Lessons to Learn from Toys 'R' Us and the Future of Retail - a Customer Experience Perspective

Shopping experience today is very different than it was ten years ago. The innovations from the digital-first retailers have been shaping customer expectations and forcing traditional retailers to evolve. For retailers that haven′t been able to adjust fast enough to the new realities, the consequences have been dramatic. But in the disruption taking place in the retail environment also offers opportunities for new entrants and for the incumbents. As a fanatical about Innovation in Customer Experience, I am amazed with what my company is doing in this field, but the opinions in this article are my own.  

Introduction

A recent article from Harvard Business Review[1] examine the Toys “R” Us case from 1948 to 2018, pointing the downfall period to 2009. At that time, the outsourcing contract of Toys “R” Us e-commerce business contract to Amazon was terminated and Toys “R” Us won the legal battle with $51 million in compensation from Amazon. However, the damage was irreversible. After 5 years of flat revenues, in 2014, Toys “R” Us designed a turnaround strategy realigning inventory, decluttering its stores, developing pricing and promotion strategies and integrating physical stores with online stores. Toys “R” Us also invested in social media marketing to enhance customer engagement. As a specialty store, decided to focus on the customer shopping experience. In 2016, Toys “R” Us reinforced its customer convenience-oriented strategy by allowing customers to take advantage of various distribution channels, including the ability to shop online and select in-store pickup, ship-from-store, and ship-to-store options. In the same year, the company hired Lance Wills as its chief global technology officer. However, as Wills stated, “in a year to two years, we have to catch up on 10 years of innovation”. Toys “R” Us revenue did not improve between 2014 and 2017 and we all know the rest of the story.

The Toys “R” Us is not a rare case. For retailers that haven′t been able to adjust quickly enough to the new consumer realities, the consequences have been dire. In 2018, thirteen big retailers have filed for bankruptcy, just in US, including other big names such as Nine West and Brookstone. Other famous cases are the V&D in the Netherlands and the British Home Stores in the UK. Deloitte latest Top 250 retailers ranking[2] reports sixteen retailers joined or re-entered the list, reflecting M&A and retailers struggling to survive.

The disruptive forces in retail

Retail outlook may vary depending on the vertical, markets, geography and many other variables. Apparel & accessories, FMCG, hardlines & leisure goods or diversified retail can be very different. Nevertheless, all of product sectors in retail are being disrupted. Traditional price wars, especially food price reductions to drive store traffic are giving the stage to other kind of competition. Newer, smaller, and tech-enabled competitors are stealing share while players from other sectors are developing their own retail platforms.

Although traditional retailers are doing much on brick and mortar reinvention and omnichannel business models, the customer is not the retailer cornerstone yet. Traditional retailers keep focusing on managing point of sale transactions, assortments, price and promotions, logistics and inventories, allocation and replenishment, merchandising and operations management. Meanwhile, players like Amazon innovate the experience model of the store and on the online shopping experience, introducing new concepts that drive customer experience such as the “AmazonGo cashierless stores”.

 Additionally, many traditional retailers still work under a paradigm of consumers for products, stimulated with sales discounts and gift cards. But we might be living the paradigm shift to products for consumers, as consumers are increasingly connected, informed, and expecting businesses to react to all their needs immediately with personalized services. In fact, the support for personalization is the first sign of IT innovation in retail according with Boston Consulting Group[3]. The hyper-personalization is an important trend to strengthen one-to-one relationships with consumers and guarantee relevance. This demands retailers to improve the capture of consumer data, both own data and third-party data, and the capacity to run advanced analytics in order to build micro segments and target them with specific offers. The other signs pointed by the BCG were the improvement of omnichannel capabilities (including the in-store technology), strong online & digital presence and the innovation discovery (reflecting the resourcefulness in applying ideas that would′t occur in the normal course of business).

 Customer journey mapping is dead, long live the Customer Intelligence

As it is being clear, working on the experience model in stores and web-shops is not enough. Retailers are more and more concern with customer engagement and customer life cycle. Customer journey mapping is a popular methodology in customer experience design but relies often on the idea of a linear customer journey and simply focus on integrating sales, marketing and customer service applications. In the real life, customers don′t follow liner journeys. They are unpredictable and constantly in motion. Therefore, retailers cannot offer immediate, personalized and contextual experiences following linear customer journeys based on a CRM system. The loyalty programs are always the arm to support customer engagement in retail. But the traditional transactional loyalty benefits, such as points, € off or gifts need to include more emotional rewards. As recognized by Deloitte 2019 Retail Outlook[4], retailers should privilege loyalty programs that offer personalization and differentiated experiences, to multiply interactions. Retailers need to bring together more data to the game. Online data, offline data, first party data and third-party, in a privacy compliant manner. This is our vision at Oracle with the new Customer Intelligence CX Unity solution, that relies on a consolidated data lake, applying artificial intelligence and activating the customer experience applications, to provide actionable insights in context, in motion and in real time across the entire customer experience.

Figure 1: Oracle CX Unity concept

What (de)regulation changes in finance are bringing to retail

There is a long list of things we didn't see coming, but the impact on retail from the Open Banking and specially the second Payment Services Directive (PSD2) in Europe, is something we cannot ignore. Open Banking was designed to foster innovation and market competition in financial services. However, the impact will spread for other industries bringing new opportunities to retailers. (Please read my other article for more information about open banking and PSD2). The new regulation requires banks to grant retailers (or other third parties) access to consenting consumers’ online banking information. A retailer will be able to initiate payments on their customers’ behalf (PISPs). By bypassing the intermediaries, retailers can potentially reduce card transaction fees, as well as they can refund customers instantly at the point of return. Besides, retailers will have access to Account Information Service (AISP), accessing customer′s bank account information. This can be very powerful for retailers′ customer intelligence. Finding new patterns, hyper-personalization, predictive models are a few examples of functions that will benefit from this data. Naturally, consumers will only give consent if somehow it improves their shopping experience, but consumption and funding are two faces of the same coin. I believe that retailers will thrive and foster innovative apps besides the e-wallets examples we know today, with creative solutions beyond payments, loans and new loyalty programs, using emerging technologies such as augmented reality, voice-activated devices or image recognition technologies to reinforce their role as aggregators and guaranteeing relevance and value for their customers.

 Figure 2: examples of retail apps in our pocket

Conclusion

The disruption taking place in the retail environment is challenging many of the norms of retailing and turning the transformation imperative. Keeping the company′s systems running and producing data for operational decisions, is not enough. The challenge is using technology to innovate and create better shopping experiences. The same digitally connected technologies that are disrupting retail are also providing opportunities to understand the hyper-connected consumer and deliver the friction-less, personalized, omnichannel experiences they demand, shifting from an era of consumers for products to a paradigm of products for consumers. The difficult part for many successful retailers is that, as the Toys “R” Us CTO, Lance Wills recognized, we should be managing today, for our companies to thrive over the next 10 years.

References

[1] Toys "R" Us: What Went Wrong? Harvard Business Review, (Agnihotri, A.; Bhattacharya, S.) 2018

[2] Deloitte, Global Powers of Retailing 2019

[3] Accelerating Digital Innovation in Retail, Boston Consulting Group, 2018

[4] Retail Outlook, Deloitte, 2019