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In this episode of Let’s Talk Retail Excellence, Chris Field, Retail Analyst and Editor of Retail Connections, sits down with Retail Consultant and Advisor, Mark Ibbotson, to explore the future of retail. From the latest technologies and trends seen at NRF 2022, to labor shortages, availability challenges and so much more – we take a deep dive into what lies ahead for retailers and how to prepare.
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Chris Field (CF) – Welcome everyone to the Retail Insight thought leader series: Let’s Talk Retail Excellence. Welcome to the Retail Insight thought leader series. My name is Chris Field. I'm delighted, today, that I'm able to talk to Mark Ibbotson, a retail veteran, if I can call you that. Is that all right, Mark?
Mark Ibbotson (MI) – That's fine.
CF – Yeah, good! At both Asda and, latterly, Walmart – so, Mark, I'm going to get straight into the questions. We are all, I think now, well aware of the challenges that US retailers have faced over the past couple of years. But it would be helpful, I think, to understand what those challenges are right now, and going forward, given the fallout that retailers are all having to deal with in terms of the shift to digital. It's a long list, you'll know it: labor costs, availability, supply chain disruptions, changing customer expectations, inflation. There's a whole bunch of things. And I'll let you pick whichever ones you want, in whatever order.
And also, if you will, give us a bit of feedback on NRF, which I believe you were at this year. And it's the first time they've had a live event since January 2020, I think. So, I think, a perfect time to be asking you all these questions. So yeah, let me hand over to you, just to talk me through what's happening in US grocery at the moment, or IGA.
MI – Well, I think it's… so, I think this isn't just restricted to US grocery! I think this is grocery the world over, and retail the world over. I think the first thing I'd say is, what a remarkable job retail has done through COVID. Forward-deployed inventory, whether it's supplies of food, supplies of PPE, pharmacy – they've stayed open and they've met the challenge. It is to be applauded; the associates that work in stores, the supply chain that supports stores, the manufacturers, have all stepped forward in what has been an unprecedented time – and everybody knows this.
So, I think what we've seen through COVID is Herculean efforts to meet demands that, otherwise, none of us have ever seen before. The calorific consumption just centering on the home, instead of bars, restaurants, etc – the restrictions on shopping, and the drive to digital. I think, for me, what we are now seeing is strains, pressures, and magnification of all the things that we've already experienced through our lifetimes in retail.
Retail has always been innovative. It's always been cost-conscious. It's always tried to lower its costs to pass value through to customers. It's always tried to be relevant. And I think COVID's simply magnified everything. It's been this – to use the well-worn phrase – it's a perfect storm. Everything has come at the same time. And I think companies that have prospered through COVID are strong companies, and companies that have found it difficult are probably companies that will fall by the wayside. And I think they were already falling by the wayside, or they were already succeeding.
So for me, O2O (online-to-offline) is hugely important; the relevance of your offer, whatever way the customer wants to shop. So, if the customer wants to shop in the traditional way, you have to offer. If a customer wants to pick up, curbside, or pick up in store, you have to offer. If a customer wants to return in-store, you have to offer. And if a customer wants a delivery, you have to offer it.
You have to be relevant in every way the customer wants to interact with you. And that, of course, is a problem, in that you have to update, you have to move quickly, you have to embrace and collaborate, if that's your solution to meet the demands of the customer. I think… we're seeing other problems – or other opportunities. For every problem, there's an opportunity, post-COVID.
So, I think in the post-COVID world, I think the way in which workers have responded, some have thought to reassess their lives, others have taken time to learn new skills. Others have found different ways of earning money. Others have decided they're not going back to work. So, we're under pressure to recruit, we're under pressure to retain, and of course, we've got wage inflation now.
So, innovative retailers are dealing with that. I think coping with that inflationary pressure on wages, and not passing that on to a consumer will be a point of difference. If you can hold your prices through these times – and potentially discount through these times – I think you'll find yourself succeeding. I think the online offer is always dilutive, unless you can get the mix right, and increase the basket.
And then there is the opportunity to reassess where you believe you have opportunity in your P&L (profit and loss). Whether that's lowering the overall cost to operate, through being innovative in and around the use of your opportunity to monetise your traffic; or whether it's to square into some of the traditional areas that you've probably known you should do better in. So, improving availability, improving waste, optimizing your markdown. Perhaps looking at your cost-to-operate for payment systems. Being innovative at your front end, outsourcing to the customer. Things like self-checkout – walkout. We're seeing a lot of development there, and we're seeing it very fast.
