People are drawn to visions of the future. What’s next? Who will win? How will it end? It’s why pundits and prognosticators can fill hour after hour of broadcast time—and why comeuppance for inaccuracy is rare. A sport analyst’s vehement prediction that a team will lose the championship game will evaporate before the locker room champagne stops spraying, subsumed by the next prediction that the team surely will—or won’t—repeat next season.
All of the above is to say that making predictions is kind of easy. We know; we’ve made a few in the “Coming to a Store Near You?” sidebar article. But when getting the future right is a matter of real consequence, when it has the power to steer one’s industry, department, and career down the right or wrong path, clickbait forecasting feels insufficient. A deeper perspective on the power dynamics that are driving change, and on the foundation upon which changes will emerge, seems a better guide.
Tony D’Onofrio has been thinking a lot about these underpinnings of retail’s revolution and the ramifications for LP. Formerly chief customer officer for Sensormatic, D’Onofrio spent much of his time speaking with retailers on what’s working and what’s not. He is now CEO of TD Insights, a consultancy focused on working with private equity companies, boards of directors, industry groups, and advanced technology companies. As a top industry influencer, his take on retail’s future carries substantial weight—and he has an optimistic message. “Retail is not dying,” he told LP Magazine. “There has been a lot of hype and opining that we can write the obituary of retail, but the opposite is true. It is a vibrant industry.”
There are soft spots to be sure, said D’Onofrio. His research suggests department stores and specialty apparel stores face headwinds, for example. Forever 21’s bankruptcy protection filing and its plan to close 178 US stores is probably not the last announcement of its kind. But trouble for select retailers has mistakenly given rise to a doom-and-gloom narrative for the entire industry. “Most stores are doing well, but the few areas of trouble have led to all the hype about the death of retail,” he said. “Payless, Gymboree—there are some closing stores and shutting down, but a lot are opening new stores.” In fact, for every company closing a store in the US, 5.2 chains are opening stores, according to data compiled by D’Onofrio.
The future also seems secure. One recent survey indicates that although young shoppers are certainly tied to their devices, they also enjoy the store experience. The survey, by global management consulting firm A.T. Kearney, found that 81 percent of shoppers age fourteen to twenty-four prefer shopping in stores; 73 percent enjoy discovering new things during shopping trips; and nearly 60 percent of Gen Z respondents said stores are a positive break from the digital world. The industry’s health is also reflected in the trend of online sellers opening physical stores, like Warby Parker, Casper, and others. To truly make an impression on the retail landscape, a physical presence still seems important.
What’s feeding the false narrative? Partly, it’s because “online” provides such an easy scapegoat. “But the argument that it is all going to go online is not true,” said D’Onofrio. “It will be a blend between online and physical stores.”
Return data collected by Appriss Retail, a provider of data and analytics solutions for retail organizations, reflects the comingled world we’re moving toward. Its data, collected from ten major retailers, shows that “buy-online, return-in-store” has increased more than 28 percent over two years ago. David Speights, PhD, chief data scientist for Appriss, suggested these types of innovations will help brick-and-mortars persist successfully into the future. “It’s an opportunity for retailers to compete with strictly online retailers that can’t offer that convenience to consumers. It creates opportunities.”
And while the picture of the US retail industry is brighter than media headlines might suggest, it’s even more encouraging when widening to a global perspective, said D’Onofrio. The global retail market will continue to grow, he said, from 20 trillion worldwide to 23 trillion two years from now. Asia has several large and dynamic markets, and while the trade war has pushed back the timeline, China will soon surpass the US in total retail sales. “Globally, the picture for retail is even healthier than in the US,” said D’Onofrio. “The industry is going to continue to grow. Grow and change.”
Yes, change. The health of the retail industry at large means little to a retailer worried it might soon be shuttering stores. It’s inescapable that there will be both winners and losers—but what divides the two? “It’s those without a strong brand, without a clear strategy of what they’re trying to do with their brand, and who lack consumer loyalty who are at most risk,” said D’Onofrio.
He believes the shakeout bodes well for premier brands, such as Gucci, which have a clear brand definition and a connection to their customers. Premium brands like Apple are in this category. “These stores will continue to grow,” he said. But price-focused brands are also doing well, he noted, citing the segment’s 37 percent growth over the last five years. Stores like TJMaxx and Walmart, which have managed to effectively recalibrate and evolve, are primed to continue to thrive. “It’s the ones in the middle that are more at risk,” D’Onofrio said. “What that means is that you need to focus on the value of your brand and to continuously enhance it.”
