The most valuable asset that retailers possess is not the products on their shelves, but the tech-savvy associates on their floors. Competition in the retail space is growing exponentially as each day goes by. Big-box retail locations are searching for answers on how to fight off both opposing storefronts as well as online retailers. Less foot traffic into retail locations means fewer at-bats to close more business. Sales are down and at their worst for retailers since 2008 causing some to call today a Retail Recession. While “show-rooming” is constantly looming in the back of every retail manager’s mind, the experience itself is the real issue that needs to be addressed. If shoppers are constantly walking into brick and mortar locations to see the products for themselves, the opportunity still presents itself for that shopper to become a buyer today and a loyal customer for years to come.

Unfortunately, this is not the case because most times when shoppers walk into retail locations they are not given the experience that makes them want to buy. Either there are not enough sales associates on the floor to help, or it seems that when one is available they are not able to answer the questions posed to live up to the “expert” title. The truth of the matter is this; technology seems to be on it’s way to a store near you but that alone will not solve the in-store retail dilemma. Retailers need to put this technology in the hands of their most valuable assets, it’s employees. To stay competitive and rise above the rest, the true differentiator that no online avenue can ever replicate is the expertise that store associates can offer. This is the reason that Apple’s brick and motor template has empowered them to open over 300 stores in the past 5 years nationally and that figure is growing. The experts, or specialists as Apple calls their associates, are the “keystones of the Apple retail model because Apple hires devoted fans who know that delivering the right advice is far more valuable than selling product.” The right advice takes time, so Apple has invested in having more employees on the floor than they know what to do with. Using their in-store analytics, each store schedules at least 1 employee to every 5 customers they believe will walk into their location. There is never a wait for help.

Employees at retail locations want to succeed and do well in their jobs, just like anybody else. It’s hard to be on a sales floor and notice that there are more customers than you can handle while still focusing on the customer right in front of you. While retail is evolving and changing, invest more in the asset that will always be the front line and ultimately decide the fate of your business, the employee. Service, at it truest state, is what the employee brings to the table. At the end of the day, success of the evolving retail experience hinges the shoulders of the people that run the sales floor who can effectively utilize these new technologies.

For those of you that do not recognize the name Henny Penny, you may recognize the catch phrase, “The sky is falling! The sky is falling!” It seems that phrase could be the title for copious articles that have been written about retail, specifically Best Buy, since the Larry Downes article came out in Forbes in early January. That article really spurned the conversation about show-rooming and how that was the end of big-box retail.

Now news of Amazon embracing internet sales tax in order to open more distribution centers (DCs) and offer same day delivery has reinvigorated the conversation that big box is near death. First, let me start off by saying I do not believe Amazon opening DCs is about brick-and-mortar retail; it is about finishing off their online competition. Second, the opening of DCs does not finally vanquish the last competitive advantage of brick-and-mortar-retailers. And finally, big box retail as we know it will die. I will address all these points in order in the next few paragraphs.

Amazon is climbing Kilamanjaro first, even though it has set up camp on Everest.

At this point it is no secret that Amazon has it eyes set on conquering retail—as well as multiple other verticals. However, the assumption that Amazon is opening DCs as a move to beat physical retailers at their own game is just plain wrong.

For years Amazon has spent countless amounts of money lobbying not to have to charge sales tax in states where it does not have a “physical” presence. During that time, Amazon has been wildly successful; to the point that Amazon is now the #1 online retailer. If the model is currently working (and we can all agree that it is) why the sudden about face? How does immediately increasing the price that the majority of your customers pay help Amazon defeat the physical stores? The answer is it doesn’t. It helps defeat all the other e-tailers that do not have the resources that Amazon does.

Those e-tailers will suffer the most and feel the most immediate impact. Before, whereas ordering online could save a consumer in Arizona 7.3% by simply not having to pay sales tax; that advantage is gone. So all things being equal, or close to it, what is the advantage of ordering online from an e-tailer that can get you the product the next day at best? None.

