Retail Problems That Have Persisted (and why)
We’re a big fan of Jordan at ReformingRetail.com — if you don’t subscribe you should. He can be a bit too radical but that is preferred to not saying what needs to be said. We liked his analysis of the latest NCR financial report we republished (with permission) on Kioskindustry.org
His latest on retail is very informative and it identifies the pre-eminent and seemingly indestructible characteristic of the retail establishment in being unwilling to actually fix problems they already know how to fix. If it sounds like we are headed in the direction of money and specific spending, we are. Retailers have no problem “spending” on glossy PR-ready initiatives that get their picture published and interview written up. The successful and effective projects have always been protected and never disclosed as they really would help their competitors.
Most outsiders scratch their heads when getting into retail.
“How is that still a problem in retail? That was solved 84 years ago in XYZ vertical.”
This dangerously leads to thinking that solving that problem, since its ROI is so proven, is just a matter of education.
“It’s so obvious… there are millions of retailers, the ROI is clear, and it’s already been done before elsewhere. Gimme moneez.”
There have never been more wasted dollars than there have been in chasing this line of thinking in retail.
You need to understand the concept of Chesterton’s fence, which says that before making a change, understand why those changes don’t yet exist.
This is the dilemma for retail.
Sans ecommerce, which is killing the incumbent retailers that can’t innovate, retail has made trivial progress relative to other industries, and it will continue to fall further behind until there’s an impossibly large demographic shift in the types of people who run and manage retail establishments.
And “demographics” is a cute euphemism for intelligence.
Let’s list the common problems we hear in retail.
- We can’t control labor costs
- We can’t control inventory costs
- We don’t know how to run marketing
- We don’t know if marketing works
The math on forecasting has gotten incredibly good.
Tools like PredictHQ aggregate localized event data to understand demand drivers.
Every cloud provider now offers machine learning forecasting models.
Cloud POS systems enable easy reconciliation on quantities ordered and required servers.
Machine vision tools are staying on top of inventory levels.
Great excuses, but solutions exist.
Next we get to hear gripes about marketing frustrations.
Virtually every consumer is trackable by their credit card.
Targeting people based upon their purchase history is no longer an issue.
Furthermore, probabilistically determining campaign ROI is not a challenge either: probability density function at 1-1 records then further comparing this against competitors and their spend is knowable.
All this shit has been solved.
So why don’t retailers use it?
Because they refuse to pay for value.
Retailers really struggle to understand ROI.
So the only way to make money in retail is to take dollars from retailers in payments fees or through hostage-like monopolies.
That’s because there’s a massive asymmetry in value in retail:
Retail vendors must produce unreasonable ROIs.
Not a 3:1 or 4:1 ROI, but a 1,000:1 ROI.
Google or Facebook ads charge ~25% of the value generated, but a tool that increases a retailer’s EBITDA by 50%? That should be free according to retailers.
Here’s an honest-to-God conversation that happens between retailers and potential vendors.
Vendor: Invests years on expensive data science and product: I can tell you what’s wrong with your business and what it’s worth to fix it. It will make/save you $X over the next 3 months.
Retailer: It’s not actionable enough. I need quick advice.
Vendor: Then why do you have employees? Aren’t they being paid to make these changes?
Retailer: Says a lot of nonsense and vendor realizes that nobody on the retailer’s payroll, including the c suite, is smart enough to make rational decisions
Vendor: Invests further in making solution actionable. Here: this is precisely what you have to do.
Retailer: No, no. You need to implement the solution automatically for me.
Vendor: And you’ll pay what for these services?
Retailer: Nothing.
Vendor: Okay we’ll run a pilot. Pilot generates 20% sales lift. Okay I generated $100,000 in new sales. Pay me 25%. How did I come up with this fee? You pay Google for an implied 4:1 ROAS even though you can’t and don’t measure any of it.
Retailer: Glosses over the fact that they didn’t graduate high school because algebra was #fakenews. All these customers were going to come to me anyway. I earned all $100,000 on my own. I know all about this fancy “data science” and pretty much have 17 PhDs.
This graphic shows how ridiculous this really is.
The vendor, represented in green, is constantly moving around the wheel trying to innovate while the retailer, in red, looks for every possible reason to avoid improvement.
It’s a total waste of time.
Why put yourself through this hassle?
It would seem to us that smart vendors haven’t.
Look at the links we posted above.
PredictHQ is powering solutions for a ton of tech companies.
Those AI forecasting libraries are being used by people who can spell AI (i.e. not retailers).
Machine vision for inventory? Try every industry BUT retail that’s using it: healthcare, manufacturers, distributors, ecommerce (not part of legacy retail).
There are plenty of other industries that not only pay for value, but are grateful for your assistance.
Retail “executives” don’t have the self-awareness to understand that a 22 year old in finance makes more money they do because the free market says they’re more valuable.
Maybe instead of pushing these vendors out you should try to learn something from them?
Heaven forbid someone with an IQ above 75 points might know something you don’t.
Retailers have no excuse for their problems.
In fact, they are the reason for their problems.
But then again if retailers behaved rationally we wouldn’t have Dunning-Kruger train wrecks that make us question the longevity of the human species.
At least retail is giving us entertainment value.
