I recently had the privilege of sitting down with Oliver Chen, Managing Director and Senior Equity Analyst covering retail and luxury goods at Cowen Inc. a diversified financial services firm.
Oliver is deeply ingrained in all things retail, and has a pulse on the latest trends and technological changes that will impact the retail space. Given his depth of knowledge and experience with many of the world’s top retailers, I wanted to get his perspective on where he sees the retail industry heading and key things retailers and brands should be thinking about as we close out 2018 and look ahead. Below is what we discussed.
Greg Petro: What’s the biggest challenge affecting retailers right now? And what’s going to be a challenge they need to consider in the near future?
Oliver Chen: The biggest challenge is redefining retail for a new generation of shoppers. Retail today needs to transform the way it markets to new consumers. To do this retailers and brands need to develop products on a faster lead time, reinvent the store experience and fully integrate offline and online in an all channel seamless way.
They need to be thinking about this in various facets of the business. For example, the supply chain needs to integrate the dynamics and preferences of the rapidly changing customer. Retailers and brands need to test, read, and react in order to better match supply, demand, and innovation. The most successful retailers are responding to customers’ likes and dislikes in-season.
On the marketing side, we’re seeing a new customer and data focused methodology emerge. Marketers are collecting customer data to better understand preferences and maximize customer lifetime value. Retailers also need to integrate customer information and interactions with social media, which is increasingly important as Gen Z becomes a primary consumer target.
In the future, retailers will need to figure out how to marry data with customer touchpoints and preferences. They’ll need to have a deep understanding of how their customers are interacting with the brand, and they’ll need to have this for the pre-purchase, purchase and after purchase occasions; Cowen calls this the 3Ps. It’s all about using customer-centric context to drive product innovation. By leveraging science and context, retailers and brands can understand what a consumer wants at any phase in the buying process. This will drive customer engagement and loyalty and also help inform retailers and brands about what’s next and necessary.
Greg Petro: Cowen has developed a retail model that is referred to as the 3 C’s. Can you tell me more about that?
Oliver Chen: Retailers and brands need to think about everything they do in the context of the 3 C’s. These include Convenience, Culture and Curation. These may sound simple, but they actually are extremely difficult to execute effectively.
Thanks in large part to Amazon, customer expectations for speed and convenience continue to grow. They want to be able to easily make their purchases and have them on their doorsteps quickly. Retailers and brands are delivering this by adopting innovative ideas including curbside pick-up, same day delivery, mobile geolocation and dressing room pick-up. Convenience is a challenge, because what is convenient for some isn’t for all. For example, something that is convenient to a Gen Z shopper may not be for a Millennial Mom. It is important to note that we are living in an increasingly more stressful world and Generation Z has greater financial and personal anxiety than prior generations given a combination of financial, geopolitical, and self pressure factors. Retailers need to help customers save time, money, or offer superior value for money.
Curation is focused on having a differentiated product and/or brand that enables it to stand out in a crowded, competitive marketplace. And it needs to be of value to the customer. Retailers and brands who are putting the customer at the center of their product and pricing strategies are proving to be the most successful with curation.
The last C is Culture. I’m a firm believer that the future of retail is about the minimization of the task of shopping and the maximization of the experience. Experiential retail, retail that provides a unique experience, retail that connects with and creates new communities – these will be important drivers. We also believe the future of retail is about the unexpected combinations of entertainment, food, health and wellness, music, culture, art, and shopping. Retail needs to be functional and also surprise and delight. Storytelling and captivation will always be part of retail and today we believe the most engaged brands help customers tell their own stories in new contexts. Brands and retailers can enable and foster creativity, community, and co-creation. We’re in the midst of a sharing economy which manifests in several ways. We also live very busy lives, and it’s a huge challenge for retailers and brands to find a way to wedge themselves into them.
So while these all sound the simple, the challenge is putting this concept into practice by uniting the 3C’s to drive long-term sustainable growth. Retailers can email Cowen for a copy of our full report and videos on this topic at Oliver.Chen@cowen.com.
Greg Petro: The Curation piece is an interesting one. How are some of the most successful retailers ensuring they are providing differentiated products at the right price? Any examples of companies doing it well?
Oliver Chen: Kohl’s is a great example. They are doing well by selling more with less inventory. Simplicity is a theme we are going to see expanding in the industry. Customers don’t want to have the anxiety of too much choice or to have choice that’s filtered or customized by their individual preferences or needs.
In many situations, retailers and brands can simplify to amplify. They can do this by using science to drive decision making. We are seeing the transformation of the merchant in the buying role. Rather than solely relying on their gut, they are using data to make more informed decisions, allowing them to rationalize their ranges with more confidence.
Other successful examples include fast-fashion companies that understand the power of very, very short lead times. They know how to respond and create a product in quick cycles in order to respond to fashion trends. This is huge as many retail supply chains are nine months to a year out; this is too long and is a significant risk factor. A lot can change in that time, including customer preferences.
Successful retailers are stepping back to the fundamentals of retail by matching supply and demand. It’s about understanding and measuring demand and solving for supply. In some ways retail is very basic – getting the right product, at the right time at the right price; however, because new generations expect immediate gratification, this has become harder than ever. Technology has transformed expectations, de-centralized power and preferences, and enabled new routes to reaching the customer. The change is exciting, disruptive, and also collaborative. Now, customers also have a lot more power and influence. Retailers needs to drive the speed of decision making and data is a big component of that.
Greg Petro: How do you think tariffs will affect retailers and brands? Will they have an impact on curation?
Oliver Chen: There are so many issues around pricing, including rising workforce costs and increased pressures on transportation costs. In addition, the expectations of the consumer keep driving higher. Tariffs are a piece of the broader picture.
Value becomes a huge component with everything I’ve mentioned above. It’s all about providing a product that the consumer values. Retailers and brands need to understand what features a consumer values in order to effectively develop and source a product. They also need to understand price elasticity to see where customers are sensitive to price so they can price around that. Retailers doing this correctly will achieve long term growth and more sales.
The need to understand what finishes and details a customer actually values is not going to go away, even if the tariffs do. Retailers and brands need to adopt strategies today to glean those insights from consumers before bringing products to market.