Currently if the consumer sees that price is the same on-line and off-line, there still is a way for them to order on-line and get the product the same day—in-store pick-up. Amazon is banking that the value proposition of same-day delivery will keep the shoppers shopping on-line but using their site because of the convenience of home delivery versus having to drive to a physical pickup location. This will give them a HUGE competitive advantage versus smaller e-tailers. They will completely conquer Kilaminjaro (on-line retail) as a way to train to conquer Everest (all of retail).

Hasn’t Anyone Seen Terminator 2 or I Robot ?

The idea that the only competitive advantage in retail is instant gratification is ludicrous. I have always contended that physical retailers have four distinct advantages:

• 1. On-hand inventory
• 2. Physical presence
• 3. Services
• 4. Sales Associates

It can be argued that the first advantage is rendered null by being able to deliver a product to a customer within a few hours. I argue that it is not. Any veteran of retail can tell you countless stories of consumers unwilling to wait a few minutes let alone hours to get their product; instant gratification means instant gratification. This does not mean that all customers “must have it now,” it just means a customer that “must have it now” must have it now; not 4 hours later.

Having actual physical locations is not a detriment as long as they are leveraged correctly. The advantage of the physical store isn’t just about convenience or a convenient place to return things; it is about being able to serve and be part of the community. This offers a tangible advantage to brick-and-mortar that even Amazon DCs cannot compete with. Whether it is planting trees, attending community events, or simply having staff that reflects and comes from the community, a brick and mortar location can endear itself to a locale. The trend lately has been to talk about reducing the footprint of stores. While this move will save on costs it is not a panacea. Retailers have to be more creative about how they leverage their stores: from hosting PTA events to show parents the latest parental control tools to seminars on how to truly take advantage of your All-Clad cookware. There are many innovative things happening throughout retail at the local level that needs to bubble up.

If retailers use their space to engage the community around them then the community will engage with the retailer.

Retailers across all verticals offer services. From Geek Squad, to the Photo Studio at JC Penny’s, to installation and repair services from Home Depot, Lowe’s, or Sears, services can be a large part of the in-store retail experience. Often times they are the sole reason why someone buys from a store as opposed to the web. The ability to have a professional do the work and be held accountable if the work is subpar is a value proposition that will be very difficult for Amazon to compete with. Although they can offer and sell services, they cannot have a face to a name when problems arise. Brick-and-mortar can confidently tell a customer, “We will do it right but if something happens you can come back and see me.” This is a statement that Amazon currently cannot utter.

This leads to the fourth advantage: sales associates or more accurately, people. The majority of shoppers enjoy some level of human interaction when purchasing items. They often seek advice, recommendation, validation, assurance, or confirmation that they are making the right choice. Whether it is a two hour sale or a two-minute conversation where the customer asks the sales associate “is this a good purchase”, there is a unique visceral experience that occurs that cannot be replicated or replaced by machines. Hence the title of this section. However, this experience can be enhanced by technology. A physical retailer is the only place in retail where the combination of human interaction and nuance can be combined with all the wonderful technology that is available.

Over the last year, many retailers have made announcements of how they are doing this or plan to do that. Leveraging technology and customer-facing employees is not just about making the enterprise more efficient or replicating the on-line experience (see: Endless Aisle). It is about creating a unique experience for the customer that excites them and makes them loyal. In order to truly take advantage, retailers are going to have to be innovative. They are going to have to think about outside-the-box solutions for inside-the-box problems. If they do this, we will see a new retail paradigm.

What Retail Can Learn From Kristen Stewart

In the popular Twilight series, Kristen Stewart’s character Bella dies (or so I have been told). A few scenes later she comes back to “life” with the same form but much more powerful. Bella has gotten a jolt of new blood and is now reinvigorated and a stronger force to be reckoned with.

Retail needs new blood. It needs to do away with the business as usual and try new ideas, systems, and methods. It does not need to change its form. It can keep its old body. Yes, brick-and-mortar retail is dying but by combining its strengths with technology, it can come back to life more powerful than ever; just like Bella.