For a retailer to build a sustainable brand, one that can evolve with its customers, it’s necessary for it to recognize and respond to a major shift that has brought us to today’s retail landscape, namely, how the control of information has shifted hands.
“First, it was manufacturers dictating to the store,” explained D’Onofrio. Then, with the barcode in the late seventies and early eighties, retailers took the lead with super-efficient logistics, with Walmart being a prime example. “Now it was stores that could tell suppliers exactly what they wanted. That moved the power of the shopping experience from the manufacturer to the retailer.”
With the advent of the ubiquitous smartphone, he believes the balance of power has shifted yet again. “It’s now consumers who are in charge of the shopping journey. This is how retail has fundamentally changed,” said D’Onofrio. “They determine what happens, and they are forcing changes and demands on the brand.”
Retailers that accept this new power dynamic and listen to and focus on those demands are in the best position to maneuver successfully through a complicated retail environment. Stubbornness is not a recipe for success.
D’Onofrio said Nike is an example of a company that is doing a good job of responding to this demand to create a connection with their audience and of how the consumer is now in control of their shopping experience, as opposed to manufacturers or retailers. Formerly, the company focused on selling through third parties and being an all-sports brand to all people. But sitting on shelves alongside competing brands wasn’t helping Nike to tell their own story to their customers. “That’s how Nike came to begin its focus on their own stores, and telling their own brand story, and to launch their own app, which allowed them to engage with their customers directly.”
Nike has opened several new flagship stores recently, including one in New York City. “Customers can directly engage with the store through their smartphones. In real-time, they tell you what they like and don’t about their shopping experiences.” The implication? If senior LP executives want to divine how their world will change, they should start by considering who is now in charge.
LP has always been on the leading edge of retail’s evolution, often as early adopters of technology that would become critical and central to the entire industry. “There is a deep history there,” said D’Onofrio. “Technology has been a major force in LP forever, and we will continue to be a source of retail technologies. LP has always been peeking into the future of what retail will look like.” Video and RFID are obvious historical examples, and facial recognition and data analysis technologies are examples today. “It will all increase with [artificial intelligence] and the ability to make sense of pictures in terms of data—that is the future,” he said.
And D’Onofrio would like to see LP manage it better than the past, when it ceded control of certain technologies to others even though they were born in LP’s domain. Technologies have often shifted from LP to operational control as they’ve been exploited for productivity more generally, “when LP could have led the work,” said D’Onofrio.
To prevent a repeat, asset protection may need to start thinking differently about the data it now has at its fingertips, suggested Guy Yehiav, general manager of Zebra Analytics, a leading prescriptive analytics provider for the retail industry. Speaking at the company’s PACT 2019 conference in Orlando several weeks ago, Yehiav encouraged LP leaders to think about the software’s power—and the power of AP—beyond narrow confines of shrink and loss and more broadly about plan-to-performance.
“When I hear about how people are enhancing the tool, I hear some people question about where the boundary is. It can tell you if inventory is underperforming, but isn’t that my planning and allocation people? It can optimize store employee allocation, but isn’t that HR?”
But Yehiav doesn’t think LP needs to remove itself from those issues, nor operational ones like whether stores are executing at the prices they’ve set, or whether policies are being followed. Loss prevention and asset protection can fill that void. “AP is the one with all the data, and with the tools to analyze and identify actionable opportunities,” said Yehiav. “We are the ones who can close the loop. This is where AP will go—to overseeing execution of plans.” It’s a novel and insightful call to action for the industry—LP practitioner as execution executive, leading the way for a retail organization to maximize potential in every aspect of its performance.
Of course, the problem of theft isn’t going anywhere either. D’Onofrio thinks available technology provides LP with a good foundation to combat it but suggests that the industry’s strategic nimbleness will be tested.
“LP today is at a crossroads. It will need to respond to the newly empowered customer,” he said. “A consumer walks in today with a smartphone, and they are highly digitally empowered. They can take that smartphone and use it to walk out and never talk to a soul if they don’t want to. Stores are creating apps for self-checkout that allow consumers to directly engage with store—but how do you do things in this new world like verify scans and purchases?”
The problem for the traditional LP mission, says D’Onofrio, is that a more powerful consumer creates new opportunities for theft and lawsuits. “There is a crash between a digitally empowered consumer and LP—and LP is trying to catch up to that,” he said. “What is the next generation of LP tools going to look like in that new environment, where the consumer will rely less on the store and be in charge?”
