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Posted Date: 1/24/2013

Top 10 Takeaways from NRF’s Big Show

By Jordan K. Speer
1. Smartphones are fundamentally changing our world, and the revolution they are spawning is still in the early stages. Lest you doubt this statement, here are a few stats that might change your mind: 44 percent of people sleep with their mobile phones, while 73 percent of males and 63 percent of females don’t go an hour without checking them when they are awake. This type of behavior, attachment and reliance on phones is having a profound effect on retail and how customers interact with the world — and that includes shopping. Alison Paul of Deloitte says conversion rates increase 40 percent when a person is in a store using a mobile phone, and that 42 percent of consumers made purchases influenced by information found using their mobile devices for their most recent purchases. “We are not talking about mobile commerce,” she says. This is about the phone as part of the experience. Gathering information, checking social media, browsing the company’s website — or another company’s website! — while in the store is all part of the customer’s DNA and requires retailers not only to rethink their approach but to reboot their operating models, says Paul, who challenges retailers to “put mobile app folks with store folks. That’s where the opportunity is.”

2. Stable societies are better for retailers, and retailers can help societies be more stable. One of retail’s most important roles can and should be minimizing turbulence around the world by creating jobs for the world’s growing population, which is set to hit 9 billion by 2050. Millions of jobs will be needed to “keep young people busy,” said former secretary-general of the United Nations and keynote speaker Kofi Annan, who said that retailers have the power to foster the kind of growth and opportunity in developing nations that will allow stability to take root and encourage inflows of capital. In his keynote presentation, Annan identified the “three pillars to a prosperous society” as 1) peace and stability; 2) development; and 3) the rule of law and respect for human rights, and stressed that businessmen and -women have the power and the influence to build these pillars around the world. Annan identified several ways in which businesses can lead this change. First, retailers need to bring small-scale businesses and farmers into their supply chains. Second, businesses need to invest in partnerships and projects that encourage the development of local infrastructure. Currently in many places in Africa there are good roads to carry merchandise to the coasts — for export — but very poor intra-Africa infrastructure, making it difficult for local and regional trade to expand. Third, Annan suggested that the “greening” of business may have as great an economic impact as the Industrial Revolution because of the vast number of jobs it will generate.

3. To grow your apparel business, expand internationally. To be successful, find a balance between “distributed” and “clone” models. One of the keys to successful global growth comes from building brand awareness that strikes a chord with regional or local markets in other parts of the world but that also stays true to the core essence of the brand. That’s easier said than done. Best practices in approaching new markets will differ according to your business, and whether it has grown up as a distributed or clone model. Here’s the difference between the two: a clone model started in one place, was perfected, and then copied in other locations. Think Apple or H&M. A distributed model is one that developed relatively independently around the world over time using regional leaders and licensed models. Many companies in this category started as wholesalers first. Think Levi Strauss. Clones, as they expand, tend to struggle with local relevancy, whereas those that developed via distributed models tend to struggle with brand consistency.

Finding balance between these two models requires a company to maintain the critical components of its brand identity and experience while adapting the execution of it at the local level. Levi Strauss originally spread its brand globally using a regional-focused model, but today, the company is creating a unified global brand experience by evolving how it works and changing the mindset and organizational structure of the company, says Enrique Atienza, senior vice president of retail, Levi Strauss Americas and global store operations. “We completely reorganized the way we operate. … Previously, we had an overwhelming assortment of product catered to regional markets … 20 different models across the world … leadership in every country … and a local-only, single-channel mindset … [that made for an] inconsistent customer experience.” Today, the company has three global retail teams, it has aligned every single retail channel, and it has reduced the number of styles by approximately 60 percent, he says.

Distinguishing what elements of your business and brand are core and which can be locally adapted can be tricky. Here are a few tips suggested by Atienza: For stores, strive for global consistency when it comes to layout and navigation, while adapting location strategy, channel strategy and hours of operation to the local market. For branding, strive for a consistent brand core globally while adapting size, color and quality to the local market. For team building, develop a globally consistent hiring model, dress code and career development model while adapting your full-time/part-time mix, compensation and incentive plans to the local market. Finally, for processes, develop internally-consistent, brand-right processes while adapting locally to cultural norms relative to dealing with consumers.

