RL - July/Aug 2018 by ensembleiq

The only Retail and CPG event focused on the issue defining a generation:

The convergence of personalization and privacy. We’re bringing attendees a variety of perspectives – covering everything from how to collect loyalty data to the current regulatory landscape to the opportunities exist with personalization in retail – with diverse speakers from: • • • •

Accenture dunnhumby Epsilon The Federal Trade Commission • Kimberly Clark • Linqia • NCR

• Nielsen • Oracle Bronto • Plug and Play Center • Raley’s • RichRelevance • Unilever • And More!

PersonalizationIQ is the must-attend event of the year. REGISTER NOW AT

Save the Date October 2, 2018

Minneapolis Convention Center A symposium at P2PX

path2purchaseexpo.com RETAILERS: To obtain your special discount code contact mtroy@ensembleIQ.com

SPECIAL REPORT: PERSONALIZATION AND PRIVACY — WHAT’S NEXT!

WHO IS PALLAB CHATTERJEE? IRI TAKES RETAIL’S PULSE

“ NOT

IS DYNAMIC PRICING FAIR? RETAILERS NEED HELP FINDING HELP

We’re

”

a dollar store.

99 Cents Only CEO Jack Sinclair on fresh food, brands and extreme value

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Retail Leader JULY/AUGUST 2018 VOL. 8, NO. 5

President, Canadian Division & North American Grocery Jennifer Litterick jlitterick@ensembleiq.com

EDITORIAL Editor-In-Chief & Brand Director Mike Troy mtroy@ensembleiq.com 813-857-6512 Managing Editor Gina Acosta gacosta@ensembleiq.com 813-417-4149

26 TECHNOLOGY AND INNOVATION

Meet Dr. Pallab Chatterjee. His company, Symphony RetailAI, is helping retail and CPG transform.

30 STRATEGY

NCR executives weigh in on the company’s evolution, the future of retail and what’s next for selfcheckout.

33 MERCHANDISING AND MARKETING

How retailers can win with experience and personalization initiatives.

36 RETAIL PULSE

IRI’s food and beverage New Product Pacesetters show how top CPG brands have captured consumers’ hard-earned dollars.

6 EDITOR’S LETTER

Companies looking to leverage data effectively have to balance their desire for customer intimacy with customers’ desire for anonymity.

38 SOCIAL RESPONSIBILITY How retailers can win with experience and personalization initiatives.

8 SUPPLY CHAIN

Digital technologies are elevating shopper expectations while retail supply chains look to keep pace with customer expectations.

42 WHAT’S NEXT

An increase in self-care among all age groups is creating a new retail health care reality.

10 HUMAN CAPITAL

In a strong economy, retailers are challenged to hire and retain quality employees just as they are needed most. Responsible data stewardship has become a C-level priority with the potential to drive growth or destroy consumer trust.

20 COVER STORY

Retail Leader.com JULY/AUGUST 2018

Associate Brand Director Mike Shaw mshaw@ensembleiq.com Office 201-855-7631 Cell 201-281-9100 Senior Sales Manager Judy Hayes jhayes@ensembleiq.com 925-785-9665 Senior Sales Manager Theresa Kossack tkossack@ensembleiq.com 214.226.6468

EVENTS Vice President, Events Michael Cronin mcronin@ensembleiq.com

MARKETING Brand Marketing Manager Carly Kilgore ckilgore@ensembleiq.com

AUDIENCE ENGAGEMENT Director of Audience Engagement Gail Reboletti greboletti@ensembleiq.com Audience Engagement Manager Shelly Patton spatton@ensembleiq.com

PROJECT MANAGEMENT/ PRODUCTION/ART Vice President, Production Kathryn Homenick khomenick@ensembleiq.com Creative Director Colette Magliaro cmagliaro@ensembleiq.com Custom Project Manager Kathy Colwell kcolwell@ensembleiq.com Custom Project Manager Judi Lam jlam@ensembleiq.com Production Manager Jackie Batson jbatson@ensembleiq.com Art Director Regina Loncala rloncala@gmail.com Subscriber Service/Single-Copy Purchases EnsembleIQ@e-circ.net Reprints, Permissions and Licensing Contact Wright’s Media at ensembleiq@wrightsmedia.com or 877-652-5295

Executive Chairman Alan Glass Chief Executive Officer David Shanker Chief Operating Officer & Chief Financial Officer Richard Rivera Chief Brand Officer Korry Stagnito President, Enterprise Solutions Terese Herbig Chief Digital Officer Joel Hughes Chief Human Resources Officer Jennifer Turner Senior Vice President, Innovation Tanner Van Dusen

16 SPECIAL REPORT

CEO Jack Sinclair is intent on transforming perceptions of the company and accelerating growth.

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Retail Leader is published seven times yearly by EnsembleIQ: 8550 W. Bryn Mawyr, Chicago, IL 60631; Phone 224-632-8200 Fax: 224-632-8266. www.retailleader.com For address changes, send to Chicago, IL address or e-mail spatton@ensembleiq.com. © Copyright 2018

The only Retail and CPG event focused on the issue defining a generation:

Accenture dunnhumby Epsilon The Federal Trade Commission • Kimberly Clark • Linqia • NCR

• Nielsen • Oracle Bronto • Plug and Play Center • Raley’s • RichRelevance • Unilever • And More!

PersonalizationIQ is the must-attend event of the year. REGISTER NOW AT

Save the Date October 2, 2018 Minneapolis Convention Center A symposium at P2PX

path2purchaseexpo.com RETAILERS: To obtain your special discount code contact mtroy@ensembleIQ.com

letter from the

EDITOR

Perfect Strangers Data is a hot commodity in the age of personalization. Companies looking to leverage it effectively have to balance their desire for customer intimacy with customers’ desire for anonymity. Fans of classic rock may recognize “Perfect Strangers” as the title of a hit song from the group Deep Purple. Having achieved commercial success in the 1970s, “Perfect Strangers” premiered in 1984 after the band re-united, leading to speculation the song was a statement about fractured personal relationships that led to the band’s breakup. I don’t know about all that, but it is a great song with a driving beat, strong vocals and musicians who play instruments. And like other hit songs of the era, the cryptic lyrics allow a listener to hear meaning based on personal circumstances and frame of mind. If your frame of mind is that of someone organizing an event called PersonalizationIQ to be held Oct. 2 at the Path to Purchase Expo in Minneapolis, the meaning is clear. The event is focused on the topic of personalization and features an agenda that explores different layers of a complex issue flowing through the retail and consumer goods industry. So when a Hammond organ begins to play ominous chords, a powerful base line kicks in and lead singer Ian Gillan wails, “Can you remember, remember my name,” the connection to personalization is obvious. Remembering a customer’s name is at the root of personalization, but since the song was written long before the Internet, social media and data driven business models, “Perfect Strangers” wasn’t meant as a commentary on the state of personalization in retail and its complex relationship with privacy. Yet, there are references to things like flowing through your life, echoes of the past, returning to a point in time and shadows of another day that have an eerie connection to how individuals’ data is gathered, stored, shared and leveraged. Where the clearest connection to personalization is made is with the song’s signature line: “and if you hear me talking on the wind, you’ve got to understand, we must remain perfect strangers.” That sentiment sums up perfectly consumers’ acknowledgement that companies are able to monitor behaviors in-store and online by using technology, but it has to be balanced against consumers’ desire to remain anonymous. “Perfect Strangers” is the perfect metaphor for a retail and consumer goods industry dependent on greater levels of personalization to drive growth offset by consumers’ desire to retain privacy and control over the volumes of data their behavior generates. It is not an easy problem to solve because consumers tend to be schizophrenic when it comes to their data, how it is collected and how they will allow unbridled usage by some companies and place restrictions on others. Sometimes we want to be remembered and our precise location known, but other times we want to be forgotten, resulting in the phenomenon of situational personalization. Knowing where to draw the line today is exceedingly difficult because it varies by individual, is influenced by age, predisposition to technology and the trust consumers place in organizations who are expected to safeguard the intimate details of our daily lives. Bringing it back to the lyrics of “Perfect Strangers,” you could even say that data flows through our lives presenting companies with echoes of our past, returning to a point in time where shadows of another day serve as predictors of a tomorrow. The retail industry is at an important crossroads when it comes to personalization and privacy, which are two sides of the same coin. Those intent on thriving in an increasingly data driven future should recognize there is unintended wisdom in the lyrics of a 34-yearold song. Successful relationships among retailers, brands and consumers will depend on remaining perfect strangers. (P.S.: I hope to see you in Minneapolis on Oct. 2 for PersonalizationIQ: Smarter Marketing and the Privacy Imperative.) RL

MIKE TROY Editor-In-Chief mtroy@ensembleiq.com

Retail Leader.com JULY/AUGUST 2018

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> SUPPLY CHAIN

Click and Collect Reality Check DIGITAL TECHNOLOGIES ARE ELEVATING SHOPPER EXPECTATIONS WHILE RETAIL SUPPLY CHAINS LOOK TO KEEP PACE WITH CUSTOMER EXPECTATIONS FOR FLEXIBLE FULFILLMENT AND PRODUCT RETURNS OPTIONS. > Mike Troy

In relative terms, it is still early days for the utopian vision of a seamlessly integrated physical and digital retail experience. The latest evidence of the opportunity to close the gap between reality and a desired future state is found in research showing that only about one third of U.S. retailers offer shoppers the ability to buy online and pick up in store. And those that do aren’t very aggressive about making customers aware of the capability. The issue of click and collect was examined in recent research by distributed order management solutions provider Order Dynamics, which analyzed the web sites and fulfillment capabilities of 1,000 global retailers. Of the 330 retailers in the study located in the U.S., only 29.1% offered click and collect, also known by the acronym BOPIS (buy online pick up in store), and those that did tended to be the largest retailers, resulting in a digital capabilities gap between large retailers and mid-size and smaller chain. “Shoppers interested in the instant gratification rush of an in-store pickup, today, are best served by large American retailers,” according to Order Dynamics. “Here lies an opportunity for smaller and mid-sized chains to use omnichannel as a competitive edge. Shoppers expect these services from large chains. By adopting in-store pickup, 10 to 50 store and 51 to 100 store chains can distinguish themselves from competitors in their categories.” That click and collect is not more widespread is somewhat surprising. It is a convenience shoppers increasingly expect from all types of retailers as well as being a point of difference with online only competitors. In addition, major publicly held retailers routinely tout the traffic generating benefits of BOPIS and the sales lift that results from more than half of those who order online and buy other stuff in store when they collect their merchandise. Somewhat ironically, the rate of retailers who allow shoppers to buy online and return in store

The flexible fulfillment arms race among retailers involves everything from parking lot pick up via Amazon’s Treasure Truck fleet to towering lockers at Walmart stores.

