The Cloud Could be a Salve for Old Retail's Growth Problem

The ease and convenience of online shopping continues to lure shoppers away from bricks-and-mortar stores, as consumers make fewer and fewer trips to the mall and grocery stores. In the fourth quarter, e-commerce spending jumped 18% from the 2015 period as shoppers spent $109.3 billion online, according to data from global analytics firm comScore.

Sites like Amazon (NASDAQ:AMZN), with its Prime Now and Prime Fresh subscriptions, have given new meaning to “running errands.” Shoppers can browse the site from their laptops or mobile devices, place anything from household goods to the latest entertainment gadget into their virtual shopping carts, and often have the items in-hand within a few hours.  That may be why Amazon attracted more visitors to its site during the last two months of the year than eBay (NASDAQ:EBAY), Walmart (NYSE:WMT), Target (NYSE:TGT), and Kohl’s (NYSE:KOH) combined, comScore figures compiled from November through the end of December showed.

As the e-commerce giant continues to dominate the online-shopping game, retail industry titans like Wal-Mart, Macy’s (NYSE:M), JCPenney (NYSE:JCP), and others, have found themselves struggling to compete amid evolving consumer tastes.

Wal-Mart shifted growth gears last year, announcing that rather than putting its efforts toward expanding its store count, it will focus on maximizing sales at existing locations and bolstering its e-commerce platforms and other technology initiatives. Last August the company bought Amazon competitor Jet.com for about $3.3 billion in an effort to kick start its ecommerce business. According to Forbes, the company is also in the process of building what it says is “the world’s biggest private cloud,” which would be capable of quickly processing stacks of internal and customer-transaction data to better target shopper preferences and keep relevant inventory at the ready.

Thinking Like a Human

For companies of smaller size and scale, IBM’s (NASDAQ:IBM) Watson – cognitive technology that can “think” like a human being—is being deployed to help better upsell to shoppers on Main Street. 1-800-Flowers (NASDAQ:FLWS), American Eagle (NYSE:AEO), Macy’s, and Home Depot (NYSE:HD) already utilize the technology in a range of different ways – from customer-facing angles like executing chat bots to interact with online shoppers, to in-store management tools like inventory-control suggestions.

“[Our clients] are trying to optimize and take costs out of their operations and their supply chain to make it more agile,” said Steve Laughlin, IBM General Manager of Global Consumer Industries, describing that physical retail stores used to be where all aspects of a transaction took place – everything from employees monitoring inventory levels through to completed sales. But with customers increasingly treating stores as showrooms, retailers are forced to adapt – some perhaps more quickly than they expected.

That’s where IBM wants Watson to come in – helping retailers analyze internal and external data (local events, weather forecasts and more) to determine how those factors impact shopper traffic patterns and demand, and what that means for in-store inventory.

“We were able to help one client reduce their forecast error by 50% and reduce lost sales by 2%. When you start talking about utilization of inventory investment and having that kind of impact – that’s big money,” Laughlin said of a project that analyzed weather and in-store traffic as factors for inventory distribution. “The sizzle-y stuff is the customer interactions, buy boy there’s a lot of money in the operations.”

With a keen focus on the back-room business, traditional retailers should focus on listening to and appropriately analyzing their “digital exhaust,” said Venkat Achanta, chief data and analytics officer at Neustar, a real-time information services and analytics company.

In other words, to keep up with online giants, bricks-and-mortar retailers need to better understand the customers who walk through their physical doors, whether they have corresponding store apps, where they’re likely to wander in the store, what competitors they’re monitoring, and how likely they are to buy.

“To me, one of the fundamental things is the connection science. Connections that bring the digital and offline together and look at a holistic profile, understanding the customer activity,” he said. “While a customer is in a store, are they browsing on the mobile site, too? How can you optimize that? Do you recognize the ID of everyone and understand them? It’s not only looking at the transaction.”

Once a brand understands that, they can begin to target individuals on a wider scale. For example, rather than a brand sending out a mass email to its distribution list about a sale, it can instead make personalized recommendations based on past product purchases and browsing history.

Personalized Interactions

1-800-Flowers, though not a bricks-and-mortar brand, is one of many companies seeing a bigger need for personalized interaction with its customers. The retailer has traditionally catered to middle-aged consumers, but has turned a fresh focus to maintaining its existing customer base while also appealing to younger shoppers in the Millennial and Generation Z brackets, which include individuals about 34-years of age and younger.

The online florist last year began deploying a chat bot called GWYN – which stands for Gifts When you Need – with the help of IBM Watson. GWYN asks buyers what kind of gifts they’re looking for – who, what occasion, what flowers the recipient likes, etc. – and turns up results based on the information provided. The suggestions can range from flowers to fruit baskets to cookies from any of 1-800-Flowers brands like Harry & David and Wolferman’s.

“What we’ve always found throughout our history and now in this move into conversational commerce and embracing AI, putting GWYN as our concierge, every time we do that, we reach an early-adopter audience. That audience tends to be younger and more tech savvy,” the company’s president, Chris McCann, said.

The gap is a deep one between young shoppers and big brands. Just 19% of retailers are able to provide a highly-personalized digital shopping experience, while 84% don’t offer any in-store mobile services, according to a recent IBM customer experience survey of more than 500 brands. What’s more, the survey found a staggering 98% of Generation Z consumers with a buying power of $44 billion still prefer to shop in store, though sales at major retailers are still slowing. For struggling bricks-and-mortars, that’s evidence they’re likely losing out on purchases from younger demographics.

“This is the generation that’s either online, asleep or shopping,” said Harriett Green, general manager of IBM Watson Internet of Things, Commerce and Education. “[It’s] an amazing growth opportunity, which everyone is looking for.”

This is part of FOXBusiness.com’s Industry Forecast series that deep dives into cloud innovations across global businesses.