Explore retailers’ varying approaches to tech in physical spaces and consumer privacy.

Our guest is Paula Rosenblum, Managing Partner and co-founder of Retail Systems Research. She is recognized as a top analyst in the retail industry and has held retail technology executive positions, as well as a member of the editorial advisory boards of several B2B media publications and a Forbes contributing writer. Join us as we explore technology in physical stores, consumer privacy, and varying retailers’ models.

Episode 10 of RETHINK Retail was recorded on May 31, 2019

TRANSCRIPTION

Julia Raymond:
Hi, welcome to the RETHINK Retail show. Today my guest is Paula Rosenblum. She’s the co-founder and managing partner at RSR research. With over three decades of industry experience, she’s widely recognized as a leading tech analyst and IT practitioner. Before co-founding RSR, she held executive positions in retail tech and was CIO for several companies on the US East Coast. She’s also a Forbes contributing writer. Paula, will you kick off our discussion today by telling us a bit more about what you do?

Paula Rosenblum:
Sure. RSR is pretty much a technology research firm. We’re different from the Gartner’s and Forrester’s of the world and that we don’t compare vendor against vendor. What we really do is look at the market and we try to understand the business context within which retailers make their technology choices. And which ones are more successful, and how they use technology to support that success. It’s kind of cool, actually, because what you find is that winning at retail is an outcome. It’s not just an accident. It’s very rare that you get a unique product and it’s a must-have and that’ll drive a whole business. Pretty much there is a set of thought processes and strategies that make it work.

Julia Raymond:
Makes total sense and that was a good recap of what RSR’s core business offers. So with that, I’ll just jump into the questions. Earlier this year, you wrote a Forbes article about the new Chief Merchant being named at Macy’s and how she had a big job ahead of her. And you said one of Ongman tasks is to reinvigorate Macy’s private label products, and I want to bring this up, just because Macy’s is going through a lot right now. They are a huge retailer, almost 30 billion in revenue. So, why do you think it’s so important for Macy’s to focus attention on private label right now?

Paula Rosenblum:
Because in today’s age, it’s entirely too easy for the brand managers to disintermediate the retailers. Department stores in and of themselves aren’t the most shoppable in the world. So, what you want to do is highlight your private label product so you can grab more gross margin on it. If you do it well, it gives the customer a reason to go to the store as opposed to just buying from, just as an example, Ralph Lauren online or Tommy Hilfiger online or Michael Kors online. So, if it’s private label and its INC or Style & Co or some of their other private labels, the only place you can get it is Macy’s and that drives you to the stores and the websites.

Julia Raymond:
That makes sense. Is there a lot of challenges to creating entirely brand new private labels? Or were you talking about just reinvigorating the current ones?

Paula Rosenblum:
Either way. I mean the question is, how many people know what INC is anymore? And how many people know what Style & Co is anymore? I would say either one would work as long as they reinvigorate those brands as brands.

Julia Raymond:
That makes sense, totally. And kind of moving on from that question but to a similar one in regards to Macy’s. Recently, a Bloomberg contributor said that they worry its Backstage concept, the off-price area within the Macy’s store, won’t ever be powerful enough to bring in a new generation of shoppers to Macy’s. They were worried that their Growth150 plan, which brings remodels to the top performing stores, creates a bit of confusing brand identity for them. I was wondering what’s your reaction to these doubts?

Paula Rosenblum:
Well, the first one is the Backstage concept. I agree with him 100 percent. You can’t take a moderate price department store and then say ‘here’s a lower priced alternative’. I mean, Macy’s is already a moderate price department store, and they’re always running promotions. So, why would you buy a lesser version of something that’s already kind of lesser. It makes much more sense for a company like Nordstrom to do the Rack, or Saks to do Off 5th, because you’ve got a pretty much higher end product and you’re servicing it for the aspirational customer with a lower end product. Macy’s, frankly, just isn’t that high end to start with so I’ve always scratched my head about the Backstage concept.

In terms of the growth 150 plan, which will bring remodels only to its top performing store, I don’t think it creates a confusing brand identity. I think they are just acknowledging the obvious. Macy’s probably has too many stores. It was kind of a miracle that Mr. Lundgren kept them going as long as he did because once they did the consolidation with May Company, it became crazy. I think that it makes sense to feed your best stores and not starve the other ones, but slowly bring them along. I think it makes sense if… Capitalist is a fairly scarce commodity and so you want to use it wisely.