4. To knock down silos, first change your incentive programs. Revolution forces dramatic change, and old hierarchies must be torn down to make room for the new, says Deloitte’s Alison Paul. If you are still doling out incentives based on channel you are never going to achieve omnichannel retailing. And today, omnichannel retailing is retailing. If your merchant groups are divided into different silos for online and brick & mortar sales channels, you aren’t going to achieve a seamless look, feel and experience across your brand. And if your salespeople are incentivized by channel, then what happens when a customer buys on the web but returns to the store? “How are you accounting for that? Are your salespeople taking returns with a smile?” asks Paul. She also says that salespeople must be given more power, such as the freedom to price match and negotiate with customers. “Allowing a customer to walk out of store without a purchase is not acceptable,” she said. “Do your people have tools they need to compete effectively? Does your salesforce have the same smartphones as the customers? Giving them the right tools gives them the freedom to add that personal touch, which pure play [ecommerce retailers] cannot offer.”

5. What keeps you from being commoditized is your brand; what keeps your brand strong is listening to your customer and building technology that will support her demands, says Tim Belk, chairman and CEO of family-owned department store chain Belk. “Customers choose to come to us because of something deeply relevant to them,” says Belk, whose multi-year plan to become a seamless omnichannel retailer should allow it to “export the southern state of mind beyond [its] physical footprint.” The 301-store retailer with just under $4 billion in revenue frequently surveys its customers and found they prefer modern brands over traditional, they want a more compelling shopping experience and they want to shop and find information in different ways. Belk also found that customers who shop both in-store and online spend an average of $1,064 annually, vs. $352 for in-store only shoppers and just $100 for online only shoppers. “That got our attention. We embarked on strategy to reinvest in the company,” he said. The $600 million investment is going toward branding ($42 million), service excellence ($14 million), store remodels and expansions ($270 million) and technology ($263 million) as part of its mission to become truly omnichannel. That roadmap looks like this: 1) re-platform ecommerce; 2) replace POS (to include testing mobile wallet); 3) expand mobile (22 percent of traffic to its website on Black Friday came via mobile phones); 4) integrate customer data (“Today it’s stored in eight different locations and we need one version of the truth,” says Belk); and 5) establish enterprise inventory.

6. The top 10 global fashion retailers, by sales, according to Deloitte are: 1) Macy’s; 2) TJX; 3) LVMH; 4) Inditex; 5) Kohl’s; 6) J. C. Penney; 7) H&M; 8) Isetan; 9) Gap; 10) Nordstrom.

7. Africa is on the map, offering the promise of potential customers as well as sourcing opportunities. “The third world is waiting for retail,” said Kofi Annan, in his keynote address at NRF, calling out Mozambique, Angola and Ghana for their fast growth, while Deloitte’s global director of research, Ira Kalish, says the “big story” is that Africa has seen the most top 250 companies enter the market vs. any other region in the past year. In its annual “Hidden Heroes” series, two of the 10 global cities profiled by Deloitte’s Global Retail Industry group as significant and worthy of attention but “hidden,” or not yet recognized as such, are Nairobi, Kenya and Lagos, Nigeria. In last year’s report, which highlighted countries vs. cities, Deloitte identified Algeria, Kenya, Morocco, Nigeria, and South Africa as the five African markets representing the brightest opportunities. This year, the American Apparel & Footwear Association (AAFA) will hold its first ever Source Africa, April 9-12, in Cape Town, South Africa, which will include a two-day trade exhibition and designer showcase, international business seminars, professional matchmaking program and an opening cocktail reception.

8. Making terabytes of raw data useable requires the right mix of databases, smart and fast algorithms and a bit of down and dirty gumshoe investigative work. With billions of pieces of data — POS data, ecommerce orders, clickstream data, email events, customer service data — The Children’s Place (TCP) already has many terabytes worth (a terabyte is 1012 , or 1 trillion bytes), and in raw form, that data is not so useable. When David Levitt, group vice president – omnichannel, set about to bring all of its channel management in-house and put that data in service of the company’s needs, he learned a lot.

1) Choose data processing tools that are appropriate to the task at hand. OLAP databases, massively parallel databases and the cloud all work well for handling different types of data and functions. Big data processing and Cartesian/recursive math are best handled in the cloud, for example, while data loading, cleansing and appending are better handled in a massively parallel database. (TCP uses IBM/Netezza as its data warehouse, Cognos for reporting and analytics, Unica for campaign management.)

2) Keep the math close to the data. If your algorithms are crunching data in channels, you’re not getting the full picture across your enterprise.