While there were no Sally Field or Cuba Gooding, Jr., moments last night at the Northern Virginia Technology Council annual Hot Ticket Awards ceremony it was one of the best events I have attended in Startup Land. It was great to see some of the NVTC members let loose, celebrate, and really embrace the Hawaiian Shirt Theme. It was also great to interact with many of the nominated startups and swap stories.

Two companies in particular really stood out to me: ActivityRocket and Votifi. They were nominated in Hottest Startup and Hottest Bootstrap respectively. While neither won, I cannot imagine they both won’t be wildly successful.

And while winning does not insure success it is a great honor and achievement. I am proud to announce that Lemur IMS won Hottest Startup! This award recognizes the “company with the best story and results during the time period of January 1, 2011, to April 30, 2012.” Since I was not able to rush on stage and celebrate like Sally or Cuba I would like to take this moment on behalf of the Lemur IMS team to thank our family, friends, advisers, and mentors.

Overall at the event there were eight winners in eight different categories. We were privileged to be recognized with the other winners: CFN Services, Inc., Sonatype, GetWellNetworks Inc., Near Infinity Corporation, Micromet, BroadSoft, and newBrandAnalytics.

I am sure we all just wanted to get up there, clutch our award (the doppelganger of the People’s choice award), and shout like Sally Field “You like me, you really like me!!”

“Show me the money!” A phrase so powerful it has won Oscars. Now there is a new term out there that is just as powerful but much, much dirtier—Showrooming. The term is used to describe how consumers are more and more using traditional brick-and-mortar locations as a showroom to view/demo a product, compare prices on their smartphone, and leave to make the purchase online.

This concept is getting lots of press lately. Usually it is linked to articles about Best Buy and why the retailer will eventually go out of business. I firmly believe that “showrooming,” if leveraged correctly, can actually help brick and mortar locations. Every person that walks into a location represents a potential sale. Regardless if that consumer is more inclined to buy online or not.

Let’s say Joe Shopper goes into his local electronics store to see a TV that he has recently looked at on Amazon for $1000. If Joe walks into his local electronics store, and that same TV is $975, why wouldn’t Joe buy it right then and there vs. paying a higher price from Amazon? There really isn’t a compelling reason.

Okay, let’s reverse the story: Joe sees a TV on Amazon for $975 and his local retailer has it for $1000. Does Joe automatically purchase from Amazon? The answer is not so simple. There are many reasons why Joe might choose to spend the extra $25. Maybe he likes the salesperson, needs the TV today, wants the loyalty points, wants the option for local service/support, or maybe he’s the rare consumer who wants to help the local economy. The point is there are many reasons to make an in-store purchase.

So why doesn’t this happen more often? It’s often because Amazon is priced much lower than brick and mortar retailers. Their business model allows for better margins at lower prices. Traditional retailers maintain margin integrity then price match on a case by case basis. The retailer’s reasoning is it’s much better to price match discount a few sales then on all sales. There’s no faulting this logic; or is there?

There is now. The pool of consumers purchasing products in-store has dropped dramatically. An even smaller number of consumers visiting brick and mortar stores will buy at full price. The reason for this is virtually ubiquitous access to pricing, price matching and price alert applications, which has shifted negotiation power to the consumer. Consequently, retailers MUST find a new approach.

First things first, they must embrace the concept of “showrooming.” This means salespeople and managers must engage with these potential customers. They need to find out the “right” price for each particular customer. If retailers have the right tools, to leverage this “right” price information, they can make more appropriate discounting decisions to drive more sales of specific items to specific customers at specific times in the future. If the the retailer can do this while maintaining service with a smile then they will win that customer for life.