So, I think stopping, understanding, using the data really, really accurately is probably where I'd suggest people need to concentrate their efforts. And in the main, stores, retailers, grocers, department stores quickly learn where they need to move. And I think there's some great examples. I saw some great speakers at NRF, a couple of Chief Execs of some very big companies articulated the pressures on their supply chain, the pressures on their business.
But then, you only have to look at some of the figures. Some people have done very, very well. And an innovative, relevant retailer that's moving with the times will succeed. If you can keep your costs down, you'll succeed even more. If you can manage your supply chain better than you've ever managed it before – and there's some great applications of AI / machine learning that I think will be the next, sort of, the next big move into retail.
So, I would say, center on the data, stay relevant, and you've got to innovate to survive.
CF – It is obviously a big list of priorities and, as always, the enemy is money, and time as well. I guess I wanted to ask you – 'cause I agree with everything you said – that there needs to be, I suppose, an acceleration of investment in some of those areas. But, is there a place to start?
Because I'm sure most IT departments have got the usual long list of stuff, a lot of it committed over a kind of three-year period from way-back-when. I guess it just sort of comes across as a huge long list of needs, and enormous pressures. And I just can't understand
how retailers can afford to do that effectively without taking a fairly big hit of profitability in the short term.
MI – So, I think that's the age-old question. There's always been… I was with Sainsbury's, I was with Asda, I was with Walmart… and there's never enough money, and there's never enough time! It's like, that's probably: insert any industry that you care to mention! Retail does move very, very quickly.
I think where I've seen success personally is, I've built a lot of relationships and collaborated with a lot of people over the years. And I would suggest that that's probably the best way forward. Where there is off-the-shelf solutions, where there is modifications to solutions – then challenge yourself to integrate those. You do have, of course, the opportunity to leapfrog as well. I'd always challenge the teams I've worked with – and I've worked with some fantastic people over my career – where if we can drive the cost to operate down, then we would always get a return on investment.
And we were very strict with ourselves. I've worked with some fantastic Finance Directors and EVPs of Finance, over the years, that keep you honest. If you want to spend money but you can lower the cost to operate, and demonstrate that, and work the hours out, or adjust the P&L accordingly, then you can find yourself in a position where you can spend money wisely.
There's a great line used by one of my old finance people, which was: "We are only return-constrained. We are not capital-constrained." So, if you can find a return, you can often find the money.
CF – How do you? Because I'm always conscious in retail that, because it obviously has become over the years, so specialized. So, you are talking about multiple skills, multiple departments, multiple business functions. How on earth do you find the right sort of leadership to enable, if you like, all those people to work? I mean, they're not all going to work together. But I get the feeling there needs to be more collaboration across functions and across departments, in order to really accelerate some of these solutions.
MI – I mean, I think that's a great question. I think, I was lucky to work for a, I think, one of the best leaders I've had in my career – a guy called Greg Farran. He engineered, or created an atmosphere of constant improvement – but embraced change. There would be a very big change team that met cross-functionally, that was held to account, that celebrated success, that collaborated within a company as well.
So I think, the classic is: you've got to want to change. And then your Chief Exec provides the air cover, the financial support, and the overall culture and atmosphere where that cross-functional working, and that team-working is the goal, is the objective, is the company mantra. Since I've left working for bigger companies, I'm really interested in how some of the startups work; how some of the tech companies work.
And agile is not the answer for everything, but it is a very interesting way of working that you can get things done at speed. As long as you have the right culture, and you embrace the change, you're clear on your targets, you're clear on the output, and you celebrate the successes you roll through – you can get going dynamically, you can get going quickly. But, the organization at the very top has to give you the permission to get it done. And I was lucky. I worked for a company that wanted to do that, embraced it and got it done.
CF – You talked earlier about, if the consumer wants it, you've got to do it. I mean, is that like full stop, or… ? 'Cause I'm thinking about some of these startups, like Gorillas, there's a bunch of them – Q-commerce, as they're often called – Deliveroos and Uber, and all the rest of it, who are now looking to kind of take a piece of the online grocery delivery market. Now, is that the right thing to do for the grocer? Should they try to own that themselves? Because, I think my worry is that it's then a question of, well, who owns the customer now? And therefore, obviously, who owns the data? So, what would you say to that? What's the right solution there, if you like?
MI – I think, I'm involved in the gig, I'm involved in Q-commerce. I would suggest that good competition makes you better. And you can work it out. I can remember the first time we were aware of Amazon, and to say ‘to be aware of Amazon’ sounds ridiculous! But once, Amazon were a small player, and I can remember while I was at Asda, we spent a lot of time looking at them; we spent a lot of time researching. I ordered product, we ordered product, and I can remember the first Christmas in the UK where Amazon started to have a presence. I ordered a load of different things, and the last item arrived in Easter, believe it or not! And I thought: Why am I worried about these guys?!
