On May 10, Microsoft hosted the Retail Tomorrow Immersion Series at their Retail Experience Center in Redmond, Washington.
As part of this series, I sat down with Microsoft’s Retail Industry Leader Mariya Zorotovich for a Fireside Chat with several brand leaders in the audience to discuss my point of view on transforming retail. The audience was fantastic and a lot of fun. A special thanks to Mariya and the Microsoft team for the opportunity and the platform to discuss omnichannel retail, the digital flywheel and the technology enablers of today.
You can read our Fireside Chat transcript below.
Mariya Zorotovich: Chris, what is your definition of omnichannel?
Chris Walton: There are different opinions about the word omnichannel. I like the word, as we need a way to describe what is a new state of retailing. Omnichannel is different, it’s not just digital or physical, it’s a blend of both. Omnichannel retailing is always on, always present and available. I think one of the common misconceptions is basing this concept on fulfillment. Rather it’s about consumption. You now can consume retail everywhere and anytime, and that is why retail is being disrupted in the manner that it is.
Zorotovich: I’ve heard you speak about disruption and the need to change how leaders think about retail. Share more.
Walton: I often use my favorite analogy, called the backwards brain bicycle by SmarterEveryDay. An engineer did a smart experiment by rigging a bike so that if you wanted to turn right you had to turn the handle bars to the left. He went around the country challenging people to ride the bike 10 feet. No one could do it. The engineer taught himself how to ride the bike in 8 months and practiced every day to rewire his brain and think about how to do it differently. He then gave the bike to his 8-year-old son, who only took two weeks to learn to ride the bike.
This is a perfect analogy for what is happening in our industry.
The scientific community calls this neuroplasticity. The idea that the older we are the harder it is for us to learn how to do something new. Brick-and-mortar retail had been unchallenged since the 1960s until Amazon came along. Retailers had been doing retail the same way for about 40-50 years, so now it’s hard to rewire the industry to do something new. We also like to think e-commerce is new, but it has been around for about 20 years too. Even e-commerce has its own linear data-driven way for approaching retail. Omnichannel creates a blended interdisciplinary approach of digital, physical and human experience-based design that ultimately blends what we know of bricks-and-mortar and e-commerce.
It really comes down to this new context or that reversed engineered bicycle. We like to blame Amazon, but it is the retailers who haven’t kept pace with the changing psychological needs of their customers and learned to ride the new bike.
Zorotovich: I agree. This isn’t a conversation about the competition, rather it should be focused on how a brand keeps pace with customer demand. Why do you think this has happened?
Walton: If you look at why stores existed, they existed to accomplish five things…First, convenience. Second, inspiration. Third is immediate gratification. Then, fourth, the idea of taction, i.e. the ability to touch, feel and try things on. Lastly, and fifth, they existed for the shear memory and delight of being somewhere.
Then along comes e-commerce players and their ability to tackle 1-3 as well as, if not better than, retailers. With the technology that is emerging, like AR/VR, the idea of taction will actually fall away too. The only thing that will separate digital from physical retail is the experience—the memory and delight of being somewhere.
How you think about the psychologies that separate the digital and physical retail activities, and what strategies, plans and tactics you put against those are what make you an omnichannel retailer.
Zorotovich: Let’s take some of these concepts and make them tangible for the audience. Let’s talk about the digital flywheel.
Walton: Sure. A flywheel is essentially another word for how a company accomplishes its goals. Amazon’s flywheel is all about growth. I think future generations will demand more than just growth. There will be a desired social aspect to retailing. If you look at Facebook and Amazon, you see their strategies converging. One started with social moving to commerce and the other from commerce moving to social connection.
The other piece of the flywheel is data. Bringing data into a physical space is still something untapped. It is about both the art and the science of retailing. That is, using data to understand what inspires people is an important part of developing an omnichannel strategy.
Zorotovich: I believe data is key to unlocking opportunity in retail. Let’s talk more about the technology enablers of today.
