May 7, 2005

When Retailers Can't Afford to Be Strategic

By Evan Schuman, Ziff Davis Internet

Opinion: A prototype drive-through supermarket and an experimental Wal-Mart robot illustrate what's wrong with retail technology today. Let's call it a customer-non-centric strategy.

There are tons of practical definitions of how using technology in retail is strategic versus tactical.

One definition we're fond of is quite practical: Using technology to truly help your customer is strategic, in that it will make those customers more likely to repeatedly come back and spread favorable word-of-mouth endorsements. Using technology to address a short-term problem—or to help your bottom line but not the customer's—is tactical in that it is unlikely to improve revenue or profits for the long-term.

Such platitudes are easy to say for most verticals—and especially easy to say for a columnist, who gets paid to blather on about such things—but how easy is it to execute in a business with razor-thin margins such as retail?

I bring this up because I've been thinking recently about a drive-through supermarket prototype being built in New Mexico. The idea was straightforward enough: create a supermarket that eliminated the most unpleasant parts of shopping, including finding the (constantly relocated) items; pushing around a squeaky shopping cart; and standing in line to pay for it all, bag the items, refill the shopping cart with the bags and then repack all of those bags into your car.

But what turned the drive-through shopping mall from a good idea into a revolutionary idea is also what may prevent the idea from being an economic success. Namely, it completely flips the business model of the typical grocery chain.

Regardless of how non-intuitive it may seem, the typical grocery store today is not designed to cater to its paying customers. On the contrary, its entire business operation caters to the businesses to which it pays money: suppliers. After the suppliers comes the retailer's bottom line. Customers rank a distant third.

Customers don't want merchandise to frequently shift locations. Retailers and suppliers do, so that consumers have to be tempted by new items as they scan myriad aisles searching for the Scotch tape dispensers. Parents don't want candy in the self-checkout line to tempt children; candy makers do. Nor do those parents want sugar-laden cereals at their kids' eye-level in the breakfast food aisle.

Some grocery contradictions help the customer, but in a contradictory manner. The oft-cited express lane is the best example: Why reward your worst customers with the fastest checkout? Why not make that a reward for those who buy the most?

Back to our drive-through grocery store. Customers can electronically submit a shopping list of what they want, with no temptations to buy unneeded items. No more trying to figure out where an item is housed.

This approach virtually eliminates the time-honored approach of buying impulse items and makes the experience much more efficient. Will customers flock to this approach, forcing much of retail to catch up? Or will the industry pressure the drive-through into conforming?

The grocery segment of retail is more comfortable with using technology to feign customer convenience, rather than to actually deliver it.

Consider self-checkout. Just like drivers miss true full-service gas stations ("We in the petroleum industry have a great new consumer improvement for you. When you pull into a gas station now, you can get out of the car in the rain and pump your own gas. Pretty exciting, eh?!"), most grocery customers aren't thrilled with slowly scanning and bagging their own purchases.

As I type this in New Jersey, I can report to you that this is one of the few states where self-service is prohibited. Regardless of the reason for the prohibition, it's one of the few reasons to stay here in the Toxic Waste State, although living in a jurisdiction that has its own nationally recognized state stench is certainly worth something.

To be honest, the "full serve" at most New Jersey gas stations is not the "full serve" from years ago, with windshield washing and oil-level checking, but it's something.

The motivation behind grocery self-checkout is mostly to address labor shortages and—depending on who you ask—to reallocate personnel to more labor-intensive services, such as at the deli or bakery. If that truly happens, I guess that would be semi-strategic.

The loyalty cards are also not for the convenience of the customer but are merely attempts to house CRM data for the retailer. (OK, very few retailers actually use it as CRM data, so let's just call it market-basket analysis in aggregate and move on.) To placate the customer, they are typically offered small savings on various items, which often are promotions for consumer goods manufacturers wanted to promote anyway, so even that consumer benefit is also a tactic to make buyers spend more money. *Sigh.*

A less cynical—and arguably more strategic—use of technology comes from our friends at Wal-Mart, who are experimenting with having robots help visually impaired customers.

If it's deployed as initially discussed, this could be a wonderful example of strategic retailing. The expensive robots serve no direct purpose other than to help customers be independent. They're not pushing certain brands of cereal, using their strength to allow the customer to purchase more products or noting what items the customer longs for but hasn't purchased.

No, it's merely helping the customer in a manner that few retailers have the financial wherewithal to offer. But as a consequence, visually impaired consumers—and their friends and relatives—may develop a fondness for Wal-Mart, which could translate into far more additional sales than anything that is more profit-oriented could be. Hence, it's strategic.

Of course, assuming Wal-Mart ends up deploying its R2D2/Hymie (for Get Smart fans) strategy, it would always have the option of indeed getting the robot to push the customer to make certain preferred purchases, in which case that technology would quickly become tactical. Oh, and stupid, too.