RETHINKING THE RETAIL STORE TRENDS AND TECHNOLOGIES FOR 2013 AND BEYOND

Introduction

he rapid advancement of technology, and its remarkably fast acceptance by consumers, is likely to cause many retailers to rethink the very nature of the stores they operate. In the past five years, the shopping behavior and expectations of many consumers have changed more than most brick-and-mortar retailers have been able or willing to accommodate. This report is for owners, shareholders, and senior executives across business functions in retail companies. Its hard to change so many stores. And by the time youve adapted, your customers are likely to expect even more. We at Jesta I.S. have been thinking hard about the fast-evolving nature of stores. Even so, were cautious in our public speculation about the future. We have no crystal ball; our predictions are no more likely to be right than anyone elses. But, like you, we have to make business decisions that anticipate futures we think are likely. Fortunately, our retail customers have taught us a great deal. All told, they operate thousands of stores in many lines of retail business. Recently weve also reviewed more than 30 current articles and documents that address the changing role of stores. This report distills what we think are the most compelling and relevant of the insights we gained from our research, as well as from our work with customers. It also recommends sources for further reading.

Executive Summary
The changes facing retail stores are driven by the convergence of powerful trends in five key areas: economics and demographics competition in the retail industry the growth and sophistication of e-commerce technical innovation, and the shopping behavior and expectations of customers. We believe that within the next three to five years, most retailers are likely to experience big changes in virtually every aspect their stores, including these: store location and size store design business processes merchandise assortments deployment and use of technology staffing, compensation and personnel practices, and local marketing practices. This report focuses on what we believe is the central question for brick-and-mortar retailers:

How can stores continue offering value to customers whose shopping habits and expectations appear likely to keep evolving fast?

Specifically, this document addresses opportunities to deploy and use new technologies to this end. We believe the stores of some retailers may be relatively unaffected by the changing behavior of consumers who shop with mobile devices at least in the next few years. In this group we include many discounters and off-price retailers. Their main appeal is low price, and many of their customers are not sophisticated users of technology to improve their shopping experience. No one knows how fast or how far the changes may go. But they are well underway in many retail segments, and the pace appears to be accelerating. Insightful retail executives understand that they cant wait for certainty before they act.

How technology is driving change

Technical innovation is a powerful driver of change in retail today: In the past few years, consumers have adopted several low-cost technologies at unprecedented speed. The technologies include smartphones, tablet computers and flat-screen video displays. Consumers expect retailers to use these technologies to improve their shopping experience. Easy-to-use consumer software applications (or apps) have become the de facto standard for development of enterprise software. The emergence of cloud computing and software-subscription services enables retailers to deploy enterprise systems faster and at lower cost than ever before. The cost of putting wireless infrastructure into stores is relatively low. Social media is emerging an important factor in consumer buying behavior. The sophistication and convenience of e-commerce is setting new standards for shopping in stores. Multichannel retailers have access to powerful tools for gathering, storing and analyzing massive amounts of data from consumers online interactions. Such data can yield detailed insights into the shopping habits, purchases, tastes and preferences of individuals. In the past 10 years, new technology has given consumers unprecedented access to information that helps them make smarter buying decisions. This information has put your customers in the catbird seat.

How consumer expectations are changing

Most shoppers look to retail stores to provide social and sensory experiences they cant get online: They want to see and feel products before they buy. They want to try on clothes to see how they look and how they fit. They want to be surprised by appealing merchandise they werent shopping for. Armed with smartphones and tablet computers, a growing number of shoppers are also telling retailers they expect their in-store experience to be as convenient, as interesting, as informative and as personalized as their best online shopping experiences. Considering the sophistication of online retailers like Amazon.com, this is a big expectation.

If they need help with a decision, they want fast access to a helpful and knowledgeable store associate who isnt pushy. They want to be able to look up information online, through a mobile-enabled website maybe on devices retailers provide in the store. A growing number of consumers are using smartphones to help them shop while they are in stores. In a practice known as showrooming, they may use their phones to shop for better prices from online sources. They may also check social networks, look for product reviews, and seek detailed product information. Not all retailers will feel the same amount of pressure to provide uniform levels of service to all customers. Customers naturally expect more and better services from retailers who sell more expensive and more complex merchandise. They also expect much more from multichannel retailers that operate many stores than they do from local retailers who sell through only a few brick-and-mortar stores. Customers are increasingly likely to expect the following services from mid-sized to large multichannel retailers: They want consistent treatment across all sales channels with respect to pricing, promotions and loyalty programs. They want to benefit from the information retailers have collected online about their personal preferences. They want personalized, relevant offers of merchandise thats likely to appeal to them. If a store is out of stock for an item they want, they expect it to be shipped to their home or office, with fast delivery at no charge. They want the flexibility to buy product on an e-commerce site and pick it up at the store. They want stores to accept the return of products they buy online. In addition, they want all of these services fast and without hassles. Toward the leading edge of expectation, you may find growing numbers of customers who also want one or more of these services: scheduled appointments with individual sales associates instant matching of online prices payment by electronic wallet or through services such as PayPal next-day or same-day delivery for customer orders.