If the retailer does not have this capability, two things need to happen:

1. The retailer must find a way to re-engage with the customer. That means taking personal service to a higher level than most retailers have been offering (read: they must be more like Nordstrom). Stores have an edge with customers over online retailers; they can build a personal connection. No piece of real estate in the entire retail industry is more important than the three feet between the employee and the customer. Companies that understand this power, and can harness it effectively, can be successful in this age of “Showrooming”.
2. The retailer must innovate or tap into innovative companies that are disrupting current models. Companies like ExactTarget, ShopKick, and yes, Lemur IMS are great examples. But merely bringing these companies into their customer service portfolio is not enough. Retailers need to insure that the value propositions speak to the majority of their customers, both internal and external. As a rule, consumers are an impatient bunch. If they don’t see the value, they move on very quickly. Store employees can be just as impatient when it comes to embracing change.

Throughout my time in retail I saw multiple customer initiatives fail because there was no buy-in at the store level. Retailers as well as their innovative partners must take the time to ensure new platforms are implemented correctly and used effectively. What is good for the goose (customer) is not always good for the gander (employees). The good news is that retailers are starting to engage companies like Lemur IMS, among others, to help them leverage showrooming to their advantage and deliver a better customer experience.

Retail is a giant animal. Much like an elephant, it takes a while to get moving, but once it’s running, the rumblings can be felt far and wide. It is time for retailers to go beyond engaging innovative companies and “Show Them the Money!!!”

Last week JC Penney cut 14% of its staff at HQ. This accounts for 600 of the 4,400 corporate employees. While I do not celebrate the loss of jobs I am encouraged by the reasoning. Simply put Ron Johnson stated that the company goal is “to operate like a start-up.” He wants to remove layers of management and create more accountability. As a CEO of a burgeoning business and a former employee of multiple Fortune 500 companies, I have first hand knowledge of the distinct cultural differences.

What makes startups great is that everyone is accountable to everyone. The success of the enterprise depends on all parts functioning in their role and often times taking on additional responsibilities. This culture leads to a fast paced environment where ideas are easily shared and innovation is rewarded.

During my time as manager for Best Buy, hhgregg, and Bed Bath and Beyond I acquired a unique perspective about large enterprise. I ran stores that did over $50 million a year in revenue and had over 100 employees. In this “Corporate” structure I sat at the top and saw first hand how difficult it was to have innovation bubble from the bottom up and key information disseminate down. Also, at the same time I sat multiple levels down the corporate hierarchy. The same frustrations my sales people felt with me I felt with upper management.

Consequently, we developed systems in my stores that would allow for innovation and accountability (GM Roundtables, weekly supervisor meetings, innovation teams, etc). These platforms allowed for my stores to be at the forefront of retail innovation and created much happier employees and customers. I have taken these principles into Lemur and we are in the process of building a culture based on a Virtuous Teaching Cycle.

Ron Johnson’s goal to operate like a startup is noble one. Six months into the job and he is moving at break neck speed, just like a startup.

Last week when Best Buy announced that it was closing 50 big-box stores, buried in the reports was a more exciting announcement; it was opening 100 smaller and Best Buy Mobile stores. Overall, Best Buy reports that it will be reducing its square footage by 5% while adding stores; as Brian Dunn, CEO, put it, “more doors and less square footage.”

Many believe that this is the first sign of the eventual demise of Best Buy and big box retail. They could not be more wrong. This in fact is proof-positive that retail will re-invent itself to satisfy the needs of the consumer.

JC Penny launches Square Concept

In the last few months, two of the largest retailers made major announcements about their new directions. The first, JC Penney, is attempting to reinvent the department store shopping experience with their new Square concept. Furthermore, its move towards every day “fair and square” pricing is an attempt to remove the noise of the current shopping experience. It is too early to tell how Penney’s new concepts will fair.

The bet is that JC Penney will see this all the way through. Ron Johnson, the new CEO of JC Penney, is known as a great retail visionary and believes in his strategic plan. Johnson was the architect behind the Apple stores. For those of you unfamiliar with the story, the Apple stores were an utter failure coming out of the gate. It was Johnson that insisted that they stay the course and the concept needed time to develop. Johnson understood that this “new” concept of retail would require the customer getting used to it. He also believed that once they did, the Apple stores would be a great success. He was right. Now he is making a similar bet with JC Penney.

