By Christopher Walton, Entrepreneur and former Vice President, Target Store of the Future
Rhett Butler in Gone with the Wind remarked:
I told you once before that there were two times for making big money — one in the upbuilding of a country and the other in its destruction. Slow money on the upbuilding; fast money in the crack-up. Remember my words. Perhaps they may be of use to you some day.
While good old Rhett was really speaking about the Civil War, his advice still rings true today because a “crack-up” is exactly what we have in retail right now. We are in a period of incredible adaptation. The question is not what will happen to retail. The pie is the pie, so to speak. The far more important question is, how will the pie get carved up? Or said another way, which retailers that we know today will survive for the long term? What new players will emerge? And what technologies will play the largest roles in determining how the pie ultimately gets carved up?
The business model of legacy brick-and-mortar retail existed relatively unchallenged since the 1960s. Then, in the mid-1990s, along came the apex predator, Amazon, who introduced an entirely new business flywheel to retail.
Retailers now are at a crossroads. Amazon’s flywheel is so formidable that legacy retailers are not sure how to respond. Historically speaking though, and this next fact is also why retailers find themselves in peril, physical retail stores have, for the most part, existed for five distinct reasons: 1) Inspiration, 2) Immediate Gratification, 3) Convenience, 4) Taction (i.e., the act of touching), and 5) Experience (i.e., the delight or memory of being somewhere).
Amazon’s flywheel, predicated upon an enormous selection and convenient delivery at the press of a button, has obliterated reasons one through three. All that remains to differentiate physical retailing from e-commerce are the tactile feel of products and the delightful memories of being somewhere other than your home.
Therefore, for retailers to survive and prosper from the “crack-up,” our industry needs a new flywheel, a flywheel that enables them to compete with Amazon, a flywheel that celebrates the physical and that answers the most fundamental question in our business — why still come to physical stores to shop?
If you are interested in a live demo or an audio exposition of the flywheel while you exercise at the gym or as a helpful tool to put your kids to bed quickly, you can also view this video:
As you can see from the diagram and/or from the video, the new flywheel of 21st century omni-channel retailing is not predicated upon selection. Rather, it is predicated upon data. Data is what will enable retailers to compete either against the Amazon monolith or the two-headed Amazon/Walmart Kraken.
Data begets better omni-channel brand experiences, which beget traffic, which, in turn, begets opportunities for new partnerships, partnerships that only further augment the quality of data and therefore enable the cycle to enrich itself and to begin again. In the background, a retailer’s cost structure and pricing schemes augment these efforts by creating “margin” that can be funneled back into the wheel. The key here though, and what I want to state candidly, is that DATA IN THIS FLYWHEEL IS MORE ABOUT ART THAN IT IS SCIENCE.
PUTTING THE NEW FLYWHEEL INTO PRACTICE
Science is, of course, important, but what should scare the HELL out of the enginerds of e-commerce, who have no experience merchandising physical spaces, is that omni-channel retailing is nonlinear. Omni-channel retailing is “always-on.” It is geometry gone wild. It is neither brick-and-mortar retailing, nor is it e-commerce retailing. It is a reverse-engineered bicycle, where if you want to turn the bicycle to the right, you need to turn the handle bars to the left.
No one knows how to ride this new bicycle yet either, so we need to learn how to ride it as fast as we can and be unafraid of scraping our knees. The new flywheel is our training manual. This flywheel, alongside advances in technology, unleashes a new world in which retail sales floors become analytically analogous to e-commerce browsers and capable of being analyzed as such; a world in which the activities that occur on our sales floors can be thought of as major regression analyses, where, all things being equal, we can know what experiences, what products, and even what sales associates drive the most comparative value in our stores day in and day out.
Our stores will become, from a data perspective, like multiplayer video games, in which the consumer is the main player character and everything else around the consumer (e.g., the shelves, the products, the sales associates, etc.) will act as the nonplayer characters within the game. Like video games, our stores will become feasts for our visual senses — our eyes, our ears, our noses, our mouths, and our fingertips.
We can imagine a world then, where, all things being equal, we will be able to understand the value of dining within a retail experience, the A/B financial value of a product being placed in one part of the store over another, and, what is perhaps most exciting, even the value of a work of art that catches the eye and the imagination of a passerby.
Yes, the analytics underlying the effort will remain linear, but the artistic expressions of what retailers choose to do with the data will remain 100 percent controlled and determined by the right hemispheres of our brains. New-world merchants and marketers will see their store sales floors as data-laden blank canvases and wipe them clean, again and again, until they circuitously uncover the sensory delights that powerfully answer the “physical whys” of retailing.
The technologies that unleash this world are already out there, too. They are right in front of us. They intersect to leverage the mobile phone as the remote control for the commercial exploration of the physical world. Mix one part Amazon (visual scan technology), one part Starbucks (mobile payments and on-demand ordering), one part Bonobos (inventory-light guideshops), one part IKEA (bifurcated fulfillment), and envelop it all within the umbrella of a casino (a place where we all feel like welcomed guests), and a radically new vision of 21st century omni-channel retailing emerges — an inspiring vision that runs on less working capital, that requires less day-to-day expense, and that is mobile-controlled by the customer to unlock a more personalized, cocreated artistic expression of retail than anything we have ever seen before.
Amazon, and even Walmart for that matter, play on selection and price. Neither plays on the physical well. Amazon still knows little about stores and Walmart is, well, Walmart, no matter what Marc-las (my affectionate combination for Marc Lore and Douglas Mc-Million) would like us to believe. Celebrating the physical and thinking of our stores as our real Product (big “P”), i.e., as the business we are all really in, through data, creates a niche within a realm these two juggernauts do not yet understand.
So, let Amazon and Walmart duke it out on price for their share of our couch time. My money is on the retailers who saddle up to the bar and drink from the cocktail of the new flywheel of retail and the technologies that enable it. Shaken or stirred, right-brained, Dylanesque experimentation with the cocktail (like so many things in life) will lead to new roads of discovery.
Omni-channel retailing is not about data for data’s sake. It is about leveraging data to create nonlinear physical expressions of art that give us a more probabilistic understanding of the real reasons people want to go somewhere — the real reasons why people will always desire to “feel” something physically and emotionally and to engage their senses, both in the present and in looking back fondly within their own memory banks, in ways they never could realize left solely to the cozy confines of their homes.