NRF Big Show: Malls Are Dead, D2C's "Nasty Little Secret," the "Achilles Heel" of E-comm, POS Spending Plummets After 2014, Just Say No to "Omnichannel," and How PCI Compliance Is Like "Eating Your Veggies"

It's official: everyone hates the term "omnichannel."

Retail has always generated its fair share of buzzwords and insider jargon (and then some), but judging from the healthy discourse at NRF's 103rd Big Show in New York City, it seems tolerance for "omnichannel" — which was omnipresent in 2013 — is rapidly waning, although the concept of providing a consistent, unified customer experience across channels is more important than ever. While IHL Group analyst Greg Buzek's proposed substitutes "omni-obnoxious" or "om-noxious" may not be quite as PR-friendly, "omni-brand" stands a chance of catching on.

The mall is dead
It's no secret that malls have struggled since the recession and especially given the rise and convenience of online shopping. However, newer mall formats such as outdoor, pedestrian-friendy The Grove in Los Angeles are thriving.

"Since 2006 no new indoor malls have been built," said Rick Caruso, CEO of Caruso Affiliated, a developer of retail and mixed-use complexes and owner of The Grove. "I think the indoor mall is dead."

The return to promenade-style shopping centers aligns with an important historical trend. "Streets are always the number-one retail location," Caruso added. "Fifth Avenue [in New York] has the number-one value for driving sales." Beverly Hill's famous Rodeo Drive is another notable clustering of highly valuable retail in a walkable, outdoor setting.

Today's successful new mall properties focus on allowing brands to express their individual identities through architecture and help to reinvest what "Main Street" looks like by reinvesting in well-trafficked streetfronts.

Nordstrom's location in The Grove has been highly successful but the challenge of executing a new store format lies in having the right personnel, resources and capital, explained company president Blake Nordstrom, adding that retailers in the next five years will have to increase their technology investment levels to deliver the experience that customers are demanding.

"We think stores can take a page from online," he noted.

The high-end department store chain was among those retailers caught up in a confluence of factors last month that led to late Christmas deliveries, and Nordstrom expressed his frustration at failing to deliver on every promise to customers. Of 300,000 packages shipped from the retailer's Cedar Rapids distribution center on Dec. 23, just a "few thousand" didn't arrive on time for the holiday. "The customer doesn't put their trust in UPS — they put their trust in us," explained Nordstrom. "It doesn't matter that 98 percent of the shipments were on time, it's the 2 percent that didn't make it."

D2C's "nasty little secret"
If the pace of change remains the same as it has been in recent history, the retail industry faces more change in the next 5 years than in the past 50, said JDA CEO Hamish Brewer, highlighting the company's Global Retail CEO Survey conducted in partnership with Forbes.

Brewer noted a sharp disconnect between retail CEOs' perceptions and plans. While 34 percent believe the shift to omnichannel is an external threat that's likely to occur, most are focusing on global expansion, opening new stores, and mergers and acquisitions — instead of taking steps to address this perceived threat.

Even as the supply chain takes a more central role in the success of omnichannel retailing, just 17 percent of survey respondents claim their operations are fully optimized, though that figure rises to 34 percent when looking at responses from CEOs respresenting the top 250 global retailers. "Supply chain investments should focus on availability in the context of visibility," said Brewer.

To date, the focus in e-commerce has been a race for revenue, he added, although retailers must come to terms with the significant margin pressures they'll be facing in the near future. "Online is a growth driver and margin killer," Brewer observed. "Don't stop chasing online revenue, but think about what the realities are when you get there." That is, not every retailer has the infrastructure in place to support a high volume of small orders.

"What strain will that put on your operations?" Brewer mused.

The "elephant in the room," he continued, is that Amazon, which keeps product prices impossibly low and tantalizes customers with free two-day shipping through its Prime membership program, "apparently doesn't need to make a profit — but most retailers do."

Indeed, higher return rates are one of the "nasty little secrets" and profit eroders of the direct-to-consumer business, noted Foot Locker CEO Ken Hicks.

Price-matching, which was top-of-mind during the holiday season as retailers sought to satisfy customers, will remain an important strategy, although Brewer suggested that companies rethink how they approach their policies. "Price promise is not good enough in the future," he explained. "You may say ‘yes' to one customer but ‘no' to another, or get close to the requested price while providing instant gratification."

Achilles heel of e-commerce
Even as consumers get used to getting something for nothing, free shipping remains the "Achilles heel" of e-commerce, according to Forrester analyst Sucharita Mulpuru.

Shipping traditionally has been underpriced during the high-volume holiday season, and in 2013 last-minute retailer promises of free overnight or otherwise expedited shipping right up to Dec. 23 led to high-profile late deliveries by logistics providers such as UPS and FedEx. Retailers were "overconfident," Mulpuru noted.

Because it's cheaper for a retailer to send packages to its brick-and-mortar locations than to a customer's home, "the store becomes its own savior," said Mulpuru, adding that the cost savings are a big driver of many retailers' omnichannel strategies.

POS investments on the decline
RIS News' annual Store Systems Study 2014 shows that 60 percent of retailers are increasing IT hiring and another 75 percent are opening new stores, pointing to a positive outlook for the year ahead.

Overall, IT spending this year is expected to be 5 percent higher than 2013 levels. Among the areas of biggest IT project growth, mobile led the way at 70 percent, trailed by Big Data (64 percent), omnichannel (63 percent) and RFID (18 percent), which will be critical in enabling ship-from-store programs that combat "the Amazons of the world."

While POS investments this year remain consistent with historical levels, spending drops off noticeably after 2014. Retailers perhaps are hoping it's the last traditional POS platform they'll ever buy, noted IHL Group's Buzek, with many betting on mPOS as the replacement. "With mobile POS and an associate shopping side by side, the consumer spends 25 percent more on average," he added.

How PCI compliance is like "eating your veggies"
Behind the financial sector, the retail industry is the second-biggest target for hacking and data breaches, creating an imperative for robust security to "overlay all the cool, sexy customer-facing technology" that retailers are embracing to differentiate the shopping experience today, noted Phil Burroughs, vice president of retail and hospitality for Verizon Enterprise Solutions.  

The ongoing investigation into the massive data breach at Target, in addition to hacks at Neiman Marcus and three other as-of-yet unnamed retailers, has retailers running scared at the moment but Burroughs urged the community to seize the crisis as an opportunity for transformation. "Stop thinking like ‘I'm glad it's not me' [that suffered the breach] and come together to enact change," he said.

Not being the victim of a data breach should not be seen as a "competitive advantage," Burroughs added.

Unfortunately, PCI compliance today is akin to "eating your veggies," observed Verizon Enterprise vice president and global managing director, retail & distribution Ravi Bagal. "It's ticking a box," he said.

Buzek, the IHL Group analyst, went one step further, suggesting PCI DSS (data security standards) actually "inhibits true security." To be effective real security must be cultural to the industry as well as the individual enterprise, he said.

"Retailers have to be accurate [with security standards] 100 percent of the time," explained Buzek, noting that the "bad guys" have to succeed just once to wreak havoc and erode consumer confidence.

Stay tuned for additional coverage next week highlighting editor in chief Jordan Speer's Top 10 Takeaways from NRF.
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