You, Me and We Commerce: The Future of Retail IT?
By Tom Friedman, [email protected]
I was once a high-profile observer of the retail IT industry, when I was CEO of global research and trade show company Retail Systems Alert Group (RSAG). However, since selling RSAG to a private equity firm in 2004, I have kept a low profile in the industry.
Recently, my involvement with angel investing and startup mentoring has offered me a new perspective on the industry. I am now working with nascent startups worldwide entering the retail IT space.
From this vantage point, it appears that new systems and technology are enabling convergence of retailers, customers and brand manufacturers. I believe this will allow great leaps forward in merchandising, assortment, pricing, supply chain and product design.
First, let’s look at some of the IT-fueled retail innovations that are happening right now.
Perfecting old opportunities: ‘You commerce’
Today, a retailer speaks with customers to obtain information about which products the customer desires and then builds sales and assortment strategies around that conversation. I call this “You Commerce.” With developments in social media, these conversations are far more insightful and easier to act upon.
For example, I am mentoring a new Russian ecommerce company that allows women to create a 3-D avatar of their body dimensions and then try on fashion apparel virtually. Social networks add another layer to the process by allowing the shopper’s friends to sneak a look and offer advice. As a result, retailers could soon offer online service that assist customers with selecting better-fitted clothing options that are instantly vetted by the ever-so-important critiques from close friends.
Enabling new opportunities: ‘Me commerce’
In addition to perfecting old opportunities, IT innovation has begun to enable what many are calling “Me Commerce” (or retailing where the customer initiates the conversation and calls the shots). Under this scenario, the customer decides where a product will be available, what it will look like and even what it will cost.
A current example of “Me Commerce” is the Nike iD Studio concept store in New York and other major global cities. Through kiosks and online discussions with in-house shoe designers, customers build new “kicks” to match their color, style and functional preferences. Moreover, a few start-ups are investigating how a twist on the “reverse auction process” could enable customers to negotiate with retailers over markdown pricing.
Despite worries from retailers that this could erode margins, the insights gained from customer-assisted pricing practices could improve sell-through and provide true localized pricing.
The next step: Introducing product designers to customers
With the exception of Nike and a few other major brands with storefronts or websites, the product designer has a low profile or no role in the conversation with customers in the Me Commerce and You Commerce models. Typically, the retailer and the brand have a pre-season buying conversation based on a catalogue of already designed products. The retailer may buy based on sales histories for similar merchandise but it remains a guessing game season-to-season on which products will fly off retail shelves and racks. Brands may occasionally run consumer focus groups to reduce the risk, but designers and most customers have limited visibility or interaction, especially for toys, fashion and other short-cycle merchandise.
I am starting to see entrepreneurs experimenting with crowdfunding concepts (such as Kickstarter and Indiegogo) that enable independent designers to hear from potential customers about products and trends instantly. In addition, companies such as Lego have begun including existing customers in the corporate R&D process through Web-based product design challenges.
Working independently or in R&D at major brands, designers are embracing these new interactions to create relevancy earlier in the development process. I am grouping all these new activities under the broad category of “We Commerce.” This “demand-drive” environment could result in shortened development cycles, heightened sell-through, higher gross margins, fewer markdowns and happier customers, retailers and brands.
What it takes to get there
Despite my optimism expressed in this quick overview, I do not know exactly what the “We Commerce” retail business model will look like or how it will change the landscape. What I do know is that more and more bright, tech-savvy entrepreneurs around the world are acknowledging and tackling difficult retail problems. They are tinkering with new avatar systems, data analytics, cloud-based computing, social media and crowdsourcing. On the horizon, these technologies promise to change how retailers, brands and customers interact and to improve the overall shopping experience.
Tom Friedman was CEO and chairman of Retail Systems Alert Group from 1988 through 2004. He is now a Boston-based angel investor and mentor at MassChallenge Accelerator. He can be reached at [email protected].