AI in Retail: Beyond The Hype and Into Reality for Store Operations.
The Top 10 AI use cases that Retail Operators at every level told us would transform their daily work. AI for Retail Operations is...
Over 20 years ago, digital innovators recognized the critical need for an agile mindset and how software could play a vital role as a tool. Today, retail stores have reached a similar inflection point. Agile software values can – and must – be effectively applied to store management.
Historically, retail has been a very top-down type of industry. But recently, especially in light of last year, the need to be nimble, adaptable, and locally relevant has accelerated — and suddenly the traditional structure became very limiting. The risk on the flip side, however, is a decentralized alternative where top-level management loses control and potentially loses business alignment.
Retailers compete on price, convenience, brand, or experience. Few retailers only compete on price and we all know that digital and the recent pandemic took the convenience value prop right out of the equation. Top-down center-led models are great for consistency, but they actually stifle the biggest assets which retailers have: their store associates and the in-store experience.
So, the debate is whether the traditional hierarchical operating model is still fit for purpose. Chris Walton, CEO, OmniTalk, responds, “I candidly would say no, no way. I say that for a couple of reasons. Number one, retail is far too real-time in nature and far too multivariate. A top-down hierarchical process isn’t going to work in terms of everything that you need to accomplish.
“As a former store district manager for Target it was a game of telephone every day. Then I was just hopping across the four states, Wyoming, Nebraska, South Dakota, Colorado, and God knows where else. They’d all do the same exact thing with all the employees in their stores. So, it was just really hard to move anything really fast.
“And the second reason, which I think is a really important dynamic especially with what’s going on with the pandemic, is that the marketplace is changing so fast, but stores by their nature are actually immobile and physical. They’re not malleable, so in a lot of ways, they’re almost like a piece of hardware. How do we enable retail to move more quickly? That’s where technology and software have to come into play.”
Mohit Mohal, Managing Director of A&M of Consumer and Retail Group adds, “if you step back for a second and really think, broadly speaking, retailers compete on price, convenience, brand, or experience. Few retailers only compete on price and we all know that digital and the recent pandemic took the convenience value prop right out of the equation. So, in my experience, top-down center-led models are great for consistency, but they actually stifle the biggest assets which retailers have: their store associates and the in-store experience.”
The key argument about top-down versus decentralization is what Robin Lewis, CEO and Founder of The Robin Report refers to as the imperative for customer-centric operations. He adds, “It’s consumer first. That’s where we start. If we don’t, we’re dead. Research tells us that next-gens want localization. They want personalization, and today with technology it’s possible. But to achieve this kind of localized experience, it requires a combination of strong local management, maybe hired locally, and decision-making on the spot and on the ground with locally hired associates — combined with AI and data analytics to create a decentralized model for products, even locally produced products, and empathy on a first name basis with the consumer.”
The neighborhood store is an idea that big retailers are moving towards with a much smaller format model. So, with stores abandoning the flagship model for more local stores, you get these large networks with lots of different stores offering more personalization and more customer-centric capability. Mohal believes that “Localized decision making, personalization, and customization is working really well in smaller chains, say 300 to 400 stores. It’s like a startup culture. When your startup is small your agility is fast. But if you have 1500 to 2000 stores, which have been built over the years, agility is slow.
“Large, legacy retailers need to think through three things. Number one is a clear articulation of your customer value proposition. What is the true north star around which your store associates can rally? Number two is a change in culture and that entails not just racing ahead but instituting more agile ways of working. Test and learn fast, with visible leadership both from the center and the field in order to support that test-and-learn methodology. And the third thing which needs to be rethought through is overhauling and rethinking the hiring and training process. The role of the store associate has changed very dramatically to becoming brand ambassadors.”
Empowerment at the frontline is being able to experiment, test learn, adapt, and then scale. So, how do you choose the technology that allows you to transform? The majority of retailers historically have focused their technology investments on areas like marketing and promotion and, more recently, ecommerce. Store operations have largely been neglected but think about how area sales managers traditionally conduct store walks; consider how technology can make this practice more transparent. A more holistic approach to aligning the frontline with management is data. Frontline data gets laddered back from the field to the center where it can be leveraged into centralized functions, such as production, logistics, distribution, brand image, national marketing, and strategic planning for the corporation. And most importantly, data ensures the ability to share best practices across the enterprise.
Walton says Sam’s Club is a good example of using technology to break down silos with a network bi-directional model. “Sam’s Club, under the Walmart umbrella, has taken a cloud-based approach to what they do from an innovation perspective. I spoke to their Chief Product Officer this year and I asked him about his secret sauce. He said developing concierge servicing at their stores within six days was all based on cloud-based services and architecture. They also have an effective point of sale system with their workforce that is real-time and flexible with Ask Sam. Employees have a quick, efficient way to talk to each other and give feedback on all the different tests and experiments that that company has been running over the last few years. And if you look at the things they’ve done from scan-and-go technology, concierge service, curbside pick-up at warehouse clubs, it is giving agency to the frontlines.”
With new software and technology, the traditional silos in retail can break down. As Lewis explains, “Tech is flattening the organization. There really are four major barriers to transformation that need to be torn down literally to transform. First is unenlightened leadership. Second is bureaucratic and sclerotic cultures. I still hear stuff like, ‘Oh, this is a way we’ve always done it.’ Third is lack of the necessary capital to do all of it. And fourth is the lack of speed and agility to change before it’s too late. And the ultimate ability to break down these barriers is technology.”
Walton adds, “Thinking progressively is not in legacy DNA. It’s always rinse, repeat, find the prototype and scale it. The premium was on always being right. But an agile mindset requires that you be confident. You have to be comfortable with being wrong. It’s all about measuring learning and then understanding from it. I think the interesting thing is actually knowing when you’re wrong, especially when you’re talking about store-level decisions. Knowing when you’re wrong is more valuable than not knowing whether you’re right. With technology and with a changing culture, you can actually experiment because you can measure it with accountability, which is how you change culture.”
To change culture, go in sprints, use data to measure, and learn fast. Tap into the expertise of the frontline and share that intelligence with management through networked technology. Be customer-centric and transform all your data into tailored, personalized products and services. It’s a balancing act between management and the frontline. The key takeaway is to use your natural resources, the local frontlines, to operate smarter and faster, feeding into what today’s demanding consumers want. As Lewis says, “Evolve or die.”