CONSUMER STRATEGIES REPORT January 20 2004/Trade Event Report

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[2] TRADE EVENT
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The National Retail Federation's Big Show 2004 (+ + + + +)
By Al Berrios

Skip To:
> "The Future of Retailing: A View From the Top and a Look Inside"
> "The State of Retailing Online"
> "Pushing the Boundaries of the Customer Experience"
> "Why Did the Retailer Cross The Globe?"
> "The Retailer-Supplier Relationship: What's Right, What's Wrong and What's Coming"
> "Know Thy Customer… Before Someone Else Does"
> "Retail Horizons: Benchmarks For 2003, Forecasts for 2004"
> "Innovations in Retail: Benchmark To The Best"

The National Retail Federation's BIG Show is every January. And even during some of the coldest weather in New York City history, where 5 below zero was actually pretty warm, it was worth schlepping the entire week to Javits Center in New York. It didn't matter, though, since the attendees brought with them a natural energy and warmth resulting from a "better-than-expected" holiday season. (Particularly Ms. Mary Heinsley, a session organizer, who showed me the utmost kindness and respect as opposed to her more senior by-the-book colleagues.) Everyone seemed to anticipate an improvement in consumer spending and overall economy. Add that to CEOs top priority in 2004 - cost containment (as survey results from every consulting firm showed) - and most executives exuded that the year will be positive.

The Show started Sunday and during the week, had up to 5 or 6 concurrent sessions per hour in between bigger sessions, sponsored by the big consulting firms (Deloitte, KPMG, BearingPoint, Kurt Salmon, and Accenture, and Oracle's, Intel's consulting divisions). In addition, there was a monstrous exhibition hall, demonstrating the latest in software, hardware, and retail formats to make the shopping experience faster, more efficient, and more profitable. There was no way to take it all in by yourself.

I went to 8 sessions, and what I took away was worth way more than the measly $1500 price tag. If you're not a member, join. What you get back is worth a lot more than what it costs.

"The Future of Retailing: A View From the Top and a Look Inside"

Although not the first session of the Show, it set the tone for the rest of the show. If you haven't yet heard, RFID (radio frequency identification) is where it's at for the rest of the decade. More on it later. The CEO and CIO of Germany's Metro Group (grocer and one of the top 10 retailers in the world), gave us a live, broadcast tour of their concept RFID store in Germany, equipped with enough plasma monitors to truly represent the merger of retail and media. They did this with the belief that consumers are loyal, not fickle (as we're often lead to believe by marketers). They just need to be given a better experience with the brand, and for them, the environment is the brand.

The presentation and 40,000 sq. ft exhibit they built on the expo floor really put a sense of urgency in getting the future store up and running as a key differentiator against competitors. In spite of it all, the general sentiment was that most retailers won't be investing this much into their format and technology until they've figured out a more affordable way to just survive against the Wal-Marts and the internet.

"The State of Retailing Online"

Good and expected to get better. Although Forrester, eBay, Office Depot, 1-800-Flowers aren't exactly representative of the average online retailer, surveys presented showed lots of good things in store. There were two buzz topics to watch grow in 2004: integration of channels and social networks.

Retailers are currently using every which way to reach consumers: catalogues, call centers, bricks and clicks, and everything else in between. But the biggest hurdle is integrating all of the data resulting from these efforts into an efficient platform. Although there seems to be a virtually infinite number of companies offering software to help integrate it all, it's a tough, complex, and expensive task that few are really prepared to do.

The other buzz is social networks. Here's the real background: Napster gave us P2P. AOL gave us IM. Ebay organized disorganized markets. But all offered us the same thing - a new way to meet people.

Think about your own behavior - you're happier around others. Your family is important to you for no other reason than they're company you love to be around. Your friends have always been your first gateway into new relationships, products, and information. This behavior will never change and has turned the internet into the ultimate social network.

Along comes Love@AOL, Match.com, Plaxo, Friendster, MeetUp, and others, offering a more obvious and simple way to develop or be part of your own circle of like-minded friends a.k.a. social network. (They don't legitimize social networks, they simply gave us the means to do it interactively). And although they weren't the first (Six Degrees comes to mind), they're certainly riding that wave awfully hard. Because these companies have attracted so many users so fast (as if making friends were some sort of new product that suddenly caught on), executives have finally realized that in order to have a relationship with consumers, they have to be included in their social networks (some epiphany, right?) Many even believe that this is the initial phase to finally cracking the word-of-mouth marketing nut that has perplexed marketers forever.