How technology is changing stores

Retailers are deploying new technology in their stores for two main reasons: to improve the customers shopping experience to better manage store operations. While both are high priorities, we believe its important for most retailers to focus first on improving the shopping experience. This, after all, is what keeps customers returning to stores.

Retailers must provide value in stores that customers are unlikely to find online. This value may come in any of several forms: rich sensory experience merchandise that isnt available elsewhere in-depth product information opportunity to evaluate merchandise before buying it satisfying social interaction access to knowledgeable and helpful experts personalized one-on-one attention entertainment surprise emotional engagement. These and possibly other kinds of unique value are likely to make stores more effective in generating revenue and profit.

Store technology in the service of customers

Stores have a broad and growing range of technologies to help them provide more value to their customers. Many of these technologies require in-store access to wireless communications, for both shoppers and store associates. This requirement alone presents an imperative to the 58% of North American retailers who dont provide wireless technology for store associates or customers to use in their stores.1 With wireless communications in place, stores can deploy mobile-enabled software applications for point of sale (POS), customer relationship management (CRM) and clienteling. In combination, these technologies can enable store associates to extend appropriate, individualized promotional offers that customers are likely to appreciate. Retailers can also use wireless technology to train store associates through the use of tablet computers such as iPads and other devices. Such training can make associates more knowledgeable about merchandise. It can also make them more effective in selling it. QR codes or other technologies, used in conjunction with in-store mobile devices or information kiosks, can give shoppers easy access to additional product information -- including detailed specifications, product reviews, videos of product in use, social-media feedback, and so on. Flat-screen digital displays enable stores to deploy electronic signage. They also provide ways to present digital imagery that increases customers emotional engagement or that provides information about merchandise. Near-field communications (or NFC) technology enables shoppers to pay for their purchases through cashless transactions that dont require them to present credit cards for payment. Some retailers are also using highly specialized technology to provide in-store services that are hard to duplicate online. For example, some department stores have deployed technology that measures womens bodies and makes it easier for them to find jeans that fit.2

Technology to improve store operations

Unless you enhance the technology in your stores, you probably wont be able to deliver the shopping experience your customers expect. As you evaluate your needs, you might consider how your stores will use each of the following kinds of systems: Merchandising (including cross-channel pricing, plus inventory tracking and lookup) Customer relationship management Customer order management Order fulfillment and shipping management Point of sale Business intelligence and analytics Workforce management and labor scheduling Human resources Any or all of these systems may be deployed on mobile devices as the needs of individual stores may dictate.

Recommendations
You cant go wrong by focusing first on understanding your customers and finding ways to deliver exceptional value. Because of the uncertainty and the fast pace of change in the current retail environment, retailers of all sizes should consider managing part of their business as it were a start-up company. An entrepreneurial business unit within your company might be made responsible for developing new store concepts. Agility, speed, flexibility and adaptation are the most valuable traits for startups. Increasingly, they are also becoming essential traits for big companies. Long-term planning and formal projections the habitual operating methods for bigger companies -- are of limited value in fast-changing or ambiguous environments. To adapt successfully to the amount of change we believe is coming, mature retailers must renew or instill a culture of entrepreneurship. You can begin doing so on a small scale, with a team that works outside the constraints of your companys formal processes and procedures. You can also learn from a growing body of literature about how to manage lean and agile businesses amid uncertainty. Here are the key principles: Place small bets. Improvise. Experiment. Iterate fast to learn quickly. Accept imperfection as a consequence of speed. Allow your people to make mistakes, but not the same ones twice. For more ideas about how your company can prepare your stores for fast-changing customer expectations, please visit the Jesta I.S. website at: http://www.jestais.com/point-sale

About Jesta I.S.

Jesta I.S. is a leading supplier of enterprise business solutions for retailers, manufacturers and distributors in the apparel, footwear and soft goods industries worldwide. Jesta I.S. is recognized for its expertise, innovative products and services as well as its commitment to delivering efficient business solutions in todays consumer-oriented marketplace. Jesta I.S. solutions support essential business management information for global industry leaders including Perry Ellis International (NASDAQ: PERY), PUMA (German: PUM), Genesco Inc. (NYSE: GCO), Town Shoes Limited, Cole Haan, Cavenders Boot City, DSW Inc. (NYSE: DSW), A|wear, Lotus Supercenter, Fanvision as well as many others. Additional information is available at www.jestais.com.