The news of JC Penney’s hiring of Ron Johnson was greeted favorably on Wall Street. In fact, even the Q4 losses (the first quarter of Johnson’s tenure) have been seen as mostly positive. Best Buy recently announced their own significant “free-agent” hiring.

Back to Best Buy

In Mid-March, Stephen Gillett joined Best Buy as CIO. Gillett was seen as the driving force behind Starbuck’s digital success. This hire, coupled with the news of shifting store resources should be seen as a Best Buy’s commitment to staying relevant. Clearly, they understand retail is changing and they must change with the times. What is interesting, however, is how the seeds for announced store changes were planted some time ago.

The move towards smaller footprints actually began years ago. As Best Buy was attempting to capture incremental sales it began placing smaller stores in between its larger boxes. These smaller stores were placed in convenient strip malls or easily accessible locations. The thought was that they would not cannibalize sales but rather create more opportunities for non-Best Buy shoppers. The numbers have not shaken out that way but Best Buy did gain lots of knowledge about the smaller store concepts.

Likewise, Best Buy’s plan to reinvest in its staff by allocating up to 40% of savings to employee training has its roots in previous Best Buy initiatives. During the early days of Customer Centricity, Best Buy insisted in having the best trained employees. It was not uncommon to have a one hour pre-store opening meeting every day of the week. The idea was that the managers could leverage this time to teach both product and sales skills. The Customer Centricity stores had some of the highest customer and employee satisfaction scores in the company.

The idea that employees should be compensated based on customer service and store performance stems from the Customer Centricity experiments of the mid 2000’s. In the middle of the last decade Best Buy tested the Home Theater Experience (HTE) concept (these were later rolled into Magnolia). HTE had the highest paid and most knowledgeable associates in the store. Their mission was to create a great customer experience while generating more revenue and margin per customer. In turn, the associates reaped the benefits of bonuses through their performance. The HTE stores had some of the highest revenue and units per transactions.

So what to make of all these changes? Quite simply this is a customer service and margin play. By having smaller stores, it is inevitable that store selection will shrink. This is not a bad thing (see, stores, Apple). Less selection plus more training time means that associates will have a better understanding of the products they are selling/displaying; giving the customer better service. Secondly, for the stores it means less time is spent on selection of the product and more time can be spent on margin rich accessories and services.

If Best Buy is going to focus on low margin primary products then it needs mechanisms to deliver dollars to the bottom line. That will fall on the accessory and service categories. As someone with extensive experience in this field, I can see the light at the end of the tunnel. If you offer a smaller selection of core product but attach a wider range of accessories and services you can drive more revenue and margin.

It is clear that Best Buy understands (as was mentioned in one of our earlier blog posts) that the only way to be competitive with on-line competition is to leverage its physical locations and its people. All the moves that Best Buy has announced seem to indicate that they are positioning themselves to take advantage of these two assets. Well played Best Buy, well played.

SXSW is full or parties and all manners of Geeks, Nerds, Hipsters, Old Money, New Money interacting with each other and grooving to all types of music. At those parties you get what you expect—lots of awkward dancing.

The other part of the SXSW experience that is constant is “The Pitch.” Everyone you meet asks, “In one minute or less, tell us what your startup does.” There are official pitch competitions and if you are lucky enough you get to participate in these sessions, or showcases. Those events are instrumental in the growth of the entrepreneur and the company.

Yesterday we had the unique honor to participate in a company showcase at Startup Village called Entreprelooza SXSW. When we were first asked we were told that this would not be your typical showcase and we need to do an artistic presentation of our company. Thinking this showcase would only be for Entrepreneurs, and not investors, and that it was more for fun—we did not prepare.

Once we arrived at the Village we were told that it was open to the public, that yes, investors would attend, and that we should do our very best. This is what we came up with (See video above). ENJOY!!

If there is any true take away I can give you from SXSW it is this: Just let it happen. All the planning in the world cannot compete with the power of social media and chance.

