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NRF 2014 Interviews: SAP

NRF 2014 Interviews: SAP

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In the second of our exclusive, cross-site vendor interviews from last month’s NRF show in New York City, our Editor talks with the SAP retail team about the paramount importance of the retail experience, and how technology has become a prerequisite for meeting consumer expectations.

Ben Hanson: SAP are still one NRF’s biggest advertisers, even neglecting everything else and measuring things purely in terms of square footage.  How has this year’s show been for you?

Stephen Henly, Industry Director, Consumer & Retail Industries (pictured left): To me it feels even busier than last year, and I certainly think we’ve talked to more customers this time around.  In parallel there is a lot of interesting and thought-provoking content here at the show, so there’s some balancing to be done between working with our customers and prospects and seeking out those sources of inspiration and innovation from retailers sharing their success stories.

BH: When people approach a booth like SAP’s [which occupied two floors] are they coming to you with the direct retail experience in mind, or are they looking more at the enterprise-level things that contribute to it?

Klaus Boeckle, VP Consumer & Trade Industries (pictured right): What we’re finding – this year more than ever – is that people are looking to SAP for innovation.  Their questions are less directly technical, and more along the lines of: “how do we empower our store associates”, or “how do we create the ultimate shopping experience?”  And if we’re talking about PLM, retailers want to understand how they can connect with their suppliers in order to create the most innovative products.

In the past we’ve perhaps been seen as the back-end supply chain efficiency company, or as an ERP vendor, whereas now they see that we’re actually offering a full solution to the customer, whether it’s B2B or B2C.

BH: It seems as though that’s reflected in your booth, which seems to follow the natural flow of the modern, omni-channel retail experience, highlighting all of the stops along the way.

SH: Exactly.  Retailers are identifying the need to change their IT landscape in order to keep pace with changes in the market, their first question is usually “how can I change how I touch my customers?”  Afterwards, once they have a clearer understanding of how they can operate in the new retail environment and meet their customers’ immediate needs, they then begin to look at how that affects the next stage, which for them might be the supply chain.

So what we’re seeing is a journey in the opposite direction to what you might expect.  Early adopters have been working on their ‘customer touch points’ and are now discovering that traditional ‘backbone’ systems were built for a more stable, store driven retail paradigm and are not flexible or responsive enough to meet the demand of the consumer facing systems with which they now have to integrate.  They are looking for simpler processes and an equally open and agile  user interaction as their consumer facing modules.

BH: I think that’s accurate, and I think that a growing number of retailers are examining either discrete portions or whole chunks of their environment and discovering that they need to invest in modern technology in order to deliver a truly modern retail experience.

SH: What’s interesting to me is that more and more the ‘C’ suite executives are recognising that their current IT infrastructure is holding them back.  They acknowledge that that’s their first challenge.  Equally, though, they understand that their next challenge is managing the change to their business that comes with changing software.  They aren’t just swapping out a piece of software; they’re trying to change a paradigm and a long-established thought process across their entire organisation. And that includes the people who work with ERP, merchandisers, finance, the supply chain managers, the store managers, the estates teams… it really touches everybody.

BH: Obviously SAP believes there are significant benefits in building that kind of concept to consumer infrastructure in partnership with one vendor.  What is it, exactly, that differentiates that approach from instead choosing and integrating point solutions from a host of different vendors?

SH: That’s something Klaus and I could talk about for a long time!  If you put yourself in the shoes of a retailer – particularly a lifestyle retailer, which includes everything from fashion to home furnishings – you can understand the feeling that it’s all about immediacy.  It’s about making a connection with your customer and understanding who and where your customer is.  Then, as your customer changes, it becomes about being able to anticipate and keep pace with that.

Now, if you’re in a world of silos and point solutions – which might or might not be connected to the centralised plumbing called ERP – your problem is that your ERP can only operate as fast as your capability to move something out of one of your point solutions and into your ERP environment.  You’re creating an artificial bottleneck.

I had a conversation with a retailer the other day, and they told me they had a vision of creating wonderful, interconnected supply chain.  But it was only when they got as far as looking at the company responsible for their deliveries that they realised they were using clipboards and Biros.  So in a way it almost didn’t matter how much money they spent optimising the stages before and after, because the supply chain was only as good as its weakest link.

The problem is that efficiency has eclipsed the kind of local knowledge that used to exist – the scenario where the shopkeeper understands that a particular customer comes in twice a week and buys the same things.

BH: That’s something I like a lot of companies – particularly among our readers – will find interesting; it’s all well and good buying a best of breed PLM solution, but not if something else in the immediate environment constricts its capabilities.

SH: Historically, retailers have optimised their silos but without breaking away from that mindset.  They’ve tried to do the best they can for merchandising, supply chain, stores and so on – making those individual pieces as efficient as possible, and doing what they can to enable collaboration between the people who are touching the sides.  That’s an environment where point solutions have been great, and there’s been a great deal of merit in picking, say, the best allocation management system.