"Pushing the Boundaries of the Customer Experience"

This session was basically a blatant commercial for Accenture's work on their key client in the UK. J. Sainsbury is a major grocer out there and had wanted to cut costs, improve technology, and become more profitable. They outsourced lots of stuff to Accenture, who researched the market and sketched out a big turnaround plan that included replacing dozens of overlapping and obsolete systems, and basically added lots of bells and whistles. As a consulting service, this is called "transformation" and anyone can do it if you throw as many billions of English pounds as J. Sainsbury threw at it.

I wasn't impressed.

"Why Did the Retailer Cross The Globe?"

An analysis of globalization, it presented China, Russia, the Middle East, Japan, Europe, and India as the markets to watch in the next decade. The discussion was sponsored by Deloitte and presented the blunt-spoken views of the CEOs of Kingfisher (the U.K.'s Lowes), Cortefiel (a Spanish apparel retailer), and Office Depot.

As companies grow, they leave behind their small vendors and what often differentiated them with their customers. In their pursuit of vendors that can service them more broadly, companies risk emulating their competitors and only providing what customers need, leaving customers to seek other sources for their wants.

Very enlightening.

"The Retailer-Supplier Relationship: What's Right, What's Wrong and What's Coming"

It's an age-old battle between retailer and supplier: who bears the most risk? But the consumer doesn't care and all they end up doing is commoditizing themselves with too much undifferentiated stuff that have to later be marked down.

There once was a time when price alone could help you. Today, it's no longer a strong enough mechanism to get consumers to buy enough from you to make you profitable. And thanks to deflation, discounting, and generational changes, if units sold goes up, it doesn't mean you're making money and vice versa.

Sponsored by KPMG, we got to hear what the CEOs of Liz Claiborne and Hudson's Bay (Canadian department store), Simon Property Group (REIT with 200 U.S. malls), and the retail reporter from the Wall Street Journal had to say about this topic.

Good mix of perspectives.

"Know Thy Customer… Before Someone Else Does"

I think the quote "companies generate profits from people, not products" by professor of Integrated Marketing Communications at Northwestern University Don Schultz, Ph.D, said it best. You can have the best tech, real estate, banks, lawyers, and ad agencies, but the one thing to remember is that it's all done by people trying to develop relationships with other people.

This was one of the more insightful sessions, I felt, where even I was able to offer my two cents. This panel of very distinguished (read: geezer-like) academics emphasized that the consumer is and has been in control, not the retailer. Pushing product through your system won't do today. You've got to let customers pull it through. Prof. Schultz again said it best when he obliterated the 4Ps by emphasizing that it's about "customers, not products; experiences, not locations; values, not price discounts; information, not ads; and relationships, not sales".

Why not location? Stop and think about how many places we have to buy now. According to a statistic presented by Robin Lewis, there is now 3 sq. ft of retail space for every man, woman, and child in the U.S. and it's not stopping. And "in this land of excess, the consumer is king". Even the retail CEOs acknowledged that there's just too much retail space out there, however, they can't stop building. So where does that leave the little guy? Offering value, not lip service.

How many of you offer true value to your customers? Do you even know what they value? al berrios & co. has researched this topic exhaustively and can determine what current customers and consumers at large value about your brand and organization.

But the most important thing is that you shouldn't try to cut through the clutter by yelling the loudest. Any good ad agency worth their commission will tell you that much. (Editorial: Unfortunately, many don't know why not.) It's because you're not selling, you're developing a relationship (in other words, you're trying to enter their social network!). That's marketing!

Overall, the material presented at this session wasn't new, but necessary.

Oh yeah, my two cents - upon hearing that we consumers have all the choice in the world, two things occurred to me: Wal-Mart and Microsoft. Yes, there are alternatives, but they're not often convenient. Most times, this lack of convenience deters us from the alternatives altogether. Although I had my own suggestions to combating this particular value component of our Consumer Value Model, I played the devil's advocate to hear what these experts had to say.

Their response: It's all about niche. I was pleased with their answer. It's a strategy al berrios & co. wholeheartedly support as well.

"Retail Horizons: Benchmarks For 2003, Forecasts for 2004"

Bringing together the CEOs of Sears, The Athlete's Foot and Target Direct for a serious discussion about what retailers really want was very interesting. According to BearingPoint, they want 1) to become more customer centric; 2) enhance their "data-knowledge-action continuum" (LOL, consulting-ese for getting data you can use); 3) create a boundaryless organization; 4) all to accelerate differentiation.

