up, you send your current watch back in return for a new one. Not only do you avoid outlaying a huge amount of cash, you can upgrade or downgrade to different styles and stop at any time.

This is just one example of how companies are using a subscription model to innovate and change the concept of retail, providing consumers with an experience—in this case the experience of wearing a fancy watch—rather than ownership of a product.

“Consumers are moving increasingly rapidly from the ownership of assets to subscribing to services,” said David Gee, chief marketing officer at subscription service business Zuora. “The way consumers demand the things they want is changing dramatically.

“We are changing from the concept of owning a car that’s parked outside 95 per cent of the time to just wanting to access a form of transportation.”

Australians are already signed up to media subscription services like Netflix, Stan and Spotify in large numbers, opting to stream content rather than own it. These media brands are pioneering personalisation, using algorithms to learn their customers’ likes and dislikes in order to serve them content they will enjoy. Consumers like this personalisation, Gee told Retailbiz, pointing to Amazon as an example of it done well.

“Amazon’s impact on US retail has been dramatic—over 5,000 retail stores are closing or have closed in 2017. This wallet share shift is coming from dealing with a retailer that doesn’t know you, to dealing with a retailer that does.”

Convenience factor

Other subscription services are focused on offering customers extreme convenience. In Australia we have Pet Circle, which has a ‘set and forget’ pet food delivery option, ensuring Fido never goes hungry. Then there’s grocery delivery service HelloFresh, which lets you create home cooked meals without having to visit a supermarket, and Dollar Shave Club, which keeps you stocked in razors.

Dollar Shave Club is one of the breakout stars of the subscription scene. It began in March 2012 as a membership service that provided razors by mail, and was purchased by Unilever in June last year for a reported US$1 billion.

The success of Dollar Shave Club’s commodity-as-a-service model is disrupting legacy shaving brands including Gillette. According to Euromonitor, Gillette claimed a US market share of 70 per cent in 2010, but this fell to 54 per cent in 2016. In an effort to claw back business from competitors like Dollar Shave Club and similar subscription service Harry’s, Gillette launched its own razor membership service, Gillette On Demand.

Benefits for retailers

Along with Gillette, other major brands (mostly in the US) have signed up to the subscription model, including Starbucks, which sends subscribers coffee beans every month through its Reserve Roastery service. Beauty retailer Sephora has also got in on the action with its Play! Box, offering a monthly delivery of beauty samples.

So what are the benefits for retailers of running a subscription service? You get a predictable income stream and detailed insights into your customers, said Gee.

“They get predictability, consumer insight, they can cross-sell and up-sell, and can see early warning signals of customers at risk of churning or switching off the service,” he said.

The ability to gather data on your consumers improves your ability to forecast, handle inventory and enables you to manage profitability in a way that makes it much more predictable. The more you know about your customers the better you can market to them, and a subscription service like Dollar Shave Club has inbuilt opportunities to up-sell, with add ons like shaving cream and other grooming products.

“There’s lots of disruption out there,” said Gee. “That creates opportunity… Retail is a prime industry for transformation and to develop the subscription model.”

Ann Taylor is getting in on the subscription clothing craze

Excerpts from an article by Julia Horowitz on CNN Money

More and more women are ditching the mall to buy their clothes online. But Ann Taylor has a plan.

The struggling brand, long a staple of women’s workwear, is launching a subscription clothing service. Infinite Style, which quietly debuted last month, allows Ann Taylor (ASNA) customers to rent an unlimited amount of clothing (three items at a time) for $95 a month.

Shoppers can wear the clothes for as long as they want, and send them back when they’re ready. Then they’ll receive the next box of three — and the cycle continues.

Subscribers get discounted prices for items they want to keep, and don’t have to worry about dry cleaning. Ann Taylor says it has it handled.

Subscription clothing services for women are all the rage right now. More and more shoppers are opting to stock their closets online, from the comfort of home — and the rental model seems to be catching on.

Read the full story on CNN Money.