surviving the retail apocalypse -...
TRANSCRIPT
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Retailers and startups poised to transform brick-and-mortar retail in the age of e-commerce.
Surviving the Retail Apocalypse
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W I T H I N 2 4 H O U R S
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@cbinsights@natan_reddy
#cbiretailapocalypse
J O I N T H E C O N V E R S A T I O N O N T W I T T E R
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W H O W E A R E
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Natan Reddy
Natan Reddy is an intelligence analyst at CB Insights. He currently produces data-driven analysis and reports on the areas of retail, supply chain & logistics, and e-commerce, among others. His research has been cited in TechCrunch, CNN, Forbes, the Los Angeles Times, and more.
Before CB Insights, Natan worked as a business valuation senior associate at Andersen Tax in San Francisco, where he valued dozens of startups and public companies. Natan is a graduate of the University of California, Berkeley with a major in economics and a focus in French.
Most popular analyses by Natan:
Amazon And Alibaba Have Already Conquered Online Retail. Now They’re Coming For Offline.Major Links In The Global Trade Supply Chain That Blockchain Could Transform
@natan_reddy | [email protected]
Intelligence Analyst
A B O U T T H E A N A L Y S T
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Contents
1 2
What is the retail apocalypse?
2 4
Optimizing price
3 2
Streamlining product and operations
4 8
Elevating the in-store customer experience
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I N T R O D U C T I O N
What is the retail apocalypse?
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Almost 7,000 brick-and-mortar stores shut down in the US in
2017.
S T O R E S S H U T D O W N B Y T H E T H O U S A N D S
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As e-commerce continues to dominate …
Source: Hitwise
Amazon
Best Buy
8.6M
1.2M
0.7M
0.4M
Target
Walmart
Number of 2017 Cyber Monday online transactions:
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Retail bankruptcies abound
Timeline of select retail bankruptcies, 2015 – 2018 YTD (1/18/18)
Pressure from online leads to “retail apocalypse”
Many traditional retailers failed to establish an online presence quickly enough to defend against the rise of e-commerce.
Crippling debt, fueled by post-financial-crisis leveraged buyouts by private equity firms, has forced many retailers to declare bankruptcy.
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Big-name traditional retailers go down
RadioShack filed for its second bankruptcy in March 2017. The company was unable to compete against other retailers like Best Buy and Amazon. RadioShack hopes to now operate as an online retailer with a limited physical presence.
Denim-retailer True Religion filed for bankruptcy in July 2017 after facing heavy competition from athleisure clothing, fast fashion, and alternative low-priced clothing retailers. The company now plans to increase digital growth.
Toys “R” Us went bankrupt in September 2017, representing one of the largest retail bankruptcies in the US. Mounting debt and competition from online retailers like Amazon culminated in the Chapter 11 filing.
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Bankruptcy: Bon-Ton goes belly up, closes stores
February 5, 2018 |
While many retailers and malls face shutdowns …
Sources: Fortune, USA Today, Business Insider, Nasdaq, CNN Money
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… some retailers are planning store openings in 2018
900 320 180
35 25 3
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“While some of these stores are closing, many, many stores are also going to be opened this year.”
L E V E R A G I N G A W I D E N I N G I N C O M E I N E Q U A L I T Y G A P
Matthew Shay
President & CEO, National Retail Federation
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Traditional retailers across different verticals remain competitive …
From home goods … … to discount …… to grocery … … and fast fashion.
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Pricing Customer experienceProduct & operations
… and are pulling different strategic levers to compete
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Startups enable retailers to compete amid the retail apocalypse
Startups are helping retailers attract customers using location-based analytics, augmented reality, and camera vision technology, among others.
Startups at the intersection of retail and technology
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Traditional retailers are fighting back.
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K E E P I N G I T C H E A P
Optimizing price
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The rich are getting richer; the poor are getting poorer
Percent of US adults in each income tier
Income inequality in the US is growing
The share of US adults landing in the middle household income range ($42K - $126K in 2014 dollars) declined from 61% of adults in 1971 to only 50% of adults in 2015.