Then all of a sudden, it didn't take weeks, it took days. Then all of a sudden, it was the next day. And we all looked at it and we went: ‘How are these guys going to make any money? This is not…’ well, guess what? They make money, they worked it out. They look at their enterprise and one part is monetised, one part is profitable, one part might not be as profitable as other parts. But then, you take a more holistic view of your business and P&L, and seek to monetise what potentially you didn't do before.
So, I think it's super-interesting, it's very refreshing. I think it's to be worked out and challenged. And in the same story that I can remember, while I was at Sainsbury's, being dispatched to look at Tesco's online business, dial-up – if anybody remembers that! And the first consumer for Tesco's, I think it was a lady who ordered groceries on dial-up, and we thought it was hilarious: ‘How is that ever going to work?’
Well, guess what? It's disturbed everything and it does work. Tesco's were very brave, very innovative and the first out of the blocks in the UK. And then, Sainsbury's was a quick follower. I was involved at Asda as we changed our approach to it, and learned to love it. And we did a very good job of it, and there's some great people at Asda that are still there that are doing a fantastic job.
So, I think this is very early in its iteration. But there are so many examples of, what you considered counterintuitive, has come through to mainstream. So, I would understand it, understand where the opportunity is, and if it's going to be part of your portfolio, make it work.
CF – Right, so the point is you can't hold back the tide; you've got to jump in and try it, and hopefully you do well.
Two questions about operational costs, which you talk about, talked about earlier, about operating well and trying to get those costs down. There's a couple of areas I'd like to get into. The first is availability, and I suppose in a way, as you'd expect, I suppose retail has been talking about availability pretty much since they ever started. But what can you say about that now? Given that we still see figures for poor availability in certain categories. And I'm not talking about all of the shenanigans that we've had going on over the last couple of years, which is inevitable with supply chain, and bulk buying, and all the rest of it. But what more could be done to get better in that area? Because it has so many benefits in terms of operational costs, and happy customers, and so on, and so on.
MI – Yeah, so, I've been trying to solve this for 37 years! You'd think I'd get it right by now, wouldn't you? I think you're looking… the issue in retail is, you've got too much of what you don't want, and not enough of what you do. And finding that balance is the difference between profitability sales and customer satisfaction.
So, I've worked with Retail Insight for a long, long time. And I think based in the data, based in fact, being creative on how you then crystallize that is a workable model for your store managers and your store teams, so they can know where they're up to and they can know what action to take.
Running a store is a very complex thing, hugely complex. Store managers do an amazing job, department managers, managing in a super center, 110,000 SKUs in a supermarket, 35-40,000 SKUs… being expected to have that available at all times is a complex problem. And it's been magnified by the current situation we find ourselves in now. But, I think if you can come back from that and look at the opportunity that that creates for you, turning it into easily digestible, easily understood data at store level, and I think Retail Insight's done an elegant job of that.
And again in how you approach waste, food waste, optimizing the markdown is really interesting, increasing the velocity of fresh food. So, not selling food that's past its life, it's selling good-quality food towards the end of its life, and giving the opportunity for a customer to purchase that at a reduced price to increase its velocity, is super-important.
And then, if you can then unblock the supply chain, because as things become towards the end of their life, people will make a decision on maybe, ‘Well, I'll buy something else,’ or, ‘I won't buy that product.’ If you can move that on, then you free your supply chain up and the fresh product starts to come through. So I think, again, that's an elegant solution. It is based on each product, each store, each hour it's done. It's a really, really tailored solution. It's a real sniper rifle! You are getting this right for the customer at the time you want to promote and increase the velocity in sale.
CF – Right, sticking with operational costs, I'm also interested in getting your views on the role of the store. By which I mean, customers are shopping, you've got online pickers in there. There's people organizing events. There are now so many things that are having to happen in many types of stores. How on Earth is a retailer to do that efficiently, and use their labor in a way that is productive, given that the cost of that labor is going up?
MI – So, again, we've been doing this a long time in the UK. Picking in-store is a model that is, I want to say, it's probably 20 years old now in the UK. Stores aren't busy all the time with customers. So, we would pick early in the morning, we'd pick super-efficiently, and we'd try and be out of the way of the customer by, sort of, I think about 10 o'clock, 11 o'clock. As that service-level agreement with the customer is shortened, I can order for 30-minute delivery, one-hour delivery. So, you're going to be on the shop floor far more than you previously were.