Retail Leader.com JULY/AUGUST 2018

(BORIS) is nearly double that of those offering the BOPIS option. This despite the fact that BORIS is a more costly option to execute and generally less beneficial to the retailer. That’s because retailers incur the cost of shipping to a residence rather than to a store or pulling an order from store inventory and shoppers are generally less Lockers are gaining a reverse logistics role to help automate returns without likely to make incremental human interaction. purchases when returning an item. Returns are an increasing area of focus as the volume of good flowing back to stores rises along with the growth of e-commerce. Applying some of the same automation strategies to the returns process that work with click and collect is a major area of opportunity for retailers, according to Kent Savage, founder and CEO of Apex Supply Chain Technologies. “We are in the midst of the most profound shift of consumer behavior ever. We want everything now,” Savage said. “When it comes to click and collect, the legacy notion of ordering online and waiting in line to pick up at a service counter flies in the face of the I want it now mentality.” He sees all types of retailers leveraging lockers inside and outside of stores, apartment complexes and even sports stadiums where data on order pick up times shows shoppers love the flexibility of being able to pick up an order whenever they want. The same freedom to choose is coming to the world of returns, according to Savage, whose company supplies a wide range of automated product dispensing solutions. He says there is increased interest in automated returns processes that don’t involve human interaction because it is easier for the retailer to execute and faster and more flexible for the shopper. “Millennial customers prefer to engage more with a digital interface than they do with humans,” Savage said. Therein lies a dilemma for retailers, especially those serving broad demographics, as they currently have to satisfy a range of expectations when it comes to how shoppers want to order, fulfill and return merchandise. Some prefer the anonymity of buy online pick up in store or another automated experience while other shoppers are more comfortable with a digital path to purchase that retains a human element. RL

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> HUMAN CAPITAL

Helping Retailers Find HELP IN A STRONG ECONOMY WHERE MOST PEOPLE WHO WANT A JOB ALREADY HAVE ONE, RETAILERS ARE CHALLENGED TO HIRE AND RETAIN QUALITY EMPLOYEES JUST AS THEY ARE NEEDED MOST. > By Gina Acosta

If there is a sure sign of just how tough the employment landscape has become for retailers, it’s the extraordinary announcement from Kohl’s in late June. The Wisconsin-based department store chain’s call for holiday workers came a good two months prior to the start of when retailers traditionally begin the hiring spree for seasonal workers. “We are hiring seasonal associates earlier than ever to ensure our teams are fully staffed, trained and ready to support peak shopping seasons,” said Ryan Festerling, Kohl’s executive vice president, human resources, announced on the retailer’s website. “We’ve listened to our current associates and will once again offer them the opportunity to increase their hours

first, and we will add new seasonal workers to meet the unique staffing needs of each store, distribution and fulfillment center, and credit support location.” At the midpoint of the year, the retailer had already begun hiring seasonal workers at nearly one third of its 1,100 stores and was looking for workers at distribution and e-commerce fulfillment centers and credit operations. The move by Kohl’s is indicative of the talent challenges facing all types of retailers to attract and retain hourly workers. Just how tight is the labor market? Signs of the demand for workers are literally everywhere — from storefront

Ellen Davis, President of the NRF Foundation

TOO MUCH OF A GOOD THING: The strong economy has lifted sales, but retailers face hiring headaches and expense pressures due to an unemployment rate near record lows. 10 9 8 7 6 5 4 3 2 1 0

9.3% 9.6%

4.9%

‘97

4.7% 4.5% 4.2% 4.0%

‘98

‘99

‘00

‘01

5.8% 6.0% 5.5% 5.1%

‘02

*As of June 30 SOURCE: U.S. Bureau of Labor Statistics

Retail Leader.com JULY/AUGUST 2018

‘03

‘04

‘05

8.9%

8.1%

7.4% 6.2%

5.8%

5.3%

4.6% 4.6%

‘06

‘07

4.4%

‘08

‘09

‘10

‘11

‘12

‘13

‘14

‘15

‘16

4.9% 4.0%

‘17

‘18*

windows, sidewalks and atop merchandise displays — with many retailers seemingly in a permanent state of hiring. The situation is so tight that in April the number of available positions exceeded the number of job seekers for the first time since 2000 when the U.S. Labor Department began tracking the metric in its monthly Job Openings and Labor Turnover Summary report. “Never before have we had an economy where the number of open jobs exceeds the number of job seekers,” U.S. Secretary of Labor Alexander Acosta noted at the time. “This administration is committed to ensuring that all Americans have the necessary skills to access good, family-sustaining jobs. With the lowest unemployment rate in over 18 years and 3.4 million jobs created since President Trump’s election, this is a great time be a job seeker in the United States.” While that is true for workers, the situation creates operational challenges and expense pressures for retailers that need to keep stores and distribution centers staffed with the type of quality, dependable workers who are capable of satisfying shoppers’ elevated expectations. “Business’ number one problem is finding qualified workers,” said Mark Zandi, Chief Economist of Moody’s Analytics. “At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.” The labor market is forcing retailers to rethink their approach to hiring as a smaller pool of workers seeks more flexibility, training and pay. Many retailers who saw the labor market tighten several years ago responded by increasing wages and improving benefits. Most notably, Walmart increased its starting wages each of the past three years, prompting other retailers to raise their entry level wages. Earlier this year, Target raised its starting hourly wages to $12 and said it would hit $15 by the end of 2020. Other retailers have employed more unconventional methods to position themselves as an employer of choice. For example, the Buc-ee’s chain of more than 30 convenience stores opened a new location in the Houston suburb of Katy last year and sign hung above the exit lets shoppers and potential job-seekers know hourly pay rate by type of position and benefits such as three weeks of vacation and 401K.

Raley’s (top left), Whole Foods (above) and Wegmans actively recruit employees with prominent signs at store entrances and exits.

RISING UP The upside of a tight labor market where most everyone who wants to work has an opportunity to do so is that consumers have money to spend. That’s good news for retailers heading into the 2018 holiday, assuming an adequate number of employees are available at wages retailers’ business models are able to support. It’s a challenge the National Retail Federation (NRF) and its members recognized early on and led to the creation of an innovative program dubbed, RISE Up. NRF and its foundation have long sought to highlight the retail industry’s significant role in the economy, especially as an engine of job growth and field of opportunity for workers. Accordingly, the organization turned up the heat in January 2017 with the launch of RISE Up, a training and credentialing program led by the NRF Foundation that is gaining momentum just as the industry needs it most. The program was launched with support of 21 national retailers, including five of the top 10 retailers in the country (including Walmart, Macy’s and Target). JULY/AUGUST 2018 Retail Leader.com

> HUMAN CAPITAL

The Buc-ees’ chain of convenience stores (left) posts actual pay rates as part of its recruitment efforts while the Wawa chain touts its benefits package at store entrances.

“They’re committed to help us up-skilling the next generation of the retail workforce,” said Ellen Davis, a long time NRF employee elevated to the role of President of the NRF Foundation in March. “And we have lots of partners in many other sectors. We call them delivery partners. Those are people who actually implement the training and the credentialing. It could be a high school or it could be workforce development group or a nonprofit or even a community college in some cases.” Davis says NRF’s vision for RISE Up is to shape the future of the industry’s talent at all levels and the effort is the culmination of work begun years earlier. “In 2012 we conducted a survey with retailers to try and understand what the biggest talent needs and talent challenges were. Around 2015 the economy started to rebound and retail talent started getting even harder to find. Although we have had a credentialing program since the 1990s, we started working on a program that would be more holistic.” Despite tremendous shifts in retail over the past 12

Retail Leader.com JULY/AUGUST 2018

decade as more consumers shop online, retail jobs have been growing at a steady clip. The retail sector has added 1.5 million jobs since 2010, according to the Federal Bureau of Labor Statistics. “The retail industry has about 600,000 to 700,000 open jobs right now. We still see a net gain in retail jobs every year. While you’ve got some companies closing stores, you’ve got a lot of companies who are opening stores and you’ve got needs there,” Davis said. NRF’s intensified efforts come just as the type of retail jobs and the nature of work in stores and distribution centers is changing. As much as technology has disrupted the retail business model, it has also greatly disrupted labor needs. “Digitization isn’t just changing the retail industry, it is changing society. And at a time when we have six different generations in the workplace, equipping all associates with the next-generation skills they need to continue growing both personally and professionally has never been more important,” said Tim Massa, group vice president of human resources and labor relations of The Kroger Co. Amid the lowest unemployment in years, rising wages and the shift toward shopping online, retailers are automating more store work. Target wants workers to develop deeper product expertise to improve customer service or perform new tasks like managing online orders picked up in stores. NRF developed the RISE Up curriculum specifically to meet these new skill sets. Another retailer in particular, Lowe’s, has been working hard to find employees who can offer customers a customized, on-demand experience however they shop, whether in stores, online or in their homes.

“RISE Up aligns with Lowe’s goal of empowering The labor shortage and resulting wage pressures are the next generation of retail leaders with the skills they unlikely to diminish anytime soon. Which is why retailneed to meet — and anticipate — the needs of the ers are adopting new approaches to hiring and relying evolving customer. By doing so, we’re helping to lay on programs such as RISE Up to help cope with an groundwork for the future of retail,” Rick Damron, forunprecedented labor situation. mer chief operating officer of Lowe’s, said at the time “When the economy is improving it’s great for the of the launch of RISE Up. business but it can be tough for talent because it means The RISE (Retail Industry Skills & Education) Up people are harder to find. The job of the talent execuprogram kicks off with Retail Industry Fundamentals, tive in retail these days is not for the faint of heart, but a formal training program (administered either in it is more crucial than ever,” Davis said. RL real-world classrooms or online) designed to introduce entry-level associates in stores, distribution centers and call centers to core retail technologies and tools, as well as customer service, retail math, inventory and interview skills. The program also offers modules called Customer Service and Sales and Advanced Customer Service and Sales. Each of the three modules are priced at $99, a price billed as being significantly lower than most other entry level credentialing programs. Davis says areas such as distribution and call centers, which support both physical stores and online, have tremendous skills needs for college grads majoring in supply chain, data, and computer science, so that has been an increased focal point for NRF. Since its launch, more than 45,000 participants have completed RISE Up training and earned credentials. Davis says her goal is for another 50,000 people to go through RISE Up this year while the program continues to be modified to reflect retailers’ needs and participant feedback. “We have been rigorously reworking our training and our program and we’ll be relaunching retail industry fundamentals the first week of July with Penn Foster,” Davis said. Who’s not hiring? Retailers such as Target, CVS “That should allow us to be able Health and Dollar Tree and many others are to scale very quickly so people in a permanent state of recruitment with the who are looking for jobs whether unemployement rate at generational lows. they are high school students or somebody going through a workforce board will be able to log onto the system go through the training on their own and receive a credential while taking the exam,” Davis said. Other changes include bolstering the staff and creating new engagement opportunities for the industry. Earlier this year, the Foundation hired Adam Lukoskie as Vice President to oversee RISE Up and named Shana Treger as director of learning and credentialing. This fall, the NRF Foundation is scheduled to hold its first ever Retail Works Summit in October, bringing together retailers and workforce development groups JULY/AUGUST 2018 Retail Leader.com

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A glimpse at the minds and personalities of IRI’s thought leaders. In a world of extraordinary disruption, it’s critical to take action and be proactive to grow and win. With incredible shifts in retail, e-commerce, technology and healthcare, the retail and CPG industries are ever-evolving and forced to keep up with – and often set – the pace of change. Thanks to technology and innovation, being change-makers and responding to or inspiring disruption is attainable for industry players today. IRI’s President and Chief Executive Officer Andrew Appel shares some insight on how to interpret the impact of disruption, how big data plays into the growth model, how we can learn from the industry’s behemoths, and how IRI has – and will – drive businesses to new heights.

Chicago-based IRI is a technology-driven big data and analytics company at the forefront of the consumer buying revolution. IRI delivers the world’s largest set of market, consumer purchase and integrated media data to CPG, retail and OTC healthcare companies around the globe. As a result, its clientele reaps the benefits – growing their businesses and in turn further growing a giant and alwaysevolving industry.