Julia Raymond:
Yeah, I would probably agree. That’s a good insight. You said that you might foresee them closing stores in the near future, additional stores. Is there anything else in your perspective that they should be really concerned about right now? Or is there anywhere you think they should be-

Paula Rosenblum:
Tarrifs. I have to say I was looking at some other results this morning from another company. I don’t understand why the apparel sector is doing so bad overall and it is. I understand each company has its own story, and I understand that each one has its own challenges. But you can’t deny that, A, department stores are having trouble and then, B, the whole apparel sector is having trouble. While it’s convenient to say ‘well, it was a wet spring, so people didn’t go shopping’, I’m kind of a little unconvinced. And I don’t think I have my arms around why, because if it was the fear of tariffs, they’d be buying more now in anticipation of prices going up, which is actually what the retailers are doing. So I’m sort of at a loss, maybe the market is just way oversaturated. That’s the only thing I can figure.

Julia Raymond:
If it is oversaturated, do you see any big consolidation happening? Or would that be a slower burn?

Paula Rosenblum:
A slower burn. I think we’re already over consolidated, to tell you the truth. Again, that’s one of Macy’s challenges, is that you’ve got all these former banners. Somebody made a decision to call them all Macy’s, right, wrong or indifferent. And now you have a gazillion, and I don’t know what the exact number is, a gazillion is a technical term. You have a gazillion Macy’s stores, right? It’s too many. Would it be better if there was a Burdine’s and there was a Marshall Field’s, maybe. I think there’s just been too much consolidation. There’s not enough exciting going on in the department store area. I think Macy’s has some opportunities with the Story concept. There are big issues and tariffs aren’t going to make it better.

Julia Raymond:
Well, it’s interesting that you bring up the Story concept, because, and the fact that we’re talking about how Macy’s is more middle line department store, like Neiman Marcus, they just opened one of their flagship, a new flagship in New York. They have a full kitchen on one of the floors to do product demonstrations. And then they have an area that holds 100 people for speaking events. For different designers to come in and showcase their new line. So, do you think of those types of luxury, more high end experiences are something that would make sense for Macy’s considering its brand?

Paula Rosenblum:
Macy’s has been doing cooking demos forever. I actually was in a Macy’s store buying luggage, and I don’t think it was Martha Stewart, but it was somebody relatively well known that was in there doing the cooking demo. What does make sense is trying to turn retail, not exactly into theater, because push comes to shove with the object of the game is still to sell things, but to create a differentiated experience that draws customers in, something that makes it interesting. Cooking demos and things like that tend to build community. They may not lead directly to sales, but they bring people together with who are like minded. It creates a social environment and it’s kind of a really healthy thing. Neiman has a challenge in that such a high percentage of his product is fulfilled online. I think they’d like to bring people to their stores a little more. So creating stores as theater and stores interesting will help them quite a bit.

Julia Raymond:
That makes sense. You said that creates community with… That makes me think about like the… We saw a lot of buzz about the H&M Interactive mirror at their flagship store, which has, I think an 85% selfie download rate. The people seem to like it but I wonder is that… Is that more just of a tourist attraction, in a sense? Are those things helpful that don’t really communicate a ton about the brand, but they’re, you know, fun to use?

Paula Rosenblum:
Well, tourist attractions is an interesting subject, because I live in Miami. We have a boatload of malls. I mean, with all the talk about malls closing down, we just keep opening more. And it’s partly because we are a tourist destination, and I have to go to Orlando periodically for business purposes, and I find there’s a lot of off price malls there. So in the tourist area the question always comes up, ‘okay, it’s great you’re here to go to the beach, what do you do on a rainy day? Or what do you do when you’ve burned yourself to a crisp?’ And so malls become really useful sources of entertainment in that regard. And the Neiman’s is in Hudson Yards, right? If I remember correctly?

Julia Raymond:
Yes, that’s correct.

Paula Rosenblum:
That’s kind of a tourist destination. So, it makes sense to pull them in, and hopefully they buy something while they’re there.

Julia Raymond:
Great. Well, I think we covered a bit about Macy’s. I really enjoyed your insights there. I just want to completely jump to a different subject. Mostly because I saw an article you wrote a few weeks ago, and you said, “consumer privacy is emerging as the story of the year.” And just from your broad perspective, why is this the case?

Paula Rosenblum:
Well, it doesn’t help that more and more information comes out about the way Russia managed the election, and what Facebook is doing with the consumer data that it gathers. There was a theory around the industry for a long time that all millennials don’t care about privacy. It’s only you old folks that care about privacy. Millennials are used to being watched, they publish everything and selfies and on Instagram, and they don’t care. It turns out they really do. And the more these stories come out of companies and entities misusing data, the more firm consumers get around saying you can’t have it unless I agree to give it to you and what are you going to give me an exchange by the way? You don’t get to have that. It’s all about removing the anonymity of information about somebody and exposing them in ways they would prefer not to be exposed. I don’t like it. The other part is that, to be honest, and this is my industry so I say it out of kindness, we haven’t demonstrated as an industry that we do a very good job of protecting that data either.

Julia Raymond:
As retailers?