One challenge to which the LP industry must rise is to implement effective strategies across today’s numerous store types, said D’Onofrio. Another is to service a mobile-connected consumer who demands a frictionless shopping experience when security is a friction. “And how does LP work in an environment when you’re free-form shopping? How do you secure the store?”
He sees a shrinking role for solutions that might be thought to detract from a product’s brand, like Spider Wraps and cases. “From an aesthetic point of view, that is a problem,” he said. “I do think there has to be a transition to LP solutions that support the product and not detract from it, to build security into the product rather than add on.” Strategically, LP must craft solutions while maintaining sensitivity to the customer experience.
To maintain the same results LP has achieved in recent years, D’Onofrio thinks physical security will need to evolve and rely on more advanced technology—and his research suggests it’s coming. “I’m seeing more and more of those tools, such as with face recognition, where there is awareness of who people are and thus who the risks are, and different ways that retailers can maintain the same prevention through using more advanced technology,” he said.
D’Onofrio also sees a valuable strategic approach being advanced out of the Loss Prevention Research Council (LPRC), specifically the concept that retailers must influence theft long before potential thieves are within reach of their merchandise targets. Read Hayes, PhD, CPP, director of the LPRC, identifies five zones of influence where it is possible to apply treatment to impede retail theft. The shelf point/product asset, for example, is the first zone that can be influenced to deter crime. But it expands out from there, into zones 2 through 4: the category area, the interior, and then into the parking lot. The model identifies a final “zone 5” as the public sphere, where retail has historically had limited influence and inroads are needed.
“The main idea is that by the time they get to the product, they need to feel security,” said D’Onofrio. “They need to feel like they’re being watched, and you know them. You need to deter them along the way.”
There is benefit beyond theft prevention to taking a more comprehensive “five zones” approach to retail security. By including parking lots within the framework, for example, shoppers are both safer and feel safer—a basic prerequisite for shopping in a physical store when online shopping from home is an option. In an interview with LP Magazine earlier this year, Hayes said LPRC research has found that potential shoppers can feel uneasy from an array of factors, and that can have a detrimental business impact. “Intimidation comes in many forms, and it can be a killer to a retail company’s business,” said Hayes. “People want to work in safe places and shop in safe places, so not only is there a life-safety issue and a moral imperative to protect workers and customers, but also there is a strategic tie-in.”
We may be in the early stages of a new, consumer-based retail age, but it is clearly coming at retailers fast. “I do think LP has some catching up to do to keep up with the many ways there are to complete a sale,” said D’Onofrio.
So what should LP executives be doing to prime themselves to manage it? “For LP to get to the higher level they need to get to, they need to become more data oriented in their approaches than they are, and able to demonstrate concrete results, and use technologies that help consumers buy more, not less,” said D’Onofrio. “They should be focused on even more data and using video and data analytics and emerging solutions to help LP take security to next level.”
Stores most likely to thrive in the future will be able to meet the demands of empowered consumers to shop how and when they want—and provide seamless services across physical stores and online. LP professionals need to match that diversification, D’Onofrio advises.
“They need to be more involved in cyber, for example. The more progressive LP leaders are expanding their roles because they understand that as consumers cross over, LP needs to follow them,” he said, “to gain that one view of that consumer or potential shoplifter, whether they are shopping online or in-store, which calls for more holistic approach. The more an LP leader can do on that front, the more they will add value to their companies.”
He sees LP leaders increasingly responding to the challenge: taking a data-driven approach to LP; engaging in groups like the LPRC to test ideas and more quickly optimize ones that pan out; attaining certification; and creating internal alliances to stay in sync with where the company is going. “The most important relationships are with operations and online and cyber—and IT in general,” he said. “You have to be totally connected to the direction of the company from an IT and operational point of view.”
D’Onofrio also suggests looking outside one’s own operations. “Finding and engaging with mentors, who have been down the road of combining offline and online, is important to understand the critical components of that journey.” Even more broadly, D’Onofrio says LP needs to understand broad developments impacting retail, like those highlighted in the sidebar on industry trends. “To evolve LP in the right way, you need to get educated about where the rest of the retail world is going,” he said.
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Coming to a Store Near You? 10 Trends from 2019
From trending news stories, 2019 conference presentations, and interviews with industry thought leaders, a picture of the future becomes—if not clear—perhaps a little sharper in focus. Read about ten trends expected to impact retail and LP in the next few years.