Q. How can we tell how much disruption is affecting CPG and retail industries? A. The numbers tell the story: Bankruptcies in retail happened at a record rate last year — 21 companies filed for bankruptcy protection in 2017, while only nine in 2016. Further, five years ago, online sales accounted for 6 percent of online sales, and today it accounts for 13 percent of retail sales, representing approximately $500 billion. The global advertising industry grew by 4 percent last year, with mobile advertising driving that growth, increased by 34 percent. The change has been significant, and all trends indicate it will continue to evolve rapidly. Q. What can we do to respond to the disruption? A. As with any disruptive change come big questions: Is it a good idea? Is it feasible? Do we have the courage to do it? I would argue we don’t have a choice. So we shouldn’t fear that future. We should see it as a really big opportunity. The time is now for us to disrupt our own industry — and move from doing complex analytics to doing complex analytics and institutionalizing actions for decision makers. The most successful disruptors are masters at leveraging big data and analytics to accelerate value for consumers and for their businesses. Q. Please frame the growth of big data and its impact in recent years. A. By 2025, the amount of the global data that is subject to analysis will grow 50-times. Already, the impact has been huge, as big data adoption went from 17 percent in 2015 to 53 percent in 2017. And big data continues to be a growing market, with worldwide revenues for big data and business analytics expected to grow from $130 billion in 2016 to more than $200 billion in 2020. Where we’ll see big data become much more indispensable is when we layer artificial intelligence and machine learning on top of it. While it’s still very early, AI/ML is expected to grow from $21 billion in 2018 to $190 billion in 2025. Historically, we think of technology as having low barriers to entry. We expect new technology to disrupt old technology. Data is different. Data is a scale game. The marginal value of the next piece of data makes the base data more valuable. Q. What are the common attributes of the industry’s behemoth companies and what can we learn from them? A. Disruptive companies drive change. These companies focus on key strategic attributes: They are customer-centric, they set pace, they take risk, cooperate and compete. They certainly are masters of big data, AI and ML. To achieve this, we have to see ourselves as the disruptors, too. We need to introduce disruptive change in our companies, in our industry, in our teams and in ourselves. If anyone’s going to lead the change, it’s the retail and CPG industries. We need to become masters of big data, AI and ML, too, and that will require us to disrupt ourselves. We need to move from people who opine on the behavior of the past to people who create the opportunities of the future.

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> SPECIAL REPORT

The Path to Personalization THE PERSONALIZATION GOLD RUSH UNDERWAY IN RETAIL IS OCCURRING AGAINST A BACKDROP OF DATA MISUSE, LAX SAFEGUARDS AND HEIGHTENED PRIVACY CONCERNS. RESPONSIBLE DATA STEWARDSHIP HAS BECOME A C-LEVEL PRIORITY WITH THE POTENTIAL TO DRIVE GROWTH OR DESTROY CONSUMER TRUST. > By Mike Troy

Retail has been a data-centric industry since the advent of scanning and anyone at the forefront of retail today is there because they recognized sooner than others that data was their best friend. The current crop of retail leaders distanced themselves from competitors by more effectively gathering, sharing, extracting insights and taking action on information. Fast forward from a simpler time when week old point-of-sale information blended with store specific demographic attributes was regarded as cutting edge and today’s data universe is unrecognizable. There is a proliferation of structured and unstructured data from sources

such as mobile devices, online reviews, video and social media that would have sounded like science fiction a few decades ago. While there has been tremendous change regarding sources of data, the basic data-driven formula for retail success remains intact even if solving the growth formula is more complex due to the addition of new variables. Causing further complexity is the fog of regulatory uncertainty and consumer attitudes toward data sharing which can range widely from providing intimate details to complete aversion. What is clear, and frequently documented by research, is the value proposition central to all data sharing relationships — consumer expect something in return. “Consumers are open to sharing their personal data with business in exchange for better customer experiences,” according to an Accenture Interactive survey of 8,000 North American and European HOW SHOPPERS FEEL ABOUT consumer conducted in November 2017. “In rePERSONALIZATION turn, businesses must also be transparent about how they collect and use the data.” What shoppers think of.... Creepy or Cool* A survey conducted the same month by Acxiom affirmed the sort of “give to get” Clothing and wearables including sensors/tracking devices 76% 10% bargain central to personalization efforts and allow retailers to track you in exchange for a discount. loyalty programs. Companies understand your shopping habits so well they use “An overwhelming shift in attitudes is 69% 14% AI to choose and automatically order products on your behalf. underway as more and more consumers gain awareness and an understanding of the role data Facial recognition technology identifies you as a loyal customer exchange plays in contemporary society,” said 61% 24% when you enter a store and information is relayed to a salesperson. Sheila Colclasure, the Global Chief Data Ethics Officer and Public Policy Executive at Acxiom. Robots guide you to specific products within a store. 32% 48% The Conway, Ark.-based company is a pioneer in the collection of consumer information and You can use fingerprint scanning to pay for items and get 31% 46% claims to provide the data foundation for the automatic home delivery from the store floor. world’s best marketers. It worked with the Data & Marketing Association (DMA) to conduct SOURCE: RichRelevance survey of 1,037 U.S. consumers conducted May 2018. *Percentages do not equal 100 a survey of 2,076 U.S. adults for its report,

Retail Leader.com JULY/AUGUST 2018

“Data Privacy: What the Consumer Really revealed that 76% of consumers “Brand and consumer Thinks.” “This survey shows that people think it is creepy when clothare increasingly aware of the role data ing and other wearables allow relationships are no plays in our lives and are becoming more retailers to track them exchange different than their real for discounts. Also rating high on conscious of the decisions they make in exchanging data for value.” creepy scale was the practice life counterparts. When the Even so, the numbers underpinning of companies understanding a that assertion are hardly overwhelming. consumers’ habits so well they one party goes outside Only 44% of those surveyed in the U.S. use AI to select and automatically of the relationship for feel more comfortable with data exchange send products. That was considthan they did previously while 62% believe information, the level ered creepy by 69% of the 1,037 that sharing data is part of the modern U.S. consumers RichRelevance economy, according to the study. surveyed in May 2018. of trust is completely The modern retail economy is increas“Consumers generally know broken.” ingly the personal data economy with that data is being collected about expectations of growth hinging on 360 them and that they are benefiting —Accenture Interactive degree views of consumers and highly from artificial intelligence. Howefficient targeting. Where problems start ever, consumers are increasingly to arise with the issue of data sharing, related perexpecting brands and retailers to be transparent about sonalization efforts and privacy safeguards involves when and how they’re using AI in their interactions,” transparency about usage of information. For the most said Mike Ni, Chief Marketing Officer with RichRelpart, retailers have been good stewards of consumer evance. “As a result, companies are increasingly under data actively acquired via loyalty programs, which offer pressure to adopt explainable and open AI systems that consumers a clear value proposition. In fact, retailers provide clear insight into how and why decisions are beit seems are underutilizing data in their possession, acing made. Traditional black box, closed AI solutions are cording to Accenture Interactive research. For example, just not an option anymore.” a little less than three fourths of those surveyed said a One of the most challenging issues with personalizabusiness had never communicated with them online in tion relates to generational differences when it comes to a way that felt too personal. However, among the 27% sharing data and expectations about what companies who indicated they had an experience with a brand that do with the information. Perspectives on creepy and was too personal it typically was because the business cool are heavily influence by age, which is understandhad information about the consumer they felt they able since digital natives have grown up over-sharing on didn’t share knowingly or directly. social media while their grandparents may have been “Brand and consumer relationships are no different reluctant to share their zip code with a cashier. than their real life counterparts,” according to AcRegardless of demographics, attitudes toward centure Interactive. “When one party goes outside of creepy tend to recede as consumers begin to realize the the relationship for information, the level of trust is beneficial aspects that can come from sharing data and completely broken.” technology becomes an indispensable part of life. For exIt isn’t always easy for consumers to know when they ample, four years ago, 75% of shoppers felt it was creepy have shared data directly or indirectly thanks to jargon for facial recognition technology to identify them as a filled privacy policies that claim to hold the individual’s high value shopper and relay that information to a sales privacy in high regard before detailing page after page of associate. In this year’s research, only 61% of consumers exceptions. are creeped out by facial recognition. Whether it is facial recognition or another adCREEPY OR COOL vanced technology, most retailers appear to be treading As data gathering has increased and enabled deeper delicately with personalization initiatives to avoid the levels of personalization, efforts are often described as numerous privacy landmines that exist. For example, creepy or cool depending how far a company pushes in a recent A.T. Kearney survey, data gathering (20%) the technology envelope. One technology company and omnichannel focus (16%) were cited as the top two competing in the experience personalization space, San responses to the open ended question, “what specific Francisco-based RichRelevance, has been studying the steps are you taking today to offer a more personalized interplay between creepy and cool for four years in an shopping experience to your consumers?” The firm annual study designed to probe attitudes toward persurveyed 270 CEOs, CIO’s and COO’s at consumer sonalization. This year’s installment of “Creepy or Cool,” companies with annual revenues of more than $2 billion JULY/AUGUST 2018 Retail Leader.com

> SPECIAL REPORT

in its study, “Consumer Centric: From Idle to Agile.” The research also showed a basic approach to incentivizing consumers to share their personal information. For example, discounts and coupons (35%) and loyalty points (25%) stood out as the most common methods

RETAILERS AND SHOPPERS THINK DIFFERENTLY ABOUT PROMOTIONAL RELEVANCY... Retailers say they offer consumers relevant rewards

4% offers are rarely relevant 38% offers are sometimes relevant

Consumers say most offers and rewards from retailers aren’t relevant to them 22% offers are rarely relevant

45% offers are sometimes relevant

58% offers are mostly relevant

32% offers are mostly relevant

...AND HAVE DIFFERING VIEWS ON LOYALTY. Retailers 4% say consumers rarely join loyalty programs 38% say consumers only sign up to select, relevant

58% say consumers sign up to every loyalty program

Consumers

19% rarely join loyaly programs

50% only sign up to select, relevant programs

32% sign up to every loyalty program

SOURCE: Oracle Retail survey of more than 13,000 global consumers and 500 businesses across retail, hotels and restaurants conducted February 2018.

Retail Leader.com JULY/AUGUST 2018

of incenting shoppers, according to C-level executives who took the survey. Those same executives also expect personalization to mark the biggest shift in their business going forward. Only 9% of those surveyed listed personalization when asked to describe their company’s approach to products and services today. However, personalization garnered 17% of the responses when asked about approaches their companies expect to adopt by 2026.

CLOSING THE GAP It is not unusual for retailers to have one view of their business and consumers to have another, but when it comes to personalization the disparity of views is quite large. That was the key insight from a global survey of 13,000 consumers and 500 retail, hotel and restaurant operators conducted by Oracle. The firm detailed the findings in a report titled, “Retail 2018: The Loyalty Divide,” which revealed retailers are out of touch with consumers that demand more personalized experiences and discover brands and affirm purchase decisions through social influencers.” “Retailers put significant focus on transactional activity metrics and less focus on emerging behavioral expressions of loyalty. We found that retailers are overly confident in their ability to deliver relevant incentives and consumers are demanding more personalized engagement,” said Mike Webster, Senior Vice President and General Manager, Oracle Retail and Hospitality. “Retailers need to take a critical eye at the culture of shoppers that only engage based on convenience and price. Social influence brings an additional dynamic for retailers to navigate the loyalty paradigm as they reward brand advocacy and feed enthusiasts content to affirm their purchases.” Oracle’s research highlights many ways that retailers are not giving consumers what they want due to differing views of things like social influences, recommendations and offer types. For example, 30% of consumers find receiving recommendations for products or brands based on social influencers subscribed to or followed as unappealing compared to 90 percent of retailers that think this would be appealing to consumers. Twenty-six percent of consumers find artificial intelligence on a mobile device that gets to know the user through voice recognition and is able to make intelligent recommendations as unappealing compared to 91% of retailers that think this would be appealing to consumers, according to Oracle’s research. An equally wide gap exists in the area of data sharing. A little more than half of retailers think consumers are concerned about data being passed onto third parties while 81% of consumers say they’d consider removing their personal information if they could and 53% of

consumers are concerned that their data is being passed onto third parties.