Suggested Reading
Aaker, David. Will Retailing Ever Be the Same? Harvard Business Review blog. September 6, 2011. http://blogs.hbr.org/cs/2011/09/will_retailing_ever_be_the_sam.html (accessed October 9, 2012), Baird, Nikki; Kilcourse, Brian. Executing on the Promise: Retail Fulfillment 2012. RSR Research report. July 2012. Burk, Christina Cheddar. Why Brick-and-Mortar Stores Will Trump Online. CNBC interview with Jerry Storch, chief executive officer of Toys R Us. September 25, 2012. http://www.cnbc.com/id/49164026 (accessed October 9, 2012). Cognizant. Changing Consumers and Technology: Ten Megatrends Transforming the Retail Landscape. Cognizant report. November 2010. Favaro, Ken; Hodson, Nick. The End of History, or Retail 3.0. Harvard Business Review blog. November 21, 2011. http://blogs.hbr.org/cs/2011/11/the_end_of_history_or_retail_3.html (accessed October 9, 2012). Forrester Research. U.S. Cross-Channel Retail Forecast. Forrester Research report. 2011. Kilcourse, Brian. How Technology Could Really Threaten Stores. RSR Research blog, June 12, 2012. http://www.rsrresearch.com/2012/06/12/how-technology-could-really-threaten-stores/. (accessed October 9, 2012). Lal, Rajiv; Alvarez, Jos B. Death Knell for the Category Killers? Harvard Business Review blog. December 19, 2011. http://blogs.hbr.org/cs/2011/12/death_knell_for_the_category_k.html (accessed October 9, 2012). Lasilla, Neal. Re-Imagining the Traditional Store Through Technology. The Mobile Retail Blog. August 21, 2012. http://www.themobileretailblog.com/mobile-commerce-strategies/fresh-ideas-re-imagining-the-traditional-storethrough-mobile/ (accessed October 9, 2012). Li, Shan. Denim Shopping Gets Easier with Digital Sizing Stations at Malls. Los Angeles Times online. May 3, 2012. http://articles.latimes.com/2012/may/03/business/la-fi-mo-digital-sizing-mall-20120502. Matthews, Christopher. Reports of the Shopping Malls Death Have Been Greatly Exaggerated. Time online. August 10, 2012. http://business.time.com/2012/08/10/reports-of-the-shopping-malls-death-have-been-greatlyexaggerated/#ixzz28KZ1QgOu (accessed October 9, 2012). Matthews, Christopher. Will Amazon Take Over the World? Time online. July 16, 2012. http://business.time.com/2012/07/16/will-amazon-take-over-the-world/ (accessed October 9, 2012). Merholz, Peter. For the Future of Retail, Look to Its Past. Harvard Business Review blog. December 12, 2012. http://blogs.hbr.org/merholz/2011/12/the-future-of-retail-look-to-i.html (accessed October 9, 2012). NCR, C-Tailing is Here. The Future is Now. Are You Ready? NCR report. No publication or copyright date. Nielsen Company, The. Retail USA: Whats in Store for 2016. Nielsen report. 2012. PWC. Multi-channel Retailing: Customers Take Control. PWC report. December 2011. PWC. U.S. Multichannel Shopping Survey. PWC report. Rigby, Darrel. The Future of Shopping, Harvard Business Review blog, December 2011. http://hbr.org/2011/12/thefuture-of-shopping/ar/1 (accessed October 9, 2012). Rosenblum, Paula; Rowen, Steve. The 2012 Retail Store: In Transition. 2012 Benchmark Report. RSR Research, May 2012, 12 Skinner, Steven. Engaging Shoppers with Intelligent Stores. Harvard Business Review blog. March 4, 2012. http://blogs.hbr.org/cs/2011/03/engaging_shoppers_with_intelli.html (accessed October 9, 2012). Skinner, Steven. Shopper Experience Study. RIS News report. June 2012. Skorupa, Joe. Embracing Change: Retail Technology Study 2012. RIS News report. April 2012. Strugatz, Rachel. Amazon E-Commerce Reign Pushes Retailers to Step Up. Womens Wear Daily online. August 10, 2012. http://www.wwd.com/retail-news/direct-internet-catalogue/amazon-e-commerce-reign-pushes-retailers-to-stepup-6371011?full=true (accessed October 9, 2012). Williams, Lawrence; Ackerman, Joshua. Please Touch the Merchandise. Harvard Business Review blog. December 15, 2011. http://blogs.hbr.org/cs/2011/12/please_touch_the_merchandise.html (accessed October 9, 2012). Zimmerman, Ann; Banjo, Shelly. New Web Victim: Office-Supply Stores. Wall Street Journal online. September 25, 2012. http://online.wsj.com/article/SB10000872396390444358804578018082713484050.html?mod=dist_smartbrief (accessed October 9, 2012) Notes 1Paula Rosenblum and Steve Rowen. The 2012 Retail Store: In Transition. 2012 Benchmark Report (RSR Research, May 2012), 12 2Shan Li. Denim Shopping Gets Easier with Digital Sizing Stations at Malls (Los Angeles Times online, May 3, 2012) http://articles.latimes.com/2012/may/03/business/la-fi-mo-digital-sizing-mall-20120502 (accessed September 14, 2012).