Paula Rosenblum:
Yeah.

Julia Raymond:
Why do you think that… Because that was a mass notion for a while that millennials, the new generations, they don’t care. What do you think drove that? I mean because I know that the media is now driving the concern –

Paula Rosenblum:
It was the media and it was, I think, to some degree venture capitalists who were investing in companies that would use this data so it was in their best interest to say millennials don’t care. I think we’ve attributed things generationally that really had to do with age more than it did with the generation, if that makes sense. It’s sort of like saying millennials don’t want to vote. Truth be told, I didn’t vote till I was 30. It’s kind of common in the way that younger people tend to think they’re much more cavalier and as they start getting into ages where they have something to lose, they change their attitudes. So, I think that there was a lot of noise out in the media saying, “oh no, they don’t care. Everybody knows they’re being filmed. Honestly, if you look back at the things I’ve said over the past 15 years, I’ve always said, “you’re wrong, they do care.” And anytime we ran a consumer study, we found that they did care. I just think it was noise. Honestly, I do. Wishful thinking, I guess.

Julia Raymond:
Well, what do you think about, the extent that retailers should be communicating the tactics that they’re using, because I know, back to the Macy’s examples that they have the RFID tags that are sewn into a lot of their more expensive clothing items, which the retailer can decide when those RFID tags stop tracking. So, if the person buys the shirt and then wears it back into the store, it could still be tracking them in the store when they come back.

Paula Rosenblum:
Yeah, I don’t think they’ve got the coverage to do that. That’s something I think that’s also a little bit of an urban legend. The most that retailers are hoping at the moment to do with this RFID data is to try and find product that they can’t otherwise find. So, I’ve seen examples of Macy’s, in particular actually, where they’ll have an associate walk around with a hand scanner looking for a particular size jeans, or a particular dress that they can’t otherwise find because it could be in the dressing room, it could have been moved to another shelf nearby. So it’s really a convenient way for them to find product. I haven’t heard of any situation where they have enough money to put enough sensors in the store so that they can track you walking around in it based on your blouse. I just don’t see that.

Julia Raymond:
Do you think that could be something concerning in the future or with that… With visual tracking?

Paula Rosenblum:
Not with RFID. There’s other ways to do it that are sneakier and work better and don’t cost them as much money. WiFi tracking is one way to do it. Another way is believe it or not, you can use LED lights and somehow bounce it off of cell phones and track the customer that way. I’ve talked to a couple of companies who do that. What’s cool is they anonymize the data. I don’t think anyone cares about, any consumers care that, as a set or as an anonymous being, they are moving from place to place. What they care about is when its associated with their name.

Julia Raymond:
That makes sense. If it’s more for operational, optimization… In store.

Paula Rosenblum:
Sure. If you think about it, you want to know what… Let’s take location data. You want to know what the traffic pattern is to get… Who’s coming to your store? Where are they coming from and what’s the route they’re taking? And then once you understand who they are and where they’re coming from, you can better tailor an assortment to their needs, because you know about the people who live in that general area. That’s really useful and handy and it informs what you decide you’re going to sell in the store. But doing it by name, it just goes right over the line into creepy.

Julia Raymond:
Right. You brought up a good point, location data, that’s something else I was going to touch on. There’s a recent stat that half of retailers partner with third party firms to collect consumer location data, and some industry sources think that it’ll reach to a 15 to 20 billion industry by 2023. There’s obvious pros to location data and leveraging that but are there any cons?

Paula Rosenblum:
I can’t think of any, quite honestly. As long as it’s anonymized data, then it’s great. We work with, in full disclosure. I have a client who does that location tracking on a macro level. In other words, they don’t track you within the store. They’re tracking your traffic patterns and things like that. That’s been around in retail forever, because that’s how you kind of decide where to put a store in the first place. It’s just gotten more intelligent, which helps you then decide where to put distribution centers, how do you want to localize the assortment? What kind of promotions do you want to run? If it turns out people are coming in from the suburbs into your downtown store, you may want to focus on high school colors that you wouldn’t ordinarily focus on, let’s say you’re… An example I always use because I was in the industry is the party supply industry. Very unusual color paper plates get sold in the fall during football season. And that’s based on the school colors that are nearby. And so the question becomes, what is the closest high school to the place where my customers are coming from, so I can stock those colors? That’s a real basic example.

Julia Raymond:
That’s a good example, too. It makes me think… also just digital signage, because that’s how a lot of the vendors do their demos. You can change all the screens to reflect the local flair or the season or things that really tailor to the location.

Paula Rosenblum:
Yes. Yeah, and there is no doubt digital, I’m going through some data on the store at the moment from our annual benchmark, and we’re finding that digital signage is getting more and more popular.