UNCERTAINTY ABOUNDS Retailers are looking to close the gap between their personalization capabilities and consumer expectations just as the regulatory landscape shifts underfoot and the potential exists for future changes driven by unforeseen data breaches and or political considerations. Meanwhile, privacy and data security advocates are eager to reassert individuals’ rights over their data, how it is gathered, stored, shared, sold and leveraged. Predictably, an organization like the American Civil Liberties Union views data gathering though a much different lens than companies intent on leveraging personal information to reduce marketing waste by serving targeted ads that help companies increase sales of goods and services. “We have seen the private sector engage in increasingly pervasive surveillance of individuals and their activities, transactions, and lifestyles. In the absence of regulatory restrictions, this trend will only intensify as the full fury and genius of capitalism applies itself to spying on all of us,” according to an ACLU position statement that makes the case for increased regulation because competition isn’t a sufficient force to protect consumers’ privacy. When put in such nefarious terms it is easy to see why more than 630,000 people in California were willing to sign a petition earlier this year to put a digital privacy initiative on the state’s fall ballot. The proposal was pulled after the California State Legislature ap-

proved a bill that was signed into law in late June. “This is a monumental achievement for consumers, with California leading the way in creating unprecedented consumer protections for the rest of the nation,” said Alastair Mactaggart, Chairman of Californians for Consumer Privacy, the organization that led the signature gathering initiative that prompted the law. The law gives consumers more control over their information and how it is shared, but the good news for retailers and brands is that it doesn’t go into effect until January 2020. That gives companies time to prepare and as was the case with GDPR companies are likely to apply the California requirements nationwide. The logic behind that approach is that it is simpler to operate a single nationwide data compliance program even if it means adhering to the most restrictive regulation. The new law grants consumers the right to know what information companies are collecting about them, why they are collecting that data and with whom they are sharing it. It gives consumers the right to tell companies to delete their information as well as to not sell or share their data. The inter-related issues of personalization and privacy and the data stewardship considerations that underpin both promise to dominate board room and C-suite conversations for years to come. Retailers and brands who deftly balance personalization and privacy will satisfy shoppers, increase loyalty, grow sales and gain share. Those that get it wrong will alienate shoppers, destroy brand equity and violate privacy regulations. The stakes have never been higher nor the playing field more unpredictable. RL

RETAILERS FOCUS ON THE BASICS TO IMPROVE PERSONALIZATION.

HOW RETAILERS INCENT SHOPPERS TO SHARE PERSONAL INFORMATION.

Open-ended responses (% by category)

Offer rewards category (% by type) 20%

Data gathering

16%

Omnichannel focus

15%

Customer service

12%

Product offerings

11%

Shopping experience/services

Communication/marketing Discounts/pricing

Talent acquisition and training

New technology

35%

Discounts and coupons 25%

Loyalty/points program 10%

Gift cards Cash/free items

Extra services

Others Store card

7% 5%

SOURCE: A.T. Kearney executive survey of 270 C-level executives at firms each with annual revenues in excess of $2 billion.

JULY/AUGUST 2018 Retail Leader.com

> COVER STORY

Why 99 Cents Only Isn’t a Dollar Store JACK SINCLAIR BECAME CEO OF 99 CENTS ONLY IN JANUARY AND HE’S INTENT ON TRANSFORMING PERCEPTIONS OF THE COMPANY AND ACCELERATING GROWTH WITH HELP FROM BIG BRANDS AND FORMER EXECUTIVES FROM WALMART, SAM’S CLUB AND ALBERTSONS. > By Mike Troy

The newest 99 Cents Only store in the Houston area reopened after Hurricane Harvey to a warm reception from the local community.

Retail Leader.com JULY/AUGUST 2018

Ninety-Nine Cents Only Stores is the food retailer no one knows. The company’s nearly 400 stores derive close to 80% of their sales of $2.4 billion from categories such as fresh, grocery and consumables that overlap with those of traditional grocers and discounters. Even so, 99 Cents Only isn’t a food retailer in the classic sense and is typically lumped into the poorly defined category 99 Cents Only CEO Jack Sinclair of dollar stores. “We’re not a dollar store, we are an extreme value retailer,” said 99 Cents Only CEO Jack Sinclair. “Our aspiration is to give a lot more people access to the type of value we provide. We are such a unique business.” Sinclair has an aversion to the phrase “dollar store” because he doesn’t think it conveys an image of quality and can hinder the company’s ability to source branded goods. It also doesn’t accurately reflect a business model highly differentiated from other companies who have the word dollar in their name such as Dollar Tree, Family Dollar and Dollar General. “We offer a combination of closeout branded merchandise, general merchandise and fresh foods that creates a traffic mix that is unique and more analogous to a Walmart supercenter,” said Sinclair. He served as Executive Vice President of Food at Walmart from 2007 to 2015 and knows the supercenter model well. “If you think about the magic of a Walmart supercenter the traffic comes because people buy fresh food more regularly and then they purchase higher margin general merchandise.” The same formula is in play at 99 Cents Only, which offers virtually all of the same categories as a supercenter to varying degrees and on a much smaller scale. The key to the entire value proposition and the source of Sinclair’s disdain for characterizing the company as a dollar store is an obsession with offering extreme value. It is that approach to pricing and quality that he’s convinced will enable the 99 Cents Only store concept to prosper in existing markets and grow to new areas.

99 Cents Only backs up a clearly articulated value proposition at a Los Angeles area store with sharp prices on an extensive offering of perishables.

“I would like us to be a $30 billion business,” Sinclair said, quickly conceding that attaining such a goal is a long way off. “When we can get there will depend on a lot of factors, but we can certainly grow this business from $2.4 billion to $4 billion in relatively quick terms because there are all these customers in the markets we operate in. Even without opening a new store we can grow to $4 billion because the customers are there and the opportunity exists to create a new store environment.”

EXPERIENCE MATTERS If 99 Cents Only is to achieve ambitious growth goals it will be due to the leadership of senior executives who led businesses earlier in their careers that collectively generated sales of more than $200 billion. For starters, Sinclair is a name very familiar to those in food retailing in the U.S. and globally. He joined 99 Cents Only in July 2015 as chief merchandising officer reporting to then CEO Geoffrey Covert, a former top executive at Kroger and Procter & Gamble. Sinclair replaced Covert as CEO in January. Prior to 99 Cents Only, Sinclair spent seven years as Executive Vice President of Food at Walmart and the native of Scotland also held senior roles at Tesco and Safeway Plc in the U.K. Shortly after Sinclair arrived, veteran food retailing executive Felicia Thornton was named CFO in November 2015. Previously, she briefly served as Co-CEO, President and COO of DeMoulas Super Markets, CEO of childhood education provider Knowledge Universe and was CFO of Albertsons for five years. She also held finance and operations leadership roles at Kroger’s Ralphs and Fred Meyer divisions. Leading 99 Cents Only operations in the role of President and COO is Jason Kidd. He was elevated to that position in January of this year after previously serving as Senior Vice President of Operations. Kidd joined the company in September 2014 after holding a variety of key operations and merchandising roles at Sam’s Club beginning in 2007. During his time at Sam’s Club, Kidd worked alongside veteran

food retailing executive Michael Heintzman who now serves as Vice President of Merchandising and leads 99 Cents Only efforts in Texas. He practically grew up in Kroger stores, cleaning the inside of trucks at age 16 before advancing to key roles in merchandising. He left Kroger in 1998 and spent 15 years at Sam’s Club where he last served as SVP/GMM over food before retiring in 2015. “Jack ran food at Walmart when I ran food at Sam’s Club,”Heintzman said. Like his boss, Heintzman has a penchant for value retailing, understands the nuance of treasure hunt merchandising and the role brands. “Brands are very important to our customers,” Heintzman said. “Our customers vary widely, but they all come in for value and they trust brands.” That should be music to the ears of branded suppliers under duress from major retailers pursuing ambitious private label efforts on one front and the headwind caused by the popularity of niche brands on the other. At 99 Cents Only, big name brands are a key element of the value proposition and generally purchased as closeouts. “Brands are very important to our customer and we can move volume quickly on key branded items,” Sinclair said, noting the company’s relationship with brands is evolving. “We are trying to establish more re-orderable business with brands and they are increasingly thinking about the value channel. We are at the forefront of a lot of very interesting conversations.”

DISCOVERING TREASURE The appeal of the 99 Cents Only store experience for shoppers is discovering the next great deal on an item they didn’t know they needed until presented with an irresistible price. The so-called treaJULY/AUGUST 2018 Retail Leader.com

> COVER STORY An evolving relationship with major CPG companies is helping 99 Cents Only procure more brand name merchandise.

sure hunt concept is not new, companies such as TJX, Costco, Sam’s Club and rival Dollar Tree, employ it with great success as well. The 99 Cents Only model is different in that about half the merchandise is re-orderable product, but the other half is closeout merchandise or opportunistically purchased goods. “I don’t know what we are going to be selling, the store managers don’t know what they are going to get, the buyers don’t know what they are going to be buying and the customer has no idea what we are going to have,” Sinclair said. “They know we are going to have something. It makes them forgiving of us as a retailer because some weeks for example we won’t have strawberries because we can’t get them at the right price. If you go into Walmart and can’t get strawberries you get very irritated.” However, one thing they always know 99 Cents Only will have is an extreme value on whatever it is that is offered, which is why the company’s marketing encourages shoppers to visit its stores before going elsewhere. “The principle is people will come to us first and see what we’ve got. We want to help them save all the money they can before going other places where it will be more expensive,” Sinclair said. “We know people are not going to do all their shopping with us so we are an extra trip. In the context of today’s marketplace you are only able to do that because you offer an extreme value.” And that value has to be evident on every single item, according to merchandising executive Heintzman, echoing a philosophy well-established in the limited assortment world of warehouse club retailing. “Customers judge you by your worst item so you have to focus on every item and make sure it is an extreme value,” the former Sam Club merchant said. “In our business, we always want to buy short to ensure that we sell through and sell out. If I think we can sell 100 units of something I will buy 90 so we can get on to the next item.” The company’s goal of showcasing value is aided by the fact that the items it sells aren’t necessarily 99 cents, despite the name on the front of the building. The company deviated from rigid adherence to the 99 cent approach 15 years ago, selectively introducing high price points but typically staying below $10, which allowed more latitude when it came to procurement. Today, about 90% of the Skus offered are 99 cents and Sinclair foresees that figure approaching 80% over time.

flooded in August 2017 after Hurricane Harvey inundated the Houston area and it reopened in June 2018 amid great fanfare and a warm reception from the local community. “We had to rip everything out and the reopening was delayed because there was so much recovery work that needed to be done throughout the Houston area,” said Allen Guzman, one of the company’s Houston area district managers. An old vinyl floor was removed and the concrete was polished. New fixtures, paint and equipment were installed and a fresh graphics package with the company’s quirky slogans was added to outer walls. Because the fresh category is so important, the store installed a cooler capable of holding 15 pallets, a 32 foot wall of coolers and two cold tables to showcase opportunistically purchased produce such as 99 cent heads of cauliflower and 49 cent a pound bananas. Guzman also oversees a store in nearby Pasadena that wasn’t flooded by Harvey and has yet to be upgraded. The store is clean, well-organized and offers extreme value, but has a dated look that comes from what Sinclair said was years of underinvestment in stores. “I want more people to get access to what we offer so we need better stores. We need to invest to make them better,” Sinclair said. Improving store operations will go a long way toward helping the company attract more shoppers but so will changing shopper perceptions around what 99 Cents Only is and how it is able to deliver value. “There are three reasons that customers who should be shopping with us aren’t. The first is store conditions aren’t where we want them to be. The second is we get mixed up as being a

FIXING THE STORES The future of what 99 Cents Only would like its stores to be is on display at several Houston area locations that are a study in contrasts. A newly re-opened store at 10220 Almeda Genoa Road is the type of store 99 Cents Only would like to have everywhere. The store was 22

Retail Leader.com JULY/AUGUST 2018

Quality produce and an emphasis on branded goods are key elements of the 99 Cents Only value proposition.