3) Keep the data as ‘raw’ as possible. If you have 200 fields, and you’re only using 20, it will be very difficult to re-map if you decide to use those other 180 fields of data later. Levitt modeled TCP’s CRM database to pull all fields.

4) Build your data enrichment routines into your daily processing, and reprocess all the data, all the time.

5) Linking is the most important thing you can do, correctly, in your database. Retailers have multiple streams of data, and that data may belong to one entity, but may not appear so in the database — or vice versa. A customer may provide one email in the store, and a different one online. Conversely, many customers may enter the same fake email, say, me@gmail.com, or phone number. Understanding what data should and shouldn’t align — and eliminating the garbage — requires algorithms that can recognize repeat information, and learn as they go along to recognize real or fake data. Still, sometimes good old-fashioned detective work is required. When the database turned up the same address and phone number for 12 different customers, Levitt hopped onto Google Earth to find nine cars in front of the house! Another case of multiple identical emails that looked like fraud turned up consolidators that were shipping TCP apparel to South America. “It’s tricky stuff,” says Levitt.

6) Good data allows your algorithms to churn out meaningful data, which in turn allows you to understand your customers better, so you can treat them more like individuals. Predictive modeling “is where you separate the good from the great” says Levitt. That “math” can be used to produce algorithms for optimizing offers (“we shouldn’t offer a 20 percent off coupon if this customer is happy with 10 percent off”), cross-selling (for example, a custom solution that pre-decides which outfits will show first, but that uses math to fill in the holes if if you are sold out of those.

9. Item-level RFID makes everything better. Apparel retailers and brands are increasingly applying item-level RFID tags at the factory instead of in warehouses or on the retail floor. This is cheaper — the labor is less expensive, plus factory floor workers are already putting other types of tags on garments — and it allows a company to reap the most from its investment. The visibility that RFID tagging allows enables benefits along the entire supply chain. It enables 100 percent inspection of goods, knowledge of the whereabouts of goods at all points along the supply chain, the ability to single out individual items vs. items that are identical in SKU, improved loss prevention, perfect or near-perfect inventory accuracy — which is necessary for omnichannel retailing — improved inventory management and the ability to quickly locate any garment on the retail floor, or in a dressing room, to name just a few of its benefits. Companies that have been very vocal about their item-level apparel initiatives include Walmart, J.C. Penney, Macy’s and American Apparel, but expect to hear from other apparel companies this year, such as high-end brand and retailer Faconnable, which after big investments in ERP and POS turned to RFID to help provide better visibility into its inventory. Faconnable is in the testing phase of an RFID implementation, in partnership with TAGSYS RFID, which it has rolled out in its DC and stores. The company is integrating tags at the point of production to gain insight to its garments’ whereabouts from factory to store. Already, says Yonni Mrejen, vice president of retail and operations, it has drastically reduced warehouse processing time, because workers can simply scan the boxes rather than open them up to verify contents. In the future, Mrejen expects to use RFID for everything from quick price changes for its different retail customers to improving loss prevention. American Apparel, which started using item-level RFID on the retail floor, is currently working it back into the supply chain to manage inventory at its distribution center, says CIO Stacey Shulman, and Macy’s recently rolled out an RFID solution at the acre-sized ladies’ shoe-selling floor of its flagship Herald Square location, which is allowing salespeople to locate any pair of shoes in the back room and bring it to the customer in less than two minutes flat. Providers in the RFID space include Avery Dennison RBIS, Checkpoint, Motorola, TAGSYS RFID and Tyco.

10. The economy is looking up! With its highest attendance ever at approximately 27,000, the NRF Big Show was bustling, and energy was high, which bodes well for retail. Booming or not, the retail industry will face some big issues as it moves forward. The top five, as identified by Deloitte’s Ira Kalish, are: 1) energy — how it is produced, and the technology involved will have a major impact on how retail develops, and where; 2) demographics — an aging population in many regions of the world will generate 3) fiscal problems, especially in countries that do not have growing populations to support their elders in their old age; 4) the role of women will play a major factor in retail; countries with a small but growing share of women in the workforce will see better economic growth; and, finally, 5) the internet will continue to push retail along new paths, some of which we have already embarked on, and others which we cannot yet imagine.

Jordan K. Speer is editor in chief of Apparel. She can be reached at jspeer@apparelmag.com.

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