Julia Raymond:
Yeah, do you think… That’s a good amount of investment. So is that something you see that they’ll test at top performing stores first, and then roll out or only use them in certain stores or what’s like a strategy for that?

Paula Rosenblum:
Well, the challenge with technology in stores is always an issue. The first thing you do is you run some pilot test to see if it changes anything. If it does, you start with a small project that pays for itself, and then you roll it out to more and more stores. The object of the game is to continue getting return on investment. If you don’t get a return on the investment, there’s no point in doing it. If you can change, listen, an A store is never going to really become an A plus store. So the name of the game in retail, particularly when you’re dealing with stores is to turn the D stores into C stores and the C stores into B stores and the B stores into A store, because you’re not going to move an A store to an A plus store. Your best bet is actually probably ironically, to put it in a B store and turn the B into an A.

Julia Raymond:
Oh, I wouldn’t think of it like that but that makes a lot of sense.

Paula Rosenblum:
Well, when I was a CIO for a long time, as you mentioned, and that was the way we looked at it. We rarely looked at turning an A into an A plus. We looked at maintaining its A status, but we also looked where the money really was, was moving the mediocre stores into a less mediocre situation.

Julia Raymond:
Absolutely. Moving into a different question, you’ve said before that on the topic of consumer privacy, circling back around, on one hand, data security and privacy is an IT issue, and on the other hand, it can be a serious brand issue. How do you see senior retailers tackling both issues?

Paula Rosenblum:
Well, the first thing is to take it seriously. To understand that data security and privacy is a big deal and that has to come from the top. That absolutely has to come from the top and it has to be pushed down to the organization that says data security and privacy is a really big deal to us. We must have a chief information security officer, we have to do that. That’s how you tackle it. As a brand issue. If you have a breach, I mean, and this is going back a number of years, don’t do it the way Target did it during their breach in 2013. Home Depot did a very good job, just saying, “yeah, we did it, it happened, we’re sorry,” and that was the end of that. The object is not to overreact, but to acknowledge that it happened.

Julia Raymond:
That makes sense. Is it like a chicken and an egg situation? Or do you see data security and privacy kind of… In tandem, impacting IT and brand?

Paula Rosenblum:
In tandem? So far… Again, with that one data breach exception, there has been very little impact on retailers when it came to data breaches. Sooner or later… I’m going to talk more about privacy than I am about data security. It seems that consumers are more forgiving around the fact that they got breached, than they are around the fact that their privacy was impinged upon. It’s two different issues, right? Data security is something… It’s an imperative, it has to come from the top down. Privacy is a decision that the retail executives have to come to themselves that says just because we can do something, doesn’t mean we should. People really do care about privacy. Maybe if you have permission based privacy, breaches, it’s not the right word, but it’s close enough. If you have permission based information, it’s very different than just reading a six page long document about what we’re willing and not willing to do with your data. I was actually shocked I got an email from Nordstrom, which is a company I really quite admire generally, with their “new privacy policy” and I decided to read it. It was very sobering because they were saying, we can track you in the store… the number of things they were saying they reserve the right to do was a real turnoff for me.

Julia Raymond:
Do you think that’s just because they’re just trying to be so competitive?

Paula Rosenblum:
Yeah, they’re trying to sell more stuff. They’re trying to understand your walk pattern so they can help design the store better. I get what they want to do. They want to market to you directly. They want to offer you personalized information and promotions and that’s all very noble and good. But it’s not noble and good if it’s not straight up permission-based, simple permission-based, like, ‘we will track you, you walk in the store, and there’s a sign that says “we will track your Wi-Fi unless you tell us not to or unless you turn it off”‘. That’s real simple. I don’t need to see a 12-page story.

Julia Raymond:
So, but you are not saying necessarily multiple options. You’re just saying to not make it like… I don’t know if it’s a great example, the South Park episode about the iTunes agreement. And how they used to be 10s of pages long. So, instead of sending out that to consumers, thinking they’ll just accept, kind of making it more visible and concise.

Paula Rosenblum:
Absolutely. When I walk into a store, if you’re tracking me, I want you to tell me. Because if you don’t tell me and I find out later that you did I won’t go back in your store again. Or I’ll turn off my phone.

Julia Raymond:
Yeah, that makes sense. I’ve rarely seen Wi-Fi signs in retail.

Paula Rosenblum:
It should be very straight up, you know. “We offer Wi-Fi and in exchange, we’re going to track you,” real simple. The purpose of it is not to do anything other than to better serve you, but it has to be stated in a very short section.

Julia Raymond:
Great. Well, I’ve really enjoyed our discussions today, and I’m really happy to have you on the show. So, thank you for joining.

Paula Rosenblum:
It’s been my pleasure. Hopefully this was useful for you and your listeners and I’d love to do it again sometime.

Julia Raymond:
Great. Thank you, Paula.