> COVER STORY

Color graphics and quirky expressions make for an interesting and entertaining store experience.

dollar store, which were not, and some customers don’t regard themselves as dollar store customers but they lump us in with the others,” Sinclair said. “It is the stigma of being a dollar store that we have to break out of. We’ve done it well in the Los Angeles area but not as well in our other markets. The third reason is they can quite believe the prices. They think there must be something wrong with the merchandise.” Solving those issues, two of which are marketing related and one operational, will go a long way toward facilitating future growth, which for the time being is focused on existing markets. “There is no limit to where we can go as long as we offer extreme value,” Sinclair said, noting that California, Texas, Arizona and Nevada offer ample near term opportunity. “We’ve only got 50 stores in Texas but we have a warehouse that can handle 250 stores. There is no reason why we can’t get to 250 stores in Texas,” Sinclair said. Clearly enthused by the prospects for the uniquely positioned retailer he leads, Sinclair said the company will be careful to not expand too fast because, rapid expansion “is one of the things that got this company out of kilter in the first place.” Wherever the company expands it is sure to find a Dollar Tree waiting. Although Sinclair will point out differences, Dollar Tree is the closest thing to a direct competitor 99 Cents Only has, even though its stores are less than half the size, lower volume, sell less food and everything is a dollar. Dollar Tree has a considerable head start with 6,425 U.S. stores, annual sales of $11.2 billion and a stated goal of operating more than 10,000 locations. The company has also been aggressively adding frozen and refrigerated coolers to stores with those fixtures now present in more than 5,200 stores with another 500 location getting new equipment this year. 24

Retail Leader.com JULY/AUGUST 2018

If the competition is concerning to Sinclair it is not evident. His company is owned by Ares Management and the Canada Pension Plan Investment Board, major investors in retail with large positions in, or outright ownership of, companies such as Smart & Final, Guitar Center, Nieman Marcus and Floor & Décor. “They are quite an investor in retail and have a real perspective on retail,” Sinclair said. So does the senior leadership team at 99 Cents Only, which is something the company didn’t have before, resulting in costly missteps such as a poorly executed expansion to Texas. Sinclair, Heintzman, CFO Thornton and COO Kidd have all managed significantly larger businesses and delivered results. While Sinclair said he loved every minute of his time at Walmart, the company’s size created challenges. “Ours is not an insignificant business, but you can manage it and make a difference. You could at Walmart too it just took a couple years to do things that I can do here in a couple months,” Sinclair said. “I do genuinely feel like there is a purpose to what we do. I’ve worked for a lot of retailers and when you walk around stores most people when they come up to you don’t say, ‘thanks for being here,’ but I get it all the time now and it’s nice.” RL

AUGUST 16 17, 2018 | THE BROADMOOR COLORADO SPRINGS | COLORADO

W. Rodney McMullen Chairman and CEO The Kroger Co.

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Daymond John Founder/CEO n of FUBU Presidential Ambassador Presidential a for Global l Entrepreneurship Star of A ABC's Shark Tank and CEO of The Shark Group

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Daymond J John’s 5 Shark Points: t Fundamentals for Success in Business and Life

These two leaders will discuss Navigating t the Crashing Waves of Both Globalism o and Nationalism: A Provocative Conversation on World d Views and the Best Path Forward

Humanitarian & F Founder u of Centro Fox; Co-President of the Centrist Democrat International, n international n organization t n of center-right r t political parties

Nigel Farage Co-founder and long-serving leader of the th UK Independence Party t (UKIP) and Brexit Campaigner m

Robert Safian Founder of The Flux Group Managing Editor— Fast Company, Time, Fortune, Money

Lessons of Innovation: How Breakthrough Leaders Thrive in the Age of Flux

REGISTER NOW at gmaleadershipforum2018.com For more information please visit our website or contact Jonathan Downey at jdowney@gmaonline.org AD_fullpagePROGGROC.indd 1

6/5/18 2:12 PM

> TECHNOLOGY AND INNOVATION

INVENTING the Future WANT TO UNDERSTAND WHERE THE RETAIL INDUSTRY IS HEADED? START BY LISTENING TO THE VISION OF DR. PALLAB CHATTERJEE, THE CHAIRMAN AND CEO OF SYMPHONY RETAILAI, A COMPANY WHOSE ARTIFICIAL INTELLIGENCE SOLUTIONS ARE HELPING RETAIL AND CPG TRANSFORM. > Mike Troy

Dr. Pallab Chatterjee may not be a household name in the retail industry, but these days the veteran technology executive is having a major impact on how retail and consumer goods companies operate, work together and serve shoppers. As Chairman and CEO of Symphony RetailAI, Chatterjee leads a company at the forefront of developing artificial intelligence-enabled solutions that solve some of the industry’s thorniest challenges and change how work is being done. “We are focused right now on four roles in retail; the

Veteran technology industry executive Dr. Pallab Chatterjee serves as Chairman and CEO of Symphony RetailAI.

Retail Leader.com JULY/AUGUST 2018

category manager, marketing manager, store manager and supply chain manager. Our whole theme in retail is, how can we make people in each of these roles smarter to give our customers an unfair advantage,” Chatterjee said. “I have to give you an unfair advantage if you are my customer because if I don’t give you an advantage over your competitor why are you my customer?” It is that mindset that led to the introduction of the industry’s first voice-enabled solution for category managers, a product known as CINDE, an acronym for Conversational INsights and Decision Engine. The company has also launched a virtual reality solution to help retailers evaluate the impact of store remodeling and merchandising decisions, a promotional planning solution for marketers and a supply chain-linked app for store managers and employees that helps direct work. AI underpins each of the company’s solutions along with a thought process that begins by taking a step back from a problem and asking, “what if?” “We developed our CINDE product because I was hearing over and over again about category managers who don’t have time to do anything and whenever they wanted to know something analytical they sent a request out and would hear back in two weeks,” Chatterjee said. “We thought people are getting used to Alexa and Siri at home so why can’t there be a conversational interface at work.” CINDE was born, giving category managers the ability to verbalize queries and receive rapid responses. The system was announced last fall and is in use with three retailers of significant scale, according to Chatterjee. “What’s exciting is the quality of intelligence increases with the amount of users who work with it,” Chatterjee said. The company also recently introduced a solution called SR Personalized MarketingAI, a predictive analytics engine designed to make it easy for retailers to deliver customized messages and offers to each shopper in real

time by incorporating a 360-degree view of personal data. The solution is designed to streamline and improve the effectiveness of a personalization process that for many retailers can be highly manual and driven by rules-based algorithms. “For big retailers, 30% to 40% of promotions are ineffective and they know it, but they don’t know which ones and they don’t know what to do about it,” Chatterjee said. Another area of focus where AI is expected to have an impact is at store level where compliance and execution issues are a perpetual challenge. Symphony RetailAI developed a mobile app that integrates with the supply chain to help direct employee work by predicting tasks that need attention. “We are adding more intelligence to it now where an employee can just scan the shelf with a smartphone camera and it will recognize products in real time. Instead of guessing what work needs to be done the system will tell you whether something needs to be done,” Chatterjee said. “For example, is the planogram in the store what it is supposed to be, are prices correct, is the end cap properly set with the appropriate manufacturer’s product? We are seeing productivity increases in the range of 25% to 30% because of the usability of the technology compared to benchmark studies that looked at how long it takes to complete particular tasks.” Another way AI and new technologies are being leveraged at Symphony RetailAI involves the store planning and merchandising process. Chatterjee looked at how much money was being spent on store remodeling and planogram resets without any real validation of the return on investment and thought there has to be a better way. As a result, the company developed SR Virtual Store Remodeling, a solution that enables retailers to optimize existing and new store layouts based on customer-driven design, research and testing analysis, and allows CPGs to analyze how products look and perform on the shelf. “We’ve hit a little bit of nerve with that thing because it is expensive physically to do all this stuff,” Chatterjee said. In relatively short order, Symphony RetailAI has transformed from what Chatterjee called a sleepy little company three years ago that was having difficulty recruiting, to that of an industry innovator gathering momentum and gaining a reputation as a facilitator of disruption.

THE ROAD TO RETAIL To understand how Chatterjee got to where he is today, and the impact he is having on the retail industry, requires a trip back to India in the late 1960s. The field of solid-state electronics was blossoming at the time so he sought admittance to the prestigious Indian Institute of

Symphony RetailAI Chairman and CEO Dr. Pallab Chatterjee is having fun developing artificial intelligence solutions for retailers and CPG companies.

Technology (IIT). He and 250,000 other people took the entrance exam and 2,000 were accepted. “It was a hard place to get into,” Chatterjee said, revealing a tendency for understatement. He went on to receive a doctorate degree and graduate at the top of his class, achieving the unusual feat of earning both awards the school bestows for top academic performance and extracurricular involvement. If Chatterjee had gained some notoriety at IIT, the situation was much different when he arrived at the University of Illinois in the fall of 1972. He recalled trudging a mile to class from his dorm room after an early season snowfall when a professor ask him why he wasn’t wearing a coat. He had arrived stateside with one small suitcase and a light jacket so the sympathetic professor directed him to the thrift shop in the basement of a local church where he obtained a coat suitable for Illinois’ harsh winters. That helped him acclimate to the weather, but there were other adjustments to make. “There was nowhere to eat Indian food. There were a handful of Indian students similar to me working on their PhDs, but that was the only connection to the Indian community,” Chatterjee said. Upon graduation with a master’s and PhD, Chatterjee landed a job at Texas Instruments in the research and development department where he spent the first 15 years of his 25-year career. He went on to distinguish himself in R&D, was named the company’s Chief Technology Officer and was elected into the National Academy of Engineering. JULY/AUGUST 2018 Retail Leader.com

> TECHNOLOGY AND INNOVATION

“Normally people receive that after they turn 70 or so provide leading AI-centric solutions for transforming the but for whatever reason they gave it to me when I was business enterprise across multiple industries. about 41,” Chatterjee said. Having arrived at the pinnacle FOCUSED ON THE FUTURE of the engineer field at a young age, Chatterjee thought to There isn’t much Chatterjee hasn’t been successful at durhimself, “If I just coast now I can take the next 20 years of ing a career characterized by a willingness to take on new my life and keep doing the same thing.” challenges, pursue learning and think differently about That thought didn’t last long because as someone with problem solving. a desire to learn continuously, Chatterjee raised his hand “My philosophy is you go to school to start your when an opportunity arose to lead manufacturing at career, but whatever you learn, especially if you are on Texas Instruments. the technology side of things, is obsolete in three years,” “The operating guys thought, ‘What the hell is this Chatterjee said. That was certainly true in the world of ivory tower guy going to do for us,’ ” Chatterjee said resemiconductors in 1970s, when as head calling the transition, “but we had some good of R&D at Texas Instruments, he had successes.” “If you ask cus800 PhD’s reporting to him. And it is More specifically, he led the company’s calculator business, which was dominant in tomers what they equally true now of a retail industry swirling with disruption. “You need the 1980s with products that today are still need you don’t about eight college degree equivalent required for algebra, geometry and calculus to stay competitive throughstudents. get breakthrough educations out your career.” His career began to take a retail turn when It is that exposure to new challenges the CEO of Texas Instruments at the time innovations, you and the need to continuously learn turned to Chatterjee for a major project. get incremental which Chatterjee said gets his juices “He basically cornered me into taking on flowing. the CIO job because we had a massive SAP gains. No one told “I get much more energy if I have to implementation that I had been very critical of because of how we were progressing and Steve Jobs to make expose myself to an area that maybe I don’t know anything about. If you are the amount of money we were spending,” an iPhone with staying in one vertical all the time you Chatterjee said. “We were the first company get in the mold of group thinking,” that went live with a single instance of SAP a camera and a Chatterjee said. running in 56 countries and didn’t crash the touch screen.” Retail and CPG has Chatterjee’s company. That got me a little interested in juices flowing these days because there software.” —Pallab Chatterjee are plenty of challenges where he During that time, the company also went can bring his engineer’s mindset for live with a supply chain system from i2 problem solving to bear. However, ask him to peer in the Technologies and that piqued Chatterjee’s interest in the future and what sort of things have him intrigued and world of supply chain and demand forecasting. When he mentions China’s continued ascent, the transparency Texas Instruments began divesting different parts of its of the blockchain’s distributed ledger and the Internet of business Chatterjee made the move to join i2, a company Things. These are clearly areas where Chatterjee has been with a big retail practice that marked a stepping stone expending mental energy because he is able to cite precise toward the world of food and consumer goods. statistics about China’s economy, overlay practical appli“It was one more turn where I went into something I cations for blockchain and detail how AI can be brought didn’t know very much about,” Chatterjee said. to bear on massive data flows created by IoT devices. Chatterjee left i2 when the company was sold to JDA “Put those three things together and you are living in a in 2010. He reconnected with Romesh Wadhwani, an completely different world,” Chatterjee said, noting with entrepreneurial executive he had bought a company from a reference to his brain that the next big idea is, “in the while at i2. He had started a private equity firm called sausage factory right now.” Symphony Technology Group (STG) and made two China, the Blockchain and IoT will have to wait. acquisitions. Through STG, Wadhwani bought Aldata Chatterjee and the growing team at Symphony RetailAI in 2009 and EYC in 2010, both of whom were focused have their hands full anticipating the future and develon food retailing and CPG, and needed an operating oping solutions for pain points that retailers and CPG executive to run them. Chatterjee took on the new chalcompanies don’t yet know they are going to have. lenge as Chairman for the companies that were renamed “If you ask customers what they need you don’t get Symphony GOLD and Symphony EYC respectively. breakthrough innovations, you get incremental gains,” Earlier this year those organizations were rebranded as Chatterjee said. “No one told Steve Jobs to make an iPhone divisions of Symphony RetailAI, as part of Wadhwani’s with a camera and a touch screen.” RL new venture, SymphonyAI, a group of companies that 28