Walton: From my experience, there are three enablers, all centered around the idea of data capture. I call them the trinity—cloud commerce, mobile applications, and location technologies.
By cloud commerce, I mean specifically a unified POS system that records, captures and processes data in real-time. Next are mobile applications for both customers and employees focused on improved experiences. Combine these two things with location technologies, and soon one gets a real-time understanding of every action and reaction in a physical store. It’s as if the physical store becomes the equivalent of a web browser.
As a retailer I should have the same understanding of what’s happening in my physical store as I do online. What that means is that the inside of the store becomes like a multi-player video game where the customer becomes the main player character in that game. You should be able to read the reaction to a product or fixture. This is where retail is going.
Zorotovich: Chris, I believe we both agree that it isn’t about leading with technology, rather about focusing on experiences and evolving your business model to deliver value to customers.
Today’s modern technology allows us massive compute power with the Azure cloud and significant data processing speed with AI to provide better insights and decisioning power. These are the types of things that get super exciting for us, here at Microsoft. Especially when we can come together with our customers to learn about their businesses and dig in to solve a problem and determine a viable path to move the needle.
Walton: Mariya, in your experience, what is a word of advice for brands in the audience?
Zorotovich: In my experience working with retailers, often the discussion has been focused on a one to one capability match with their competition. Reality is that is not a strategy. Rather it requires significant investment and capacity to match your competition that often falls short of sustained growth. Short term gains may be acquiring more customers but without optimizing the value chain to lower costs, there is little ROI.
Brands must remain authentic to what they want to accomplish and determine how to leverage their unique position. It’s exciting to see some brands who are looking at the competition through the lens of innovation and using that as a motivator of what’s possible to exceed customer demand.
Chris, can you say a few words about how omnichannel impacts consumer goods?
Walton: I see many CG companies who have built themselves up around the legacy infrastructure of retailers. If digital is the front door of your experience, does that set up still make sense? Instead, do you need to centralize your item data operations and make the approach more systematic? Do you need to have your product ready to ship or to show? Where are your customers the most? Who are your partners? How are you thinking about them?
Zorotovich: Leaders are often challenged with driving business operationally day-to-day while going after the white space to innovate. What are the critical things that a leader should focus on to transform?
Walton: You must know what you are going after. Often we are asked to do three things: grow, improve and transform the business. We can get stuck in the first two areas. Transformative work can become very difficult especially when blended with other initiatives and supported by the same teams.
I recommend partitioning the work, and then tackling the work against those partitions. Transformative work requires different models, business economics, capital, and courses of action. You must know how your business makes money, what’s important and the size of the bet you are willing to place across all dimensions. This is where your flywheel becomes extremely relevant.
Think of digital as a material that runs through everything. It isn’t a layer that sits on top of something else. For example, recently I was at a mall where a digital wayfinding kiosk was added. With a typical “old school” kiosk you could have many customers looking at it. You could find your store with a corresponding number to a map. Now, they have a digital installation where I have to stand in line, type in what I’m looking for and touch this kiosk that has had a number of people touching it. It’s disgusting. It’s an example of a layer—digital for digital sake. You must ask, does it make sense? Does it solve the underlying truths that customers want?
Contrast that with Starbucks. Absolutely phenomenal service in the omnichannel space with their order ahead capabilities. They offer not just a digital solution, but also a physical one. Order ahead on my mobile, where my coffee is placed for pickup, and the human element of being greeted; in concert together, create something fantastic or an experience where I choose to spend my time.
Zorotovich: Chris, your call to action for retailers to think more holistically about omnichannel as an interdisciplinary approach that brings both digital and physical into focus is appreciated. Knowing your digital flywheel and leveraging the right technology enablers—cloud, mobile applications and location technologies—centered around data are crucial elements for transforming retail. Chris, on behalf of the audience, Retail Tomorrow and Microsoft, thanks for this informative discussion.
To learn more about Microsoft’s efforts in Retail, visit Azure for Retail website.