Customer Centricity - loyalty programs, better formats, improved product selection and merchandizing. Although Sears isn't a big believer in loyalty programs, Athlete's Foot is, claiming that the more focused it is, the more productive. To hear Sears' Mr. Lacy tell it, you'd understand why Sears was having so many problems.

Although I am a supporter of loyalty building efforts, I must agree with Athlete's Foot, that the more targeted and supported it is, the more results a retailer can get from it. Sears had a program that was supposed to appeal to all their customers. That flopped.

Data-Knowledge-Action Continuum - Basically, it's an effort to get "deep, granular understanding" of your customers and operations to allow the data's users to make better decisions and ultimately make things happen faster, even at the store level. Imagine predicting things like demand, operational issues like supply chain and transportation, pricing, and assortment? That's the goal.

Boundaryless Organization - Integrating people, partners and channels via portals to connect your entire network and get them all on the same digital page. This is important to find innovations, efficiencies, and profitability easily lost in bureaucratic structures.

Accelerated Differentiation - Because your consumer has ultimate choice, differentiation is what every retailer believes is key. (Another word for differentiation is niche.) But the challenge is no longer just about having the best price; it's about the service and innovation you offer. Both retailers acknowledged that consumer behavior isn't as easily predictable as it used to be, so this approach is their best chance heading forward.

This was a very strong session.

"Innovations in Retail: Benchmark To The Best"

This is where the average layman got to hear a little more about RFID, a sand-particle-sized transmitter that's so small it can be woven into the threads of your clothing, it's supposed to revolutionize supply-chains, find efficiencies you never knew existed, squash shrinkage, and ultimately increase the margins of cpg, autos, paper & pulp, apparel, technology, entertainment, governments, everything.

As necessary with any revolutionary technology, it needs a leader. RFID got the biggest, Wal-Mart, forcing many vendors to adopt or else.

Once you have RFID in place and at the customer level, they're grab your products off the shelves, and as they walk through the aisles, their products will be scanned and charged to them AND de-activated all without them even having to take their things out of the shopping cart. Very Jetsons, I know. Not to mention extremely privacy-sensitive. I don't need Wal-Mart knowing I buy girlie shampoos!

But the revolution moves on, because of advantages to retailers and suppliers far outweigh our measly concern for privacy. After all, don't we willingly give up our information to all our credit cards, insurers, the government, our schools, churches, and employers. What's the big deal? (That was a rhetorical question.) Once we leave the store, RFID alerts clerks to replenish shelves; alerts distribution centers to send more stuff; and alerts vendors to make more stuff, all simultaneously, so inventory doesn't spoil, you have real-time tracking of shopping patterns and at the end of the day, you're able to sell the best stuff.

It's not all so seamless, though, because as we learned at this session, implementation is extremely difficult, not just because of the politics involved, but because of the sheer complexity. Cisco's VP seemed to be the only executive on stage that understood this as his gripes were applauded by other implementers in the audience. It's not enough to just "techie-it-up" and getting it done. Moving data, changing systems, and making sure everything gets done while operations are still running is harder than finding Osama.

Among these vendors and implementers was they guy in charge of 7-11's systems. With close to 30,000 stores around the world, this guy's job was not enviable. He mentioned things like his Japan stores get replenished 3 times daily. This is thousands of stores we're talking about, folks. They've tried every efficiency-boosting technology you could think of, and as a major buyer, weren't exactly endorsing RFID. Hooray for the reasonable retailer, that helped the rest of us realize that it's ok to not follow the herd on RFID.

This session was pretty good for only one reason, I finally got to hear a partner from McKinsey & Company speak. The #1 management strategy consultancy in the world, keeping up with them is difficult because they're so tight lipped about everything. I've looked and there's barely any literature on them. So this was a treat. Unfortunately, true to their mantra, the speaker was vague and conservative about everything he said. He was even unwilling to give a professional prediction.

Overall, the entire conference was spectacular. Five pluses (+ + + + +).

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Disclaimer: The recommendations, commentary and opinions published herein are based on public information sometimes referenced via hyperlinks. Any similarities or likeness to any ideas or commentary from any other sources not referenced is purely coincidental. al berrios & co. cannot control any results occurring from advice obtained from this publication nor any opinion(s) conveyed by any reader of this publication.

(c) 2001-2005. All Rights Reserved. al berrios & company, inc. Published by al berrios & co. This Report may not be reproduced or redistributed in any form without written permission from al berrios & co., subject to penalty.

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