The power of the truly connected society never ceases to amaze me. Yesterday through a combination of Facebook, SMS, and serendipity, I was able to reconnect with my best friend from kindergarten, Pat Matthews. Pat is now SVP of Rackspace. We had not seen in each other in over 10 years. I have to admit that was the highlight of a very fun and eventful day.

The day started out like every other day this week—rainy. We (Cary Scott and I) were not to be deterred and headed down to the Startup Village. They were having a pitch and trivia competition sponsored by American Airlines. Unfortunately, since there were only 2 of us here representing Lemur IMS we were not able to participate (you needed a minimum of 3). Even though we could not participate we still found the event entertaining.

The Lemurs

After spending some time in the Village we headed off to The Rattle Inn. Austin Ventures was having a party there and, funny enough, one of the feature bands was none other than The Lemurs. Needless to say, they rock. At the party we had the privilege of spending time with the AgLocal team. Their team is as cool as the business they are building. Make sure to check them out.

As we were enjoying tasty BBQ near the cell-phone charging area (the most essential part of any SXSW party) we had the pleasure of meeting Lan Nguyen from Klout. This might have been the most serendipitous meeting of all time. No more than two minutes earlier we all had been speaking about our Klout scores and how they were determined. Lan was generous with her knowledge and her passion about Klout was infectious. Although I use Klout, I think the jury is still out. However, if the team is anything like Lan, I cannot help but think it will become ubiquitous.

After leaving the Rattler Inn the day’s pace accelerated. We spent some time in the StumbleUpon lounge (recharging electronics, what else?); Networking at Startup Village; and eating a late lunch. I then headed to Fogo De Chao to meet with Pat Matthews (Cary and Evan Burfield headed to the The Driskill Hotel for a DC Tech Meetup). Seeing Pat brought back memories of playing touch football and thinking “Wow we are going to be the best QB/WR tandem in the history of the NFL.” That never happened but it was good to see that Pat had channeled his competitive spirit towards business and become a great success.

Pat then invited me to the Rackspace party at Bat Bar where I spent some time with Paul Singh of 500 Startups. Paul was kind of enough to share his philosophy on investing, entrepreneurship, and philanthropy. Paul’s unique perspective was inspirational and I am excited to see how he and 500 change the world.

Oh yeah, one last thing of note, we were all able to reconnect with an old friend—the sun. Yes, folks the sun did shine in Austin yesterday both figuratively and literally.

We think that the best attendees of SXSW are former Boy Scouts because they are “always prepared.” Thankfully, because of our advisory team, Evan Burfield, Paul Logan, Michael Dering, and Jonathon Perrelli, we have learned our ABP’s (Always Be Pitching) and were ready for all the opportunities that presented themselves yesterday.

After fighting the rain to get from our “traditional” SXSW home to the Startup Village we were quickly presented with a serendipitous meeting with members of the New York Stock Exchange. We are happy to report that we will soon be traveling to New York to spend some time with the NYSE. The purpose of this trip will be to discuss the synergy between entrepreneurship and large corporations (we will also sneak in a visit to the trading floor).

What then was supposed to be a quick stop for a presentation on how to pitch media before lunch became an opportunity to actually pitch the media. As we walked into the event space we were asked if we would like one minute to get on stage and pitch Fast Company, Entrepreneur, Inc., and Tech Crunch. Being true entrepreneurs we jumped at the opportunity and were on stage within a few minutes.

We then were off for the main event, Tech Cocktail. Being selected as one of the 33 feature companies out of hundreds of applicants was quite an honor. However, it was also hard work. We pitched for five hour straight. That hard work paid off as we made great contacts in retail, marketing, advertising, and investing. As we left the event exhausted we truly got a taste of Austin and SXSW as we encountered a street closing parade of over 200 costumed revelers dancing to “Jump Around” by House of Pain. And yet the night still had one surprise left for us, a karaoke cab called The Land Yacht!

We are excited to see what this day holds for us today! Till next time, your favorite Lemurs!!!