2011 HBS Luxury and Retail Conference: E-Commerce Panel

From Evernote:

The “Innovations in E-Commerce” panel at the  HBS Luxury and Retail conference gave me some new things to things to think about. In particular how can we fully leverage the power of the internet for the good of the retail consumer? As you will see in the panel description below (or on the website), MBAs have a lot of opportunity to put their skills to work.

Today’s shopper spends more time than ever before behind a computer screen and over the past fifteen years, Retailers have invested substantial resources into cultivating their internet strategies. This panel will explore cutting-edge tactics and tools for creating the most compelling experiences in online Retail. Our panelists, ranging from digital media specialists to key Retail brand representatives, will also dig into the future of e-commerce and the startling online opportunities that await us.As a group who spends a lot of time behind computer screens we not only represent an untapped segment for retailers, but also have a lot of insight on how to give customers an experience comparable to what brick and mortar stores have to offer.

Panelists:

Philip Behn, VP Global eCommerce Market Development, Walmart
Mark Bonchek, Senior Vice President of Communities & Networks, Sears Holding Company
Aslaug MagnusdottirCEO, Co-Founder of Moda Operandi
Darcy Penick, DMM, Shopbop
Gaurav Suri, VP New Business Development, Google

Biggest Challenge in Retail

The biggest challenge in retail was aptly described by Mark Bonchek from Sears Holding Company (owners of Sears, Kmart). He used an analogy of a sailboat traveling between two points to explain the traditional challenge of retailers – getting customers from their homes or offices to the stores. Back in the early days of Sears, the catalog business model was as revolutionary as e-commerce is today. However, in today’s world, that old framework no longer applies because retailers are constantly affected by other issues in the environment (some of which are now the internet and social media). Customers are so diverse across Kmart and Sears that demographics no longer apply. Mark explained that we are now in the realm of sociographics, where getting the attention of consumers is more about aligning our selling strategies with the online habits of our target market. Do you tweet? Are you online? How much time do spend online, and what do you do on the internet? The regular demographics just don’t work anymore.

For startups like Aslaug Magnusdottir’s Moda Operandi, reaching the customer within a limited ad budget is the main challenge. Moda Operandi operates a unique business model because they are a “members only” site. As far as strategy, their mission is to leverage the exclusivity of their service, which provides members with VIP access to premium brands, as soon as models step off the runways. For designers and retailers, Moda Operandi could just be the solution to eliminating the lag between the rollout of a new line and getting the reactions that could define the next season.

At Google, retooling style sociographs to provide customers with a unique online experience is the biggest worry. VP of New Business Development, Gaurav Suri did not provide a lot of information (because Google is always working on some cool stuff), but he did say that the company is focused on helping people find their inspirations and niche. They want people to follow others who dress and style like them (i.e. boutiques.com). Hopefully these kinds of customers will never meet.

For Darcy Penick from Shopbop, balancing the grey area between telling their customers what to wear and allowing the customer the freedom to express themselves is the biggest challenge. For Walmart inserting their brand into the customer decision making process is their biggest task. So they are looking for ways to use social media, where recommendations are more relevant than a simple search. Philip Behn from Walmart does not believe that they have cracked the “e-commerce cookie” yet. He said that social media is not a temporary fad, but a new tool to meet the challenge of recreating the offline in-store shopper experience, in the online world.

Strategies for Social and Mobile Commerce

As a revenue stream, Google beleives that e-ommerce is a small part of businesses. What really matters is the growing capability of online influence to drive revenue. At Google they are working to create measurable strategies that address how the offline, mobile, and online experiences are serving the consumer.

At Sears and K-Mart, the challenge of measuring the influence is what drives alot of their social media and mobil strategies. Although many of their competitors are thinking about how new technologies will change the business of retail, Sears is focused on how the social aspects of customers will drive their business. Right now the most important social metric is the fact that their customers are more mobile than ever before.

Walmart sees social media and mobil opportunities as an opportunity to leverage their pricing strengths because these technologies give consumers more price transparency. Walmart is now looking at augumented technology such as location based information flow for customers in the store. It will help customers to easily access product in the store and will give the firm a better idea of stock/inventory. So in a nutshell the new technologies of today will enhance Walmart’s functions ranging from marketing to operations.

Predictions for the future

Gaurav Suri from Google believes that luxury is moving online at a much more progressive pace. Customers have embraced the digital world and this forces the massive brick and mortar companies (with an immense amount of stores) to look for ways to duplicate or enhance the in-store experience for their customers. He believes that the next 18 months will see innovations form the luxury brands that have been lacking in this transition. As far as how his company can contribute to the innovation in retail, Gaurav told the audience that Google’s strength lies in its democratic model of processing information for the use of its retail customers. At present, the average online user provides the company with 80 answers on what determines their taste. Google is creating a platform for customers to talk to brands about what they love and hate (look at boutiques.com). They plan on sharing this insight with brands. What companies do with the information and what opportunities become available is up to the brands. The main disadvantage of this system is that customer feedback still gets to brands at the end of the season, when its too late to change the line.

Mark Bonchek of Sears Holding Corp. believes that the future of retail lies in the new business models that allow the blurring of technology and media. Sears is now looking at themselves as a media company. They currently operate the Kraftsman experience and Kenmore Life studios where they design products their customers ask for. Consequently they have a huge content base on social media sites such as facebook, where they have a closer feel on their customers’ changing preferences.

Moda Operandi cofounder, Aslaug Magnusdottir, predicts a huge decrease in the importance of the flash discounters such as Gilt.com. These discounters were launched at time when high end stores had a lot of inventory. Luxury brands are rethinking the strategy of going to a discounter at the end of their seasons. Instead many have developed their own channels for customers seeking the value proposition that discount retailers offer. When she mentioned this strategy, I couldn’t help but remember the previous evening’s session with Saks CEO, Steven Sadove. In light of their experiences in past recessions, his company has greatly reduced their inventory and have focused more on channels that serve specific segments of their markets. Rather than relying on discounters like they did in the recession (to drive cash flow), they have poured more energy into their Saks Direct (online channel) and OFF5th (value tier) brands to serve customers looking for bargains on highly visible brands.

Walmart is looking toward the east in their future predictions of their business. Philip Behn, who had just come back from China believes that e-commerce will grow faster in China than the US (well that’s pretty obvious, but why does he think so). There is an increasing number of entrepreneurs in e-commerce businesses looking at the Chinese market, where 90% of the population have access to the internet. He believes that growth will come from a leapfrog strategy where Chinese consumers will skip the option to shop at physical stores (lack of physical stores is a huge barrier for Chinese consumers), and move to alternative e-commerce channels.

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