I think there's a tipping point where stores and micro-fulfillment starts to play a part. Do I think about converting my store into an MFC? I think of stores as forward-deployed inventory. They are nodes of the supply chain, they are micro-fulfillment centers. Picking around the clock, picking when the customer isn't there is the optimal. That's the best time to do it. But, as you need to pick at speed, you've got to pick quickly, efficiently, in large batches. And where you are picking and you are impeding the customer, you've got to challenge yourself either to then move that volume to a micro-fulfillment center, or potentially another part of your store.
Stores for me have gotten a little bit big. I think optimizing that space now is an opportunity. Do you need, particularly in the US, do you need 110,000 square feet devoted to the store? Is there a hybrid? And I've done a lot of work exploring that possibility.
CF – I have to say at this point, great thing about talking to you as someone who's been
doing this a long time is that you're obviously the kind of person who just kind of goes, ‘Look,
let's just get on with it. Let's think about these problems and try and solve them.’ And I think that is quite refreshing, because there is a lot of stuff in the media about all the kind of doom and gloom, if you like, and all these bad things going on. So it's, as I say, refreshing to get a slightly different view, if you like, or a more upbeat view.
Having said that, is there anything you think that is coming from a kind of macro and micro point of view, whether it's the economy or whatever, that is actually going to be, of all the challenges to retail, what do you think might be the biggest? Is it inflation, is it labor, availability of labor, cost of labor? Is it all of those things? Or is there one that kind
of sticks out for you as one that is going to be the biggest challenge, even to a decent operator?
MI – Well, yeah, I think you credit me with too much there! If I knew the answer to that, I'd probably be looking to where to invest! I would say, what retail needs is demand. We need people earning, we need people working. We need people with pound notes and dollars in their pockets; we need demand.
The only thing that worries me is, really, is the economy resilient enough? And it generally will be. We've been through downturns before. We've been through inflationary markets before. And you cut your cloth accordingly. I was listening to a senior retailer at NRF last week, and they were talking about developing perhaps own label, rather than developing
their private brand, which I thought was super-interesting.
Lowering the cost for the consumer, challenging ourselves to stay relevant at every point, at every price point. I think times like this, discounters – Aldi, Lidl, Dollar General – fantastic operators that suddenly have a relevance whilst people have less spending power. So, I think some of the work the UK retailers have done to counter the discounters is really interesting. Tesco's have done a great job, Sainsbury's have done a great job.
So, I think you stay relevant, you understand your market, and you seek to serve your customers and stay on them with what's on their mind. And it is challenging and it's tough. But, there are examples across our histories and there are examples across the world that you can take from and learn from.
So, I think the economy's super-strong. The retailers are agile. They can react very well, they can react quickly. They have parts of playbooks that they can use. But it comes down to: we need demand. That's the biggest single thing that probably bothers me a little bit.
CF – Sticking with NRF, and obviously, you were in a number of these sessions. I don't know if you got a chance to walk the expo and look at some of the tech? I'm just curious to know whether there's anything there where you thought, ‘Well, hello, there's something a bit different there!’?
MI – Well, I think it was great to be there. It was obviously a lot less people than normally. It was great to be in New York, to go visit bars, restaurants. What struck me about New York was how disciplined people were with vaccination and IDs, and mask-wearing. So, good for the city. The city is taking this seriously and had done a marvelous job of making sure people adhered to really not spreading the virus. So that struck me as quite interesting.
NRF itself had done quite a lot of good stuff with digitizing your pass, digitizing your verification, and your vaccination credentials. I thought that was really interesting. So, digital ID, digitisation of your life was a real theme that I thought was very interesting.
I thought machine learning, camera, AI were all a thread through everything. I was pleased to see some of the bigger companies that were there. But then there was a lot of smaller companies that had a lot of air time. I think the quality of time that people could spend was very interesting. You could stop, you could talk, you could spend more time with companies.
I thought micro-fulfillment had a good presence there. I was very interested in that. I'd say artificial intelligence, machine learning, camera, were very interesting to me. I thought payment technologies was a big part and parcel. Gesture payment, face payment was very good. IoT, 5G was very interesting. And you could see those connections building through customer, associate, product.
So yeah, it was good, I enjoyed it. I was very pleased to be there. I thought there were some
great companies as ever, and there were some fantastic speakers.
CF – Yes, I think – and okay, yes, the numbers are down – but it's the road back. I think next year will be back to…
MI – Yeah, I think so.
CF – … some kind of normal. Mark, thank you for your time, very interesting. Always, always fascinating to get an insight into what it's like to be a real retailer. 'Cause I think we all spend a lot of time looking at the tech, looking at the media, and worrying about all sorts of things, when actually there you are in retail, quietly getting on with it and solving the problems and confronting all the big challenges. So, I appreciate your time and hope we can talk again soon.
MI – No, that's very nice of you, thank you very much. Have a great day!
CF – Thank you.