Now that way of thinking is beginning to break down.  In the emerging markets where they don’t have the same weight of experience of inertia, retailers are embracing the interconnected mindset.  Rather than ticking systems off a list – ERP, Planning, Allocation, SCM, CRM  and so on – they’re immediately deciding to opt for a fully integrated environment.

BH: It seems to me that the strongest argument for a more seamless environment is that enables a whole host of new opportunities and enriches existing use cases by providing them all with unfettered access to the same set of centralised data.

SH: Definitely.  Historically retailers have pulled that information together after the fact, done aggregation and worked on averages in order to get the data they need.  Whereas today, with the introduction of SAP’s HANA [in-memory computing platform] they no longer need to run that process – they get direct access to the data they need, and they can ask the questions to which they need answers.

KB: Again, this is an area of real evolution for SAP in the retail space.  We’re making significant investments in our solution portfolio to ensure that the SAP Retail platform is truly the single resource needed to run a retail business at the speed need to keep up the competition and the customer.  As I think you mentioned earlier, this is the reason for our huge presence here at NRF.We deliver up to the minute insights that enable retailers to make real time trading decisions.

A significant thing for me is that our investment has been driven by real customer demand.  The retailers you see downstairs [giving demonstrations and talks at our booth] are really using these solutions, on the front end and the back end.  That’s something we don’t see much of from other vendors.

Really the goal of retail hasn’t changed.  Shoppers want the best deal and retailers are looking to ensure that the right product is on the shelf, store associates are informed and helpful and that the supply chain responds to localised demand peaks and troughs.  Personalisation and big data are still the primary drivers behind the new consumer shopping experience.  What we’re hoping to do is to take it to the next step, and enable retailers to figure out how to anticipate customer demand and forecast effectively.

BH: I’m sure that kind of seamless experience is one of them, but what else do you see as the biggest emerging trends for the coming year?

SH: I think one of the biggest trends, actually, is something that stems from what we’ve been talking about.  If the next few years are going to see retailers of all shapes and sizes gaining access to that kind of data, the winners are going to be those who use it to foster real, bi-directional interaction with their customers.

It’s no good, for example, sending a promotion for a lawn mower to a consumer who lives on the top floor of an apartment building.  At the moment retailers do this, even the winners.

And while we won’t get down to the segment of one, we are reaching a stage where we can understand that a particular consumer segment only has a small number of people in it in a particular catchment area.  So then the question becomes whether those few people are particularly important to me, as a retailer – are they major bloggers or social influencers, for example?  If I frustrate them and upset them with scattergun marketing, will that affect my profitability?  Or am I prepared to spend some money on them in order to grow their loyalty?

That, if you ask me, is the challenge of big data.  Not obtaining it, but using it to move in the direction the consumer wants.

BH: The kind of social analytics you’re talking about are tools that retailers could use to revolutionise a whole host of shopping experience, not just promotions.  Bricks and mortar retail has been suffering for a long time now – at least according to analysts – so do you think considered use of big data could help to revitalise the in-store experience?

SH: Yes.  I think there is a risk that bricks and mortar retail will continue to struggle, and the UK is a good example of that.  The high street is changing fast.  In some towns the transformation has been fast and brutal with vacant retail space and dereliction being the result.  But I think that presents a real opportunity to reinvent the high street as a destination.

Retailers need to move past their fear of inviting customers to “showroom” in their store.  What they need to do is to turn that show-rooming into order capture, and they need to use big data, mobility and technology to create that welcoming experience.  If they can deliver a degree of personalisation that, for example, allows them to approach you and say that last time you came in your bought a shirt but you didn’t buy a tie, that can be very powerful.

Personalisation can be quite generic or it can be very targeted, but either way the key is to use big data analytics to identify and welcome people into your store.  Treat big data as a friend and reap the reward.  That’s how we can reinvent bricks and mortar.

KB: For personalisation, of course, you need a mobile strategy and a digital strategy.  I believe that if, as a retailer, you don’t offer that kind of personalised digital experience even when the consumer is in the store, you won’t survive the next two or three years.  More than 80% of revenue still comes from stores, after all, and the retailers who are doing well – Burberry and Valentino, for example – are those who are engaging with the consumer no matter which channel they shop.

SH: Getting into social analytics – using Twitter, Facebook and Pinterest to see what people like and don’t like – all that chatter is already going on, and it’s technology’s promise to allow us, as retailers, to see and act on that.

So, for example, if you see somebody’s wish-list and then you see them pass by the store, that’s when you can begin to approach real, targeted one-to-one marketing.   “Did you know, Sarah, that we have those boots that you liked in-store and in your size?  Ask for Jane, who’s our boots expert.”  I think that’s the way you make retail an experience again – not the frustrating blanket approach.

It’s about making a connection with your customer and understanding who and where your customer is.  Then, as your customer changes, it becomes about being able to anticipate and keep pace with that.

