VR and AI Wizardry Can't Help Stores Struggling to Nail Down the Basics
Retail's Failings Steal the Show Ahead of Industry's Big Event
(Bloomberg) -- Across three floors of Manhattan’s Javits convention center, about 37,000 retail-industry professionals will come together this weekend to “revolutionize” the shopping experience with virtual reality, artificial intelligence and facial recognition.
But after this week’s series of lackluster holiday sales reports, retailers might want to ditch the VR goggles and focus instead on the stark reality that many aren’t even getting the basics right. A selloff in retail stocks Thursday showed just how much pressure companies are under to compete in a digital world, and how little margin for error they have.
At Macy’s Inc., Black Friday went well, but changes to a holiday promotion backfired and the stream of shoppers coming in the doors dwindled during December. Fellow department store J.C. Penney Co. admitted that it still has too many under-performing locations and pledged to close more. Bed Bath & Beyond Inc.’s new app-based membership program, which offers discounts and free shipping, dragged down margins, while its stores remain crammed full of products that are mostly obtainable elsewhere -- such as on Amazon.com.
“This is Retail 101,” Neil Saunders, an analyst at GlobalData Retail, said. “You have to get the foundations right before you do the fancy things. It drives me mad.”
Fancy things were all the rage among retailers this week: Supermarket chain Kroger Co. and Microsoft Corp. unveiled a partnership to build futuristic stores with digital shelves and data-gathering sensors, all powered by the software company’s cloud network, while Walmart Inc. added another autonomous car company to its roster of driverless delivery vendors.
Many more announcements will follow over the weekend and into next week at the National Retail Federation’s so-called Big Show, the industry’s largest conference, where attendees will “test-drive the latest tech and watch solutions come alive,” according to the show’s website. Attendees can hear presentations on the “artificial intelligence revolution” or find out “why is there a robot in my store?”
Big Investments
It’s not just talk: Retailers are investing billions on new technologies like mobile apps and automated warehouses, acquiring Silicon Valley startups to gain tech-savvy talent and partnering with companies like Microsoft and Google to hone their digital chops.
This is also spooking investors, however. Retailers’ stocks have fallen as spending to create mobile apps and improve e-commerce increasingly eats into profit margins that are already being pressured by rising labor and transportation costs.
According to researcher Gartner Inc., worldwide retail technology spending will increase 3.6 percent to more than $200 billion in 2019. One survey of 115 retail professionals found that “new technology” was the most likely area to get a budget increase last year.
“We want to invest smartly,” Jeremy King, Walmart’s chief technology officer, said in an interview with Bloomberg Television on Friday. “We’ve always had a good balance between profitability and investment. It’s not a blank check.”
Retailers have always been entranced by finding new ways to improve the ancient art of hawking goods to shoppers. Fifteen years ago, the industry went gaga over radio-frequency identification, or RFID. The tiny wireless tags aimed to create a retail world where shelves were always full, shoplifting was eradicated and supply chains hummed smoothly. But RFID deployments were costly and benefits slow to emerge, so retailers focused instead on using it only for high-value items, like luxury goods.
To be sure, some retail tech is paying off and improving performance. Target’s investments in supply-chain software and analytics allowed shoppers to order last-minute gifts on Christmas Eve and pick them up in stores. Walmart’s redesigned website helped boost online sales revenue by 86 percent in December compared with a year earlier, according to researcher Edison Trends.
In those cases, the technology made a clear difference for consumers. Too often, though, it doesn’t. Costco Wholesale Corp. has outperformed its retail peers for decades by sticking with the basics -- selling stuff customers want, and even stuff they didn’t know they wanted, at low prices. And forget digital shelves: Most of Costco’s price tags come from an HP printer in the back room. It hasn’t hurt Costco any, as December sales beat estimates once again thanks to new items like Apple laptops.
‘Creepy’
Sometimes, technology can even be detrimental: A survey by RichRelevance shows that seven out of 10 shoppers say the use of artificial intelligence to choose and order products on their behalf is “creepy.” Only 14 percent found it “cool.” Also, a majority of shoppers prefer human cashiers to self-checkout kiosks, according to analysis provider eMarketer.
“It’s not using technology for technology’s sake,” Walmart’s King said. “It’s about turning that into something that customers will love.”
To contact the reporters on this story: Matthew Boyle in New York at mboyle20@bloomberg.net;Emma Chandra in New York at echandra6@bloomberg.net
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jonathan Roeder, Anne Riley Moffat
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