Conversely, the population share in the lowest and highest income brackets of the study grew by 4 and 5 percentage points over the same period, respectively.
Source: Pew Research Center
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“The middle-class continues to go away, unfortunately, to the lower end of the economic scale … so as this economy
continues to create more of our core customer, I think there’s going to more opportunities for us to build more stores.”
L E V E R A G I N G A W I D E N I N G I N C O M E I N E Q U A L I T Y G A P
Todd Vasos
CEO, Dollar General
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Dollar General is a discount general store that caters to lower-income consumers looking to save money. The company plans to open 900 stores in 2018, adding to its existing 14,000+ locations in the US.
Dollar Tree, a discount retailer selling all items for $1 or less, has also see expansion during the retail apocalypse. The discount chain is planning to open 320 stores in 2018.
Discount retailers are taking advantage
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Dollar store stocks on the riseDollar store stocks are faring better than some big-name traditional retailers.
D O L L A R G E N E R A L S E A R S
D O L L A R T R E E M A C Y ’ S
Source: Google Finance
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TJX earned $10.46B for the quarter
ending Jan’18, up 15% from last year.
Germany-based Aldi has invested $5B into US store
expansion.
Zara opened its largest store ever in 2017, 65,000 square
feet, in Madrid, Spain.
Other retailers are capitalizing on bargain hunting
Walmart’s aggressive low-pricing strategy is
catching up to Amazon’s.
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Kroger announced a plan to implement its digital pricing technology “Kroger Edge” in 200 stores by the end of the year.
The digital price tags would allow the store to instantaneously change prices and offer promotions across the stores, in addition to offering product/nutrition information to customers.
There are plans for customers to interact directly with Kroger Edge through an integrated mobile app.
D I G I T A L P R I C I N G T A G S
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Startups are leveraging AI and IoT technology, among others, to help retailers sell to customers at discounted or optimized price points.
Company Deal Date AmountTotal Disclosed
Funding Select Investor(s) Description
Jan’18 $9.0M $19.3M N/A Shelfbucks uses IoT sensor technology to help track and analyze in-store pricing and merchandising for retailers.
Oct’17 $0.6M $0.6M BarcamperVentures
Italy-based Competitoor helps retailers track competitor pricing online using an AI-driven platform.
Jun’17 $22.5M $35.8M Lerer HippeauVentures
Inturn is a B2B marketplace that helps retailers buy and sell off-price inventory, potentially allowing retailers to sell at lower price points.
Jan’17 $1M $25.2M Bow Capital Eversight offers a platform for retailers that uses AI to deploy personalized pricing promotions to customers.
Startups are helping retailers optimize pricing
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Streamlining product & operations
C U R A T I O N & D I G I T I Z A T I O N
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The rise of private label productsB U I L D I N G B R A N D L O Y A L T Y
As traditional retailers struggle to retain customers, many are deploying private label brands as a way to increase profit margins and strengthen consumer loyalty.
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Retailers are using private labels to compete
As Amazon increasingly pushes out its own private labels (with more than 40 brands so far), many traditional retailers are using their own private labels to increase margins.
Private labels sees media chatter re-intensify
Number of unique news mentions, 2012 – 2018
Sources: Bloomberg, CNBC, PYMNTS.com, TheStreet
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Private labels increase margins and build brand loyalty for retailers
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However, retailers are facing increasing competition from D2C startups D2C consumer goods startups are bypassing retailers altogether by offering a curated selection of products that aim to build consumer loyalty – providing direct competition to the private labels that retailers are promoting.
Brandless offers a curated selection of its own “unbranded” private label consumer goods online, and sells every product for $3.
Funding $52.5M
Select Investor New Enterprise Associates
Public Goods claims to sell its natural consumer products at manufacturer prices in exchange for an annual membership fee.