BH: I definitely agree with that.  I think that revitalising the high street really requires store managers to revert to the role of a shopkeeper – someone who has the local insight and product knowledge to make shopping a personal and rewarding experience.

SH: Absolutely, and this is how big data analytics can support next generation retail. Since the war, retail has created something that I call command and control process.  That means that they’ve focused on efficiencies above all else, and actually the developments in ERP over the same timeframe have enabled that.

The problem is that efficiency has eclipsed the kind of local knowledge that used to exist – the scenario where the shopkeeper understands that a particular customer comes in twice a week and buys the same things.

Today I think we’re getting back to using technology to replicate that missing piece and to restore the power to the store manager.  That, for me, is a key theme for retail over the next two or three years at least.

KB: That doesn’t mean that things like supply chain have diminished in importance.  We’ve been catering to that part of the retail business for ten years, and we’re actually just bedding a new platform [Customer Activity Repository, or CAR] in at the moment, getting inventory data across channels in retail time – using big data again to facilitate a significant component of the future of retail.  CAR will bring together in real time structured and non structured data as a foundation to consuming apps such as planning, price optimisation, allocation, forecasting and replenishment.  A key benefit is the retailer will have real time visibility of the inventory across all channels and locations and from that can optimise stock deployment decisions based on customer demand and sentiment

SH: Retailers have all the data.  So the question becomes how they collect all this other non structured data? CAR is our answer to that – the method for making that information richly available in the here and now, to conduct activities like allocation, planning and customer segmentation in real time.

That’s where we see the demand for flexible and agile ERP systems that are capable of operating in the moment, for example our HANA-enabled ERP to speed that process when and where it’s needed, allowing systems to flip into overdrive and be extremely responsive without human intervention.

For us, the combination of HANA technology, CAR and agile ERP is really going to enable our current and future customers to lead the winners.

BH: I think we can probably summarise this by calling it informed agility.  Retailers and brands have aimed for agility for a long time, but what you’re talking about is much shorter-term and based on insight into very small windows of time.

SH: That’s part of it, but I think what’s going to happen is that retailers are going to use that information to be predictive rather than reactive.  Companies are going to use the inherent predictive capabilities of solutions like ours to take these myriad strands of data, analyse them at a very granular level, and modern ERP solutions are absolutely going to have to be able to respond to that.

When companies implement ERP today, it’s important that they do not think of it as a ten year, set-and-forget solution – it’s a continuously evolving platform that has to be open to flexibility at both the software and vendor level.

BH: With that being the case, where ERP is concerned, do you see this as being a “re-buy” market?  One where companies who previously had a ten year set-and-forget solution are discovering its limitations and looking for something more?

KB: That’s a good question.  SAP has established its reputation on the cloud, and we strongly believe that the future will be in the cloud for retailers, too.  We have customers in workforce planning, strategic sourcing etc. that are already using cloud-based solutions.  And I believe our cloud-hosted ERP offers customers a great choice.

SH: I think you’re both right.  As mentioned earlier I think a lot of retailers are discovering that their investment in ERP five, ten or fifteen years ago is no longer fit for purpose.  So now they’re facing up to the tremendous challenge of actually replacing ERP.  That’s tantamount to open heart surgery for a business – while the patient is fully awake and running a marathon.

So when retailers are asking the question of how they go about replacing something as fundamental as ERP, cloud deployments represent an excellent opportunity to conduct a step-change without having to rip out and replace everything on site.  It also presents retailers with the chance to look at their processes and to avoid going into a new solution with old processes bogging them down.

Cloud is a word that gets misused a lot, but for what we’re talking about it’s essentially asking yourself: “how can I simplify and re-focus on the things that make a difference in my market?”  And when you’re in that mindset, the pure “commodity” stuff is something those retailers are happy to leave to their vendors and move to the cloud.

I think more and more CIOs are getting that.

KB: That’s true, but I don’t believe the nerve centre of the business will be with the CIO much longer.  The CMO is going to control the biggest investments in the future, and they want that simplicity.

SH: If you map things backwards from the customer touch point, towards the heart of the business, I think the CMO will transform into the Chief Customer Officer and eventually absorb the merchandising and buying community, too.

BH: Marketing is bi-directional, after all.  Even the most successful luxury brands no longer have the luxury of telling the consumer what they want – they have to respond.

SH: Exactly.  For example, I see two types of marketing: one is to maintain brand image and the other is maintaining the relationship with the customer.  And in a new retail world where we need to create customer-centric collections and ranges, who do you think is going to emerge as the new king?  In the second half of the 20th century it was the merchants and the buyers, but I think we are starting to see the rise of a cross functional group led by the marketing community –  we will move from product centric Category Management to consumer centric Customer Management.

Things like fulfilment?  They’re a given.  As retailers, we can get products to virtually anywhere in the world today.  We don’t need to worry about that; we need to worry about maintaining our relationship with the customer so that we’re creating products he or she wants to buy in the first place.

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