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> STRATEGY

The Art of Re-Invention NCR is a 134-year old company that isn’t acting its age. The company’s legacy hardware business is helping retailers transform the store experience but its software and services business are growing faster. The company began 2018 by moving into an ultra-modern headquarters, designed with the workforce of the future in mind, that doubles as a lab to test new technologies such as frictionless checkout. Retail Leader visited the company’s new digs adjacent to the Georgia Institute of Technology in the Midtown area of Atlanta for a conversation with Dirk Izzo, Senior Vice President of NCR’s Industry Solutions Group and Tom Chittenden, Vice President and General Manager of NCR Retail Solutions. Izzo and Chittenden weighed in on NCR’s evolution, the future of retail and what’s next for self-checkout. > By Mike Troy Retail Leader: NCR is a well-established brand, but it has changed a lot in the past decade. What do you think the perception of the company is today and what would you like it to be? Dirk Izzo: If you look at our history, we have reinvented ourselves several times. As it relates to retail, the impression in the market is that we are hardware company and that is an easy impression to make because you see our brand and the logo everywhere on hardware but you don’t necessarily see it on software. There are a lot of products that are NCR products that you would never know because the technology is embedded and our software is running behind the scenes. All most people see is our logo on an ATM, point of sale terminal or self checkout. We are actually not a hardware company if you look at our numbers. RL: How so? DI: We have a $2 billion software business and are a major provider of Dirk Izzo, Senior VP, NCR Industry Solutions Group

business services. Those are the fastest growing areas of our business and it is changing the perception of NCR from a hardware company to a software and services company. Where we are seeing a lot of growth is in the area of managed services where we have roughly 20,000 people focused on helping customers manage the increased complexity of their business. RL: How would you like retailers to respond when asked what they think of the NCR value proposition? DI: What I would like to see customers know us for is the Intel Inside and all the magic we bring that allows them to offer unique and compelling customer experiences. I want our customer to know us as a trusted partner, and the way we do that is through software and services enabled by hardware that keeps everything running from an edge device perspective. RL: The world is evolving very rapidly when it comes to technology and NCR works with a number of partners and you recently entered into an agreement with Tata Consultancy Services. What was the logic behind the deal? DI: They are an amazing organization when it comes to systems integration and engineering. Customers want integration of other capabilities and that is what their sweet spot is. Tom Chittenden: Speed is another consideration. One of the big things retail CIOs talk about is the speed of innovation and wanting solutions they can innovate quickly to drive business value. We have a world class professional services organization

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that we are looking to expand and grow, but we recognize that there is a ton of business value that partners such as Tata can bring as retailers focus on delivering innovation and pulling back from the edge.

DI: Technologies like Fast Lane Mobile give retailers the opportunity to influence behavior at the point of decision rather than at the point of checkout. It’s a huge opportunity for retailers to influence basket size.

RL: What do you mean by, “pulling back from the

RL: If retailers are concerned about how fast they are moving and NCR is a facilitator of the speed at which retailers move, how does NCR stay ahead of the curve?

edge?”

DI: If you think about all of our edge devices today that have intelligence on them such as the product item file, pricing and other intellectual property (IP), when a retailer wants to upgrade something all of those devices have to be touched and tested. What happens in the future is we can pull a lot of that back and put the IP in the cloud so that when you want to do an update it can happen very quickly and you don’t have to touch every device. We have 700 million transactions happening daily at the edge today so if we want to change something we don’t want to have to install software on each device. RL: Pulling back from the edge would be more secure as well I assume.

DI: For sure. The other benefits are faster innovation, lower costs and machines that are easier to service when needed. RL: How does this edge philosophy tie in with NCR’s view of friction elimination that has the traditional point of sale evolving to a point of service?

TC: Frictionless is in the eye of the consumer so there really isn’t one technology stack that you can call frictionless. What’s frictionless for my mom is very different than for my daughter. There are unlimited ways that consumers want to conduct commerce. Some great example of frictionless include Fast Lane Mobile which allows shoppers to scan items as they put them in the cart and Pick List Assist which leverages machine learning to accurately distinguish different type of product over time. Pick List Assist leverages computer vision to tell what type of apple a customer has or the difference between a banana and a plantain. It is about moving AI to the edge to improve the customer experience. RL: Is there an impact on transaction size if shoppers use technology to monitor purchases in real time rather than discovering what they’ve spent at checkout?

TC: The affinity for other items increases because retailers are able to offer real time promotions and personalize them based on items shoppers are scanning.

TC: A real world example is the innovation day we did recently with Georgia Tech. It was the largest hackathon in the nation and we opened up our API’s (application programming interface) to 30 teams and 2,000 participants. We gave them a weekend to come up with applications we could bolt onto the platform. They came up with some very interesting things. We also sponsor the Georgia Tech Business Analytics Center and we do a lot with Georgia Tech grads and undergrads. We are also a magnet for start-ups who come to us to talk about innovation because they see us as an enabler to help them quickly gain scale. RL: How has being in a modern new space affected workplace culture?

TC: I feel like there has been a big shift and it is noticeable when you walk around this building. You can see people working together, understanding the need and getting to the challenge quickly because we have created spaces where teams can work together in a way that promotes responsiveness and customer satisfaction. DI: We were in more than seven buildings in Georgia and other locations worldwide, but if we just look at our new Atlanta office there has been a massive increase in employee engagement and productivity. As organizations changed in the past and introduced flexible hours and remote locations companies lost some of the benefit of water cooler talk. Being in one location has increased

Tom Chittenden, VP and General Manager of NCR Retail Solutions

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> STRATEGY

engagement and heightened conversations about what we are trying to get done. People also went from being email driven and having conversations that might extend over two days to resolving issues in five minutes because there is more face to face communication. We are also set up for stand ups which is an agile development process. Teams come together for quick meetings to discuss what they are working on, what needs to get done and agree on alignment every day. RL: Let’s bring the conversation back to selfcheckout. This is the 20th anniversary of NCR’s first installation and you now have more than 250,000 deployments worldwide. Talk about what you have learned over the 20 years.

TC: The biggest learning is the importance of customer interaction because if they have a problem using self-checkout the first time it can be hard to get them to use it again. So every modification and enhancement we have made over 20 years has been about increasing throughput by reducing friction to delight consumers. RL: What problems do you think NCR will be helping people solve five years from now that you aren’t today given there is so much change going on?

DI: If you think about the dynamics of retail today, we know the pace of technology driven change is

accelerating and that is going to change the way consumers react with retailers in general. I believe the center of the store will get much smaller and those categories will get shipped to our house. That is going to cause retailers to rethink their stores considerably and stores will be smaller and that will drive the technology and where we invest. The question then becomes are the stores just smaller or do retailers take stores they have today and turn them into fulfillment centers which exploit their proximity to the customer. Shopping occasions will be much more convenience based, with less friction and more prepared food. It will cause a rethinking of stores and create a consolidation of formats with many types of retailers going after the convenience trip as the center of the store is eliminated. TC: I agree and I see convenience-oriented stores taking a bigger share of general retail in terms of fresh prepared foods and grocery items. In less than five years, I see a hyper acceleration of social interaction in how you conduct a transaction in a conversational way. Consumers want to transact how they want to transact and often that is by voice. RL: A lot of people hold similar views about some of the forthcoming changes with the biggest difference of opinion being the pace at which some of the changes happen. RL

Dick Izzo and Tom Chittenden at NCR’s new headquarters in the Midtown area of Atlanta.

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> MERCHANDISING AND MARKETING

How AI Gives Merchants SUPER POWERS

W > By Gary Saarenvirta

We’ve all read and heard the many recent stories of artificial intelligence-based computers driving cars, defeating the human champion at GO (a profoundly complex board game that originated in ancient China) and beating humans at ATARI games. The branch of AI for autonomous decision-making with the object to achieve a long-term goal is referred to as “reinforcement learning.” By way of example - long-term goal for self-driving car could be to stay on the road without crashing. A long-term goal for playing GO is to win the game. A long-term goal for a retailer is to maximize net income growth over a year while maintaining positive monthly net income. Predictive analytics is not capable of solving these kinds of problems. AI systems based on reinforcement learning can assist retailers with many aspects of merchandise planning, such as decisions around what products to promote on any marketing channel, what prices to charge, how much inventory to allocate, the optimal assortment, the optimal space plan, etc. When it comes to merchandise planning, the current volume of decisions is enormous. For a retailer with 10 price zones, 10 ad zones, 50 stores, and 50,000 products it equals about three million decisions per week (1,000 promo items at 10 ad zones plus 50,000 prices at 10 price zones plus 50,000 inventory decisions at 50 stores). If the retailer had 50 merchants, that means each would have to make 125 decisions per minute, for 40 hours per week. What these numbers illustrate is the practical impossibility for humans to execute optimal decision making in retail - without assistance. This is where autonomous merchandise planning AI enters the picture. It offers the capability to evaluate a very large number of possible options each week and make optimal decisions with a goal to achieving sales or net income growth over the course of a year or more while minimizing monthly volatility. This technology exists today, but it doesn’t mean AI will put merchants and merchandising professionals out of work. On the contrary. Human beings assisted with AI will be able to more closely focus on strategic priorities such as negotiating with vendors, identifying new and interesting products, and improving store design and customer service. Also, computers do not handle ambiguity very well. Humans are needed when making decisions where there is limited data, making decisions when last minute exceptions occur, and providing oversight to autonomous AI systems, in addition to many other situations where ambiguous decision making occurs.