Funding $0.8M
Select Investor 500 Startups
Thrive Market offers discounted products in exchange for a membership fee. The startup focuses on selling natural brands, including its own private label.
Funding $151.3M
Select Investor Greycroft Partners
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Streamlining supply chain and logisticsC A T E R I N G T O C U S T O M E R D E M A N D S
Retailers are streamlining their supply chain and logistics operations to cater to fast-changing consumer trends and demands.
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Fast fashion’s speedy supply chain quickly caters to new trendsFast fashion retailer Zara, owned by Spain-based Inditex, can get a piece of apparel from a design workshop in Spain to a display rack in a Manhattan store in 25 days.
Day 1: A designer in Spain sketches a new piece of clothing, with input from store managers
on the latest trends.
Day 2-5: A pattern maker creates a
prototype.
Day 6-21: Fabric is cut, 8,000 new pieces (coats, dresses, etc.) are
sewn together at a nearby by factory, and are made ready for shipment.
Day 21-24: Apparel is driven to a distribution center, before
heading to Barcelona to be flown to Zara stores around the world.
Day 25: New items arrive in Manhattan and are put on display
before opening.
Source: The Wall Street Journal
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Startups provide supply chain and logistics visibility for retailers
Startups are using software, data, and AI to streamline the supply chain and logistics processes specifically for retailers. Many of these startups aim to give smaller retailers tools to compete against e-commerce logistics giants like Amazon.
Company Deal Date AmountTotal Disclosed
Funding Select Investor(s) Description
Jan’18 $12.0M $29.5M Salesforce Ventures
Bringg is a logistics delivery platform that serves retailers. The software helps streamline a client’s delivery ecosystem.
Oct’17 N/A $2.0M Unilever Foundry Shippit is a delivery platform for retailers, including Sephora and Top Shop. The startup streamlines the delivery process.
Sep’17 $0.02M $17.1M Le Hub de Bpifrance
Vekia offers AI-powered supply chain management software for retailers that aims to improve operating margins through optimization of inventory, and logistics forecasting.
Aug’17 $8.3M $15.7M RPM Ventures, Techstars Ventures
Convey offers a rate comparison and intelligence platform for e-commerce companies looking to ship freight.
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As retailers migrate online, many acquire delivery startupsAs traditional retailers face tough operating margins and increased competition from digitally savvy players like Amazon, many are acquiring startups to bolster their delivery capabilities.
In a novel move by an American grocery chain, Albertsons acquired meal kit startup Plated to help boost its ability to connect with tech-savvy consumers.
Date September 20, 2017
Acquisition Price $300M
Target bought grocery delivery startup Shipt to increase its logistics capabilities. Target will offer same-day delivery with Shiptbeginning February 2018.
Date December 13, 2017
Acquisition Price $550M
Grocery chain H-E-B acquired on-demand delivery startup Favor. Both companies have focused their primary operations within Texas.
Date February 15, 2018
Acquisition Price N/A
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Walmart: Digitizing operationsC A S E S T U D Y
To combat Amazon’s dominance online, Walmart is investing in their digital capabilities in e-commerce, logistics, and in-store operations.
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Improving e-commerce presence through acquisition of startupsIn an effort to boost its digital presence, Walmart has acquired a number of tech-focused startups specializing in e-commerce marketplaces, direct-to-consumer apparel, and last mile logistics.
Date August 8, 2016
Acquisition Price $3.3B
Date March 15, 2017
Acquisition Price $75M
Date June 16, 2017
Acquisition Price $310M
Date September 29, 2017
Acquisition Price N/A
Select acquisitions:
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Walmart online sales growth slows
Year-over-year growth in Walmart online sales
Walmart e-commerce growth slows amid logistics hurdles
Despite strong online sales growth on the heels of its Jet.com acquisition, Walmart faced a significant decline in the last quarter of 2017.
Walmart CEO Doug McMillon acknowledged that Walmart had struggled to manage the flow of products during the holiday season through its distribution centers — something that Amazon has already mastered.
