The Next Big Thing: Programmatic Retail
The advertising industry is undergoing rapid change, and buckle your seatbelts, retail is next. The new era of advertising is called “programmatic,” which simply means the work done by yesterday’s ad agencies and media buying firms is now done by computers. We’re entering the programmatic era of retail, and the survivors will be masters of the digital domain. It will apply both online and in-store, disrupting everything from assortment planning to marketing.
Technologists realize that much of what we say sounds like Charlie Brown’s teacher: Wah wah data, Wah wah software, Wah wah. Rest assured, this article will explain the next era in plain-speak, focused more on why it will happen and what you can do about it.
The new era in retail starts with a step change in velocity. On the retail treadmill, someone just jacked up the speed. Apparel retailers used to have 14 weeks for each season, but now aggressive players are moving to much faster cycles. Breaking news, Zara just announced it's moving to a two-week catalog refresh cycle. The fast trend is enabled by computer-aided design tools, nimble offshore contract manufacturers, 3D printing, robotic assembly, and new supply chains. The next time you see a large container ship, be amazed that huge ship has a crew of only 20 people. It’s a supply chain drone. Cost and time are being wrung out of the system, and the next contributor will be China’s Belt and Road Initiative, designed to further compress time in the supply chain.
Closely related to velocity is a recognition that millennials and Gen Z love “new.” They’re the high-velocity generation, rapidly consuming news feeds, multiplayer games and new fashion. Trader Joe’s, the most profitable grocer in the U.S. (and a favorite among millennials), serves as an example. Freakonomics completed a study showing that Trader Joe’s drives $2,000 in revenue per square foot of retail space, compared to $1,200 at Whole Foods and only $600 at Walmart. One of Trader Joe’s secrets is to constantly surprise customers with new products. Trader Joe’s only has 3,000 items in its assortment, compared to more than 50,000 items at competitive grocers, and it rapidly swaps out old with new. In the Freakonomics study, a customer referred to shopping at Trader Joe’s as “a variety-seeking exercise.” In other words, finding new things at Trader Joe’s adds variety and interest to her life. (As a reminder, we’re still talking about grocery shopping.)
At Trader Joe’s, new and interesting is a core strategic plank. A recent IBM study revealed that 62 percent of Generation Z consumers are attracted to new and fun brands. Fast-fashion apparel retailers like H&M, Zara and Uniqlo are targeting this love of novelty. If you point your browser at the Gap or J.Crew, things look pretty much the same as 10 weeks ago. At Zara, you’ll see cool new things every two weeks. The brand is becoming the Trader Joe’s of apparel.
Today’s customer wants new and different, and we now have the supply chain infrastructure to quickly deliver cool new things. What’s the problem? The last step in the supply chain is the non-Amazon retailer, still operating on yesterday’s 14-week assortment model. Think about the way the internet has changed how we consume content. Believe it or not, consumers now read more words than ever on a daily basis. We’ve just changed the way we consume sentences. Instead of books and newspapers, our sentences are delivered in high-velocity tweets and news feeds. Fast news … fast fashion. Is there a difference? Maybe Instagram is the new shopping mall.
Yesterday’s retail was about location, location, location. Choosing the right mall or street corner determined success. Tomorrow’s retail model will hinge on data, data, data. We’ll go far beyond personalization, using data science models to assort products, acquire customers, personalize experiences, and expand customer relationships. If your company has a merchandising department, it will eventually be dwarfed by the data science department. Those staffers will be developing the machine learning models for your Retail 2.0 strategy.
In a recent AdExchanger article, David Williams, Merkle’s CEO, described the retail chief marketing officer's “tough spot.” He noted that marketers must now take on customer experience and managing data as part of their responsibilities. Historically, marketing has been tech lite, but gaining skills in managing data and technology are critical to succeeding in the programmatic retail era. In the advertising parallel, slogans and ad copy are so yesterday. Advertising is now about high-velocity execution underpinned by data and artificial intelligence (AI).
Now, about your future job: Hardly a day goes by without a headline reading, "AI will replace people, and our jobs are doomed." You may have read that IBM’s Deep Blue computer has become an accomplished chess player. It defeated Gary Kasparov, the world chess champion at the time.
You might be surprised to learn that, despite beating all challengers, Deep Blue isn’t the current world chess champion. As it turns out, if you form a team made up of an accomplished chess player and Deep Blue, that combo will win the match. There’s still an important role for the computer between your ears. Prepare for the future when you’ll be teamed with data and computers.
Rob McGovern is CEO of PreciseTarget, a data company that profiles the Retail Buying Taste of every U.S. consumer.