Autonomous AI merchandise planning systems offer the potential to transform a 1% net margin industry into one with net margins of 5% or more. Retailers Gary Saarenvirta using AI to grow net income will be able to invest more in price and innovation to stay competitive and maintain historical net margin levels. And, assuming incomes don’t actually decline and stay flat, or, continue to grow, consumers will see cost of food decline as a percentage of their disposable income. Some additional capabilities that AI systems need to offer is fault tolerance and automated quality control. Self-driving cars, drones, and spacecraft have backup computer systems to ensure that the system continues to operate in all conditions. When two out of three computers agree, there needs to be a vote to decide what the system should do. With AI, automated quality control is a necessity, in order to ensure the all the decision making is sane and behaving within some historic norms. Autonomous systems should not be allowed make extreme mistakes. These types of issues have long been part of the mainstay conversation in engineering and control systems theory. In fact, control theory and optimal control are in the foundations of AI when discussed in academia but these have yet to make it to the mainstream media as topics of interest. Accidentally ordering one million extra pounds of bananas is not as interesting as a Mars lander crashing into the planet. Artificial intelligence can and will have a profoundly positive and exciting impact in the retail industry, and those companies who lead with AI will survive and remain competitive. And it’s not just the retail industry, or even just business and commerce. Consider society as a whole. Consumers will enjoy favorable pricing, higher quality and better service in the coming years, and have more disposable income if AI is applied to its maximum in all retail (and other industries) to minimize poverty and improve quality of life for people. RL Gary Saarenvirta is the founder and CEO of Daisy Intelligence, a Toronto-based provider of artificial intelligence solutions. JULY/AUGUST 2018 Retail Leader.com

> MERCHANDISING AND MARKETING

Gain an ‘Unstructured’ Advantage RETAILERS CAN WIN WITH EXPERIENCE AND PERSONALIZATION INITIATIVES, BUT DOING SO REQUIRES A FRESH PERSPECTIVE AND NEW WAYS OF WORKING WITH DIFFERENT TYPES OF DATA. > By Jeff Warren

In today’s connected world, consumers expect a personalized shopping experience, and it is up to retailers to either meet these expectations or risk losing potential interactions. According to a recent Oracle study (Retail 2018: The Loyalty Divide) that surveyed more than 13,000 consumers and 500 brands globally, only 32 percent of consumers reported that the retail promotions they receive are relevant, yet more than half (69%) said personalized offers based on their preferences is appealing. Not only are retailers struggling to deliver relevant, personalized offers, but they are continuing to grapple with major changes in their business models due to adoption of online and mobile shopping, and increased competition from online retailers and marketplace disruptors. It’s more important than ever for retailers to adopt a data-led approach and operationalize advancements in retail science, including machine learning and artificial intelligence, to effectively and efficiently personalize their relationship with consumers on an individual level to drive top-line revenue and deliver exceptional customer experiences. Imagine this: a customer we’ll call Sarah Smith tweets an image of a blue dress and tags the retailer. The retailer sees the tweet, locates Sarah’s information in their customer database, and sends her an email with a discount code specifically for the blue dress. Sarah, who prefers to shop in-store, uses the retailer’s mobile app to check for her size at the nearest store location. Upon walking into the store, an associate asks her name, pulls up her profile, includJeff Warren ing search history and

Retail Leader.com JULY/AUGUST 2018

hands her the dress in her size — all without Sarah having to mention what she’s looking for. The item fits perfectly and Sarah uses her email promotion to purchase the dress. The ability to analyze unstructured data coming from a consumer’s social feed and online history, leverage those insights to create personalized promotions in real-time, track the redemption of offers instore and see the full revenue impact of a campaign is the marketing Holy Grail. And while this level of omnichannel seamlessness may seem difficult to achieve, it’s easier than most retailers realize once they define the business processes and requisite technology required to leverage the mountains of unstructured data at their disposal.

THE OPTIMAL APPROACH TO UNSTRUCTURED DATA Unstructured data isn’t a new concept but, until recently, it was extremely costly and time consuming to analyze this data, often with minimal return. However, innovations such as elastic cloud and improved computing power, open source resources, machine learning and artificial intelligence have made it easier for retailers to leverage data to improve processes across the retail enterprise, particularly in customer analytics and marketing strategies. There is more unstructured data in existence than ever before, thanks to social feeds, image meta data, chatbots queries and email correspondence (just to name a few), that retailers can — and should — be capitalizing on. Unstructured data analytics projects can be daunting and often fail as retailers become overwhelmed with where to begin. The first step is to understand what your company is aiming to achieve, whether that’s increasing sales or deeply understanding consumer sentiment. Declaring the business goal upfront will help identify what data the company should be focusing on, creating the ability to narrow the data pool and making the project more manageable.

CLEANSING AND CONSOLIDATION The most important thing to realize is that unstructured data alone isn’t useful. To effectively utilize, you must first normalize the data and then ultimately pair it with some form of structured data as a reference. The data cleansing step requires you to define item attributes, turning unstructured data into digestible, structured data. This is the most critical step of an unstructured data project because to receive accurate insights and forecasts, data attributes must be clean, precise and comprehensive. A company’s unstructured data is only as good as its ability to cleanse and consolidate it with existing structured data. The problem that many retailers face when analyzing data is that their attributes aren’t clean, which leads to inaccurate insights on their performance, inventory, customer behavior, demand forecasts and more. Cleaning up attributes can be a nuanced and time-consuming task that, when done manually, can take a dedicated team and several days to complete. But the silver lining that has allowed unstructured data analysis to become more widely adopted in recent years is the existence of tools that utilize artificial intelligence and machine learning to automate cleansing projects. The result — a project that once took days to complete by multiple, high-value personnel can now be done in less than an hour, freeing up high-quality resources to do more innovative and meaningful work.

MAKING SENSE OF SOCIAL DATA While social data is often the most utilized form of unstructured data for retailers today — allowing insight into consumer behaviors, brand sentiment and promotional opportunities — it can also be one of the most difficult to handle and frankly, very expensive. A huge challenge retailers face is being able to reliably link a social conversation with the person who is ultimately making the purchase. For instance, Sarah Smith may be the user tweeting about her love for a blue dress. However, when the retailer finds “Sarah Smith” in their customer database to send her a targeted promotion, it’s difficult to say with complete certainty that the person in their database is the same “Sarah Smith” that’s discussing the product on Twitter. In that same vein, there are often times when retailer brand names are similar to product model names for a different retailer. Understanding which the consumer is referring to can often require external information that isn’t alluded to in a social post. This is where the pairing of unstructured data with robust, clean structured data plays a key role. When working with data, the rule of thumb is the higher quality you put in, the higher quality insights you will receive. And when these insights are coupled with machine learning capabilities, your chances of accurate predictions are increased.

Another component of increasing accuracy is a large data repository. The more existing data available to compare against the unstructured project, the more likely it is to make reliable predictions based on past similar situations. For example, a retailer can pair it’s structured POS data and loyalty profile information with unstructured social to better identify highly active social influencers for targeted promotions. The beauty of having a fully integrated, data-led approach from click to brick is a single view of customer, inventory, price and promotion which empowers retailers to deliver truly personalized experiences in near real-time.

DATA POWERS PERSONALIZATION AND LOYALTY INITIATIVES Leveraging unstructured social data for retail marketing purposes doesn’t come without it’s challenges. It requires a strong understanding of your overall business goals, dedication to data cleansing and, most of all, persistence. Fortunately, cloud-based technology solutions alleviate many of the problems that once made analyzing unstructured data so difficult, and advances in machine learning, artificial intelligence and voice recognition will continue to improve these processes. Retailers who take advantage of unstructured data, whether it be social, image meta data, email or text messages, will be able to better capitalize on trends and offer targeted promotions, down to an individual level, that drive brand engagement, improve customer experience and increase the company’s overall sales. RL Jeff Warren is Vice President of Retail Strategy and Solutions at Oracle Retail. JULY/AUGUST 2018 Retail Leader.com

RETAIL PULSE

the heartbeat of the marketplace

Quick, Easy, But Not Boring, Please IRI’s food and beverage New Product PacesettersTM illustrate that top CPG brands have captured consumers’ hard-earned dollars because they deliver on high expectations.

onsumers want it all! They want MORE THAN HALF PROVIDE INDULGENCE quick, easy, convenient food and The top 100 food and beverage Pacesetters beverage products that fit into their made a significant mark, driving huge sales in lifestyles, but they also want induladdition to great consumer and social media gent, exciting and enticing prodbuzz. Median year-one sales were $14.5 million, ucts. Responding to these high demands, IRI’s excluding outlier Halo Top ($342.2 million). 2017 food and beverage Pacesetters feature many This is an increase versus last year, when mediindulgent items with rich flavors and extravagant an sales (also excluding an outlier number-one ingredients, but they also come in convenient launch) were $11.4 million. The dollar figure packaging with easy-to-consume contents. was strengthened by the $87-million launch Many of the 2017 food and beverage Pacesetof Nabisco Good Thins, a baked cracker that JOHN MCINDOE, ters make common household consumables — offers crispy, crunchy satisfaction without artiIRI Executive Vice President, ice cream, crackers, water, cookies — anything ficial colors, flavors, cholesterol, high-fructose Chief Marketing Officer but common. They have healthy profiles yet also corn syrup, or partially hydrogenated oils. It’s indulgent flavors, and they reflect consumers’ dea classic cracker, but so much better, with great sires to take care of themselves without depriving themselves. taste and a clean profile. Across food and beverage, as well as non-food, today’s most The top-two food launches clearly reflect consumer desires successful new products underscore the power of innovafor indulgence, but also healthy, clean food. The most powertion by fusing benefits that simplify and enhance consumers’ ful launches of 2017 definitely reflect this balance — more lives, while providing something they enjoy eating or using. than half (53 percent) of food and beverage Pacesetters offer indulgent experiences. Increasingly common across NPP brands are launches that strike a balance between wellness and New Brands vs. Brand Extensions indulgence. Healthier-for-you indulgences are most prevalent among today’s new food and beverage powerhouses. Food and Beverage Non-Food Consumers want to eat healthfully, but they have shown they also look for treats and sweets. Candy and gum account for nine percent of food and beverage Pacesetter dollars, in line with trends seen during the past five years. The largest launch in this area is Hershey’s Cookie Layer Crunch, milk chocolate 89% 60% 75% 93% bars with a shortbread cookie crunch and creamy fillings, providing taste and texture experiences in a hand-held form. NEW BRANDS MAKING A BANG

40% 25%

11% 2013

7% 2017

2013

Source: IRI Market AdvantageTM, new products that completed their first year in calendar year 2017

Retail Leader.com JULY/AUGUST 2018

2017

As the retail and CPG competitive landscapes continue to evolve, the spate of small companies bringing new and more targeted innovation to the marketplace has changed the nature of innovation overall. Just five years ago, an estimated nine out of every 10 Pacesetters launched were extensions of existing product lines. Brand extensions, of course, benefit from existing brand equities, which generally improve the rate of product trial and confidence in consumer acceptance and adoption. This familiarity and

Data & Insight Provided By 1

Top 10 Pacesetters: Food & Beverage

2018 2017

Food and beverage launches that fuse healthier-for-you attributes with indulgence are raking in sizable year-one sales.

$ Million 4

$324.2

Halo Top®

GOOD THiNS®

Dunkin' Donuts® Iced Coffee

Nestlé® Splash™

$55.2

LIFEWTR™

$50.4

SMARTMADE™ by Smart Ones®

$49.3

HERSHEY'S® Cookie Layer Crunch™

$47.7

Hillshire® Snacking

$47.5

Well Yes!®

$47.3

Cracker Barrel® Macaroni & Cheese

$46.6

$87.0 $67.1

Source: IRI Market Advantage™, new products that completed their first year in calendar year 2017

10 8

trust from consumers reduces the odds of product failure. In 2017, 40 percent of food and beverage and 25 percent of non-food Pacesetters were entirely new brands to the CPG marketplace, demonstrating consumers’ willingness to try “unknown” brands. On the food and beverage side, all of the top 10 NPP brands were new market entrants, though several of these — including Dunkin’ Donuts Iced Coffee, Nestlé Splash and Hershey’s Cookie Layer Crunch — certainly benefit from the equity their manufacturers have in the marketplace. In a change from trends evidenced during the past several years, none of this year’s top food and beverage launches crossed into CPG aisles from the restaurant arena. Still, several new brands — including Cracker Barrel Macaroni & Cheese, Hillshire Snacking and Halo Top — boast a restaurant-quality look and feel.