Source: Fortune
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Investing in digitization across its operations
From growing their online grocery pickup service …
… to investing in supply-chain food safety inspection tech …
… to automating in-store operations.
Walmart is closing the online grocery price gap with Amazon
February 28, 2018 |
“Walmart is developing a technology called Eden that inspects produce for defects”
March 1, 2018 |
Walmart's Next Move To Compete With Amazon: Pick Up Towers
July 10, 2017 |
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Walmart shows interest in cashier-less stores
Walmart granted cashier-less store tech patent
Walmart was granted a patent for a “method and apparatus for automated shopper checkout using radio frequency identification technology” in 2014.
In late 2017, Walmart was reported to be exploring cashier-less store and automated checkout technology.
Source: Fortune
Walmart is reportedly exploring cashier-less stores
December 20, 2017 |
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Walmart is not alone in automating in-store operations
Cashier-less Amazon Go store Cashier-less Tencent pop-up store
Startup Bingobox’s unmanned mini-store
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Startups can help Walmart or other retailers go cashier-less
Standard Cognition provides AI-powered technology for retailers to help automate the in-store customer check-out process. The startup raised $5M in seed funding in October 2017.
Funding $5.1M
Select Investor Y Combinator
Startup AiFi is attempting to leverage technology similar to that used in Amazon Go stores, and provide it to other retailers that want to incorporate such technology into their stores.
Funding $4M
Select Investor Greylock Partners
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A F O C U S O N P E R S O N A L I Z A T I O N
Elevating the
in-store customer experience
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As e-commerce startups go brick-and-mortar to promote branding…
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Corporate retailers also shake up their store formatsWith Apple taking an early lead, traditional retailers are opening stores that are less focused on selling merchandise, and more focused on branding and customer experience.
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Sephora has undertaken a number of initiatives to integrate tech into their in-store customer experience. The beauty retailer partnered with AR startup Modifaceto create Sephora Virtual Artist, an app that lets users test of different beauty looks using their phones.
Home goods retailer Lowe’s has also taken on many tech-related initiatives, including partnering with Google to create an AR-based in-store navigation app. The retail has also used Apple’s ARKit technology to allow customers to measure in-store furniture using their phone.
Using augmented reality to enhance the in-store customer experience
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“I see personalization as being the future of how we're going to shop.”
T A R G E T I N G C U S T O M E R S T H R O U G H C U S T O M I Z A T I O N
Katrina Lake
Founder and CEO, Stitch Fix
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France-based Teemo is a personalized marketing service for retailers that collects customer geo-location data through mobile app partnerships.
Funding $17.9M
Select Investor Mosaic Ventures
Satisfi Labs is an AI-based virtual shopping assistant. The app uses IBM Watson technology to improve its ability to communicate with customers.
Funding N/A
Select Investor Plug and Play Accelerator
Focal Systems is a startup that helps retailer automate in-store operations by helping to provide shoppers with location-based advertisements in-store.
Funding $2.75M
Select Investor Y Combinator
Using technology and data to personalize the in-store experience has become a necessary tool for retailers to continue to attract customers. Startups are enabling retailers to employ personalization in areas ranging from location-based marketing to in-store assistant shopping bots.
Startups allow retailers to become more personalized
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Alibaba’s FashionAI, an AI-enabled screen interface, creates a personalized experience for customers by suggesting items based on what a customer is already trying on.
Amazon’s patent titled “Blended reality systems and methods,” granted in January 2018, highlights a tech-enabled mirror that would project different images (using a screen set behind it) to give the illusion that customers are wearing different outfits.
Online retail giants are developing brick-and-mortar personalization
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“I think the day of the pure play [retail] is dead . . . Consumers want that choice — they don’t want
companies’ operational complexity thrust upon them, pushing them to only one way to do business.”
D O O N L I N E A N D O F F L I N E R E T A I L N O L O N G E R W O R K O N T H E I R O W N ?
Liza Landsman
Former President, Jet.com
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