BEVERAGES NAB ALMOST A THIRD OF TOP 10

The water segment has picked up steam in recent years, driven by trends around flavoring, fortification and carbonation, creating a healthy beverage with an indulgent feel. Two bottled waters landed in the top 10, including Nestlé Splash and LIFEWTR, as they deliver on the healthy attributes with a touch of indulgent feel. The coffee and tea sector saw innovation slow, with just three brands and, for the first time in several years, no KCup introductions earning NPP status. However, one coffee product grabbed the number-three spot: Dunkin’ Donuts Iced Coffee, earning more than $67 million. This product captures so many attributes important to consumers today. The top-selling food launches hail from all areas of the store, yet have something very important in common — they resonated with consumers by delivering what they want and how they want it. They are most definitely quick, easy, quality, but not boring. Not boring at all. RL JULY/AUGUST 2018 Retail Leader.com

> SOCIAL RESPONSIBILITY

The Ethics of AI in a Price-Transparent World DATA SCIENCE-BASED CAPABILITIES, INCLUDING MACHINE LEARNING AND ARTIFICIAL INTELLIGENCE, ARE GAINING MOMENTUM IN THE RETAIL INDUSTRY AS RETAILERS SEEK TO CONNECT MORE MEANINGFULLY WITH THEIR SHOPPERS. AT THE SAME TIME, TODAY’S SHOPPERS EXPECT — EVEN DEMAND — COMPLETE PRICE AND PROMOTIONAL TRANSPARENCY. THE LANDSCAPE IS CHANGING FAST CREATING ETHICAL IMPLICATIONS AROUND AI-BASED PRICING FOR RETAIL EXECUTIVES. >By Marc Hafner

As with any overhyped terms, AI and ML are thrown around in sometimes wildly inconsistent ways by various vendors, often making exaggerated claims. While the hype around the terms may be recent, any data scientist can tell you that the key concepts and algorithms have been around since the 1950s. In simplest terms, AI enables machines to carry out tasks in a way that we would consider smart or intelligent. ML is an application of AI based on enabling machines to access data and learn for themselves without explicitly being programmed to do so, and they can continue to evolve as market and customer behaviors change. The reason they are being used much more in retail today is because Marc Hafner of the disruption that has taken place. It’s no longer possible to succeed in retail without the supplement of science. The growth of e-commerce and hyper competitive landscape along with the explosion of customer, competitor and market data, means historical analytical tools are no longer getting the job done. The sheer volumes and variety of data along with the millions of possible scenarios, swamp a human’s ability to consume and analyze the data and make optimal decisions. Yet it’s critical for retailers to understand their digital shoppers who have global shopping and buying power with 24/7 transparency on prices and promotions.

IT’S NOT YOUR FATHER’S RETAIL INDUSTRY We don’t have to look back very far to remember when long lead times existed, price changes were infrequent, and retailers could get away with long-standing everyday prices and repeating the same promotions year after year because “we’ve always done it this way.” By today’s frenetically paced standards, retailers once had the luxury of lead time to prepare price resets and promotional offers. They knew their shoppers and their degree of loyalty to favorite retailers, brands and products. In other 38

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words, their shoppers were well-defined and pretty predictable. And the Economics 101 law of supply and demand dominated: In times of high demand and low supply, retailers could raise prices and consumers would pay them to get their hands on a hot new item or label. This is no longer the case. Long gone are the days where retailers can succeed by employing these types of pricing policies and assumptions. It all sounds so quaint in today’s harsh retail reality. First, we can say goodbye to traditional demand/supply economics. A recent Forrester global shopper study commissioned by Revionics revealed that when retailers raise prices due to limited availability, 59% of shoppers said they would not purchase, wait for a better price, or shop at another retailer. That makes supply-based price hikes incredibly risky for retailers — in terms not just of lost sales but also in terms of losing longtime customers completely. For today’s hyperconnected shoppers, retailers must reach them on their own terms, across a variety of channels, selectively using each promotional vehicle (circulars, endcaps, websites, mobile, social networks, etc.). The good news in all that data is that retailers have access to unprecedented detail on their shoppers’ behavior, competitive data and market evolutions. But the data is valuable only if you can mine and analyze it meaningfully.

AI, ML AND THE ETHICAL DILEMMA Technology has caught up with data volumes and computer power to give retailers the opportunity to mine all of this data, run billions of possible scenarios dynamically, and systematically deliver optimal prices and promotions that will best serve their customers as well as their strategic and financial business objectives. The ethical dilemmas fall broadly into two categories: one relevant to vendors providing the AI- or ML-based solutions to

retailers, and one relevant to how a retailer uses are defining tolerances so that any recom“A key ethical the tools. With respect to ethics in designing AI mendation falling outside these preset limits pricing solutions, a critical element is complete consideration is when are flagged for manual human review. With transparency — retailers should be able to clearly this approach, retailers get the benefit of being understand how the technology arrives at its deci- and how to apply able to respond with agility while still having sions and recommendations. the assurance that any recommendation that personalization in The reason the first generation of price violates business rules or other guidelines will and promotion optimization failed to take trigger manual intervention to either accept or pricing. Although root long-term is because they were black-box reject the recommendation. 65% of shoppers technologies: They did their calculations in the RETAILER FACTOR: background, offering up recommendations to appreciated personal- THE SHOPPER-FACING ETHICS retailers with no context, thus creating uncerCONSIDERATIONS tainty as to their effectiveness and accuracy ized prices, 47% of Well-applied, transparent technology gives and the science was not productized (among those shoppers also retailers confidence in the power of an AImany other reasons). Fortunately, the new most based pricing solution, but how do shoppers advanced generation of AI and ML has learned stated they would view ethics with respect to these systems? from the anemic adoption of the earlier apbe angry if someone First, it always comes back to price: the Forproach, and today the technology proudly leads rester research found that price was the #1 with complete transparency and AI models can else received a better factor shoppers cited when deciding where dynamically learn and regenerate themselves. to shop, across all retail sectors including There is also an important consideration that price.” grocery, apparel, DIY, and convenience. organizations should be able to adjust sensitiviThe studies also showed that shoppers are ties and settings as needed. In today’s solutions, more than ready for dynamic pricing, with 78% saying they are retailers can “turn the knobs” for themselves, making their comfortable with the use of data science to determine prices as own trade-offs between, say, unit volumes and margins to long as they receive a fair price for the product they are purchasenable different strategic price and promotion approaches for ing. In fact, only 6% of respondents say they don’t think it is fair different categories, items, zones or customer segments. They at all for prices to change dynamically. The idea of fairness in can also run detailed simulations of various approaches and pricing is critically important, with 59% of shoppers reporting the impact of each, zeroing in on the most effective combinathat they would refuse to purchase an item if they perceived the tion “before” committing to that price or promotion. price as arbitrary. They accept price increases or decreases that Another key aspect of AI is the notion that systems should remain within the “fair” range if they are based on data science continually learn and improve. The beauty of this flexible tech— that is, driven logically and not arbitrarily. nology is that it senses real-time demand signal changes, shifts A key ethical consideration is when and how to apply perin market factors, and evolving competitive practices to respond sonalization in pricing. Although 65% of shoppers appreciated before humans can detect them. It’s critical to look for AI that personalized prices, 47% of those shoppers also stated they would has proven its ability to detect and respond to these signal shifts. be angry if someone else received a better price, according to the AI ETHICS IN ACTION: DYNAMIC PRICING Forrester research commissioned by Revionics. Further, 59% of At the end of the day, AI ethics require that humans retain shoppers reported that they would refuse to purchase an item ultimate control. An interesting application of the intersection if they perceived the price as arbitrary. Retailers may be best off of self-learning and human control is dynamic pricing in retail. starting off with logical customer segmentation to give prices and Since this is another term that’s thrown around with casual offers that, again, seem fair and relevant to shoppers – for example, definitions, let’s start with the definition of dynamic pricing, a pet supply retailer could logically provide different prices and which is: promotions to cat owners than to dog owners. Clearly, retailers who want to remain relevant to shoppers while Targeted and smart, updating those items where shoppers maintaining a healthy business can and should rely on contemare most sensitive to prices and to competitive offerings porary AI-based price, promotion and markdown optimization technologies. But as Spiderman’s Uncle Ben cautioned, “With great Flexible in frequency, allowing price changes to happen at a power comes great responsibility.” Retailers should absolutely tap speed that matches your business parameters into the power of optimization solutions, but give careful consideration to the importance of ethical transparency in both their Structured for fast, automated processes leveraging selftechnology selection and in how they apply it to constructively learning, science-based algorithms and predefined workflows engage their customers with fair, relevant pricing. RL How can retailers take advantage of automation while still ensuring appropriate human oversight? By setting bumpers, which

Marc Hafner is Chief Executive Officer of Austin-based Revionics, a leading provider of pricing, promotion, markdown and space solutions. JULY/AUGUST 2018 Retail Leader.com

THE RL RESEARCH REPORT What shoppers want from packaging

The waste opportunity 70%

Packaging that keeps items Packaging (particularly for meat) that’s vacuum-sealed to retain freshness

56%

Packaging made from “clean” materials (e.g., doesn’t contain BPA)

52%

Packaging is transparent so product is visible

48%

Packaging is recyclable, reusable, or otherwise eco-friendly

43%

How they determine freshness Ranked #3

Ranked #2

Best-by date

16%

Color

16%

Price

14%

Smell

Cut date

USDA Grade

17% 21% 13%

12%

10% 10%

8% 9%

% Selecting in top 3

Ranked #1

24%

57%

17%

54%

18%

45%

31%

28%

26%

What retailers and shoppers want from seafood Longer shelf life

44% 29%

Freshness indicators More prepared seafood options

26%

Unique seafood varieties available in convenient, value-added formats More sourcing transparency

22% 15%

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Food and consumable shoppers are buying products and frequenting retailers that promote waste-reduction and eco-friendly initiatives. The door to marketing opportunities with new and existing customer segments is wide open when it comes to initiatives that reduce food and packaging waste while improving profits. Datassential research shows that roughly half of consumers believe it’s important that retail packaging minimize waste by being recyclable, reusable, or otherwise eco-friendly. Consumers are especially concerned about reducing waste from items like plastic beverage rings and coffee pods. That’s why companies in this area are embracing biodegradable or recyclable packaging, sometimes even made from food, such as a beverage ring from startup E6PR that is made from wheat and barley. Over half of consumers want packaging made from clean materials, such as BPA free. Eco-first packaging works well across the CPG spectrum as shoppers are keen to make choices that help them reduce waste, but retailers and supplier need to ensure such attributes are highlighted in an authentic way. A FRESH APPROACH TO WASTE REDUCTION As with packaging, efforts to reduce waste from meat, poultry, seafood and produce department can resonate with shoppers and have a beneficial sales impact. Datassential research shows that highlighting the freshness of products through clear labeling of best-by dates, cut dates and the USDA grade. If a customer can’t see it, there is less of a chance they will buy it. Datassential’s Meat + Poultry Keynote report shows consumers’ top factor used to determine the freshness of a meat or poultry product is its bestby or use-by date, but when product nears the end of its shelf life new opportunities arise. Meat, poultry, and seafood products can be used in store prepared foods, grocerant operations or pre-portioned meal kits. In-store messaging can highlight how these products help eliminate food waste. This approach is especially useful in fresh seafood due to its short shelf life, a frequent challenge for operators. In fact, more consumers have purchased or are open to purchasing seafood from the prepared food departments than from any other segment besides fast-casual restaurants. The produce department is another area where retailers have an opportunity to reduce waste by using items with a less-thanperfect appearance in prepared foods. RL

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FEATURED KEYNOTES

Whitney Hardy

John MacDonald

Katherine Wintsch

Brendan Witcher

SVP & CMO

VP & CMO

Founder & CEO

VP/Principal Analyst, Digital Business Strategy