The walls appear to be crumbling for traditional retailers.
Urban Outfitters, Staples, Dick’s, and Tailored Brands reported disappointing quarterly results this month. Once thriving retailers, including J.C. Penney, Macy’s, Sears, Kmart, and Abercrombie & Fitch, are closing some retail locations, while brands like American Apparel and the Limited are shuttering after filing for bankruptcy. Moody’s reports the number of distressed retailers in the U.S. has tripled since 2008.
Meanwhile, Amazon’s stock is up 15 percent this year, and the company is bringing its innovations to brick and mortar stores as an extension of its online business. In addition to 29 pop-up stores, it has opened Amazon Books locations in Seattle, Portland, San Diego, Chicago, and Dedham, Massachusetts — and its “store of the future” grocery concept has debuted to excitement in the market. (Pun intended.) There is not one corner of the retail experience that Amazon hasn’t transformed: from AI-enabled ordering to warehouse robotics to cloud-enabled cost efficiency.
Still, it’s mostly business as usual for traditional retail chains. Though retail cloud adoption has more than tripled during the last five years, retailers continue to lag behind in creating practical solutions to lower costs and enhance the experience for the increasingly sophisticated expectations of today’s shopper. Why? Well, whether they sell suitcases or not, retail has lots of baggage.
“2-day shipping that’s fast and free”
An annual survey showed that shoppers now make more than half of their purchases online — 51 percent in 2016, compared to 48 percent in 2015 and 47 percent the year prior. The Wall Street Journal reports that more than half of the population — about 190 million consumers in the U.S., will shop online this year. Amazon changed the game for retailers, and expectations for fast shipping, free returns, rewarded loyalty and a seamless online shopping experience now affect all brands.
Even though traditional retailers may be growing their online marketplaces and distribution networks, they also have massive physical infrastructure, the overhead that comes with it, and all of the (some antiquated) processes that come with running a traditional brick and mortar business. Urban Outfitters CEO Richard Hayne said that there aren’t just too many retail stores, but too much retail square footage. “This created a bubble, and like housing, that bubble has now burst,” he said in a conference call discussing the company’s poor fourth-quarter performance. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
Yet, focusing too heavily on reducing existing infrastructure and building a better online experience can alienate existing, in-store customers. It’s a unique catch-22 in the retail business. Companies are likely better served by improving their customer interactions while also increasing profits from existing stores they have. Some brands are trying just that, such as Aerie and Burlington Coat Factory, who are simply using less space in existing stores. Staples is partnering with an office-sharing startup to offer coworking space.
Luckily, the cloud gives companies a chance to deploy and iterate quickly, changing what doesn’t work and responding rapidly to customer concerns. Transitioning to the cloud — both building portable applications that aren’t reliant on outdated infrastructure and migrating older applications to this new architecture — offers great financial benefit by minimizing costly data centers. This allows even large companies to borrow a tactic from small startups and create minimum viable products, get feedback from users, and go from there. Easy, right?
Transitioning to the cloud is not easy
Amazon is a tech company that’s great at retail, but as we saw, retailers often have infrastructure that makes the reverse seem impossible. Companies transitioning to the cloud have the added challenge of needing to maintain their existing, expensive infrastructure, while also investing in new technology. Transitioning quickly is crucial. Becoming a cloud-native company starts by testing the waters, porting over some low-risk features or services, which can lead to early positive returns.
Another step for transitioning to the cloud is changing company culture where teams embrace a DevOps approach, which builds small cross functional teams that work together on one agreed upon problem at a time.
Lastly, avoid simply moving services over when you modernize your apps for the cloud; rather, take the transition as an opportunity to improve on older monolithic software. A microservices-based approach will provide efficiency and reduce costs of developing because each service operates independently, freeing development teams to makes changes without fearing inadvertent issues that might arise because of shared infrastructure.
It’s Not Over
In January 2016, Walmart launched a new open source DevOps platform to help developers write and launch apps rapidly and make them easier to maintain. They have embraced the cloud, allowing more than 3,000 engineers use their DevOps platform to manage over 30,000 changes every month and in turn, creating operational efficiency at a very Amazon-like pace.
Similarly, The Home Depot is remaining profitable while embracing the cloud with Pivotal Cloud Foundry. Kevin Hofmann, chief marketing officer and president of their online business, recently described the company’s “interconnected retail” strategy, which aims to provide customers a seamless physical and digital customer experience. With 19 percent growth in online sales in Q4 of last year, The Home Depot is seeing results as their customers utilize their new mobile app to search by image, text, and voice using detailed queries to get exact product results.
For all their progress, Amazon hasn’t cracked the brick and mortar code quite yet. Recode reported that Amazon has run into problems tracking more than 20 customers in their “store of the future” at one time, as well as the difficulty of keeping tabs on items. Of the concept actually working out, Target’s chief information and digital officer Mike McNamara said he was “skeptical”. There’s enough baggage to go around.
Change is the only constant, so individuals, institutions, and businesses must be Built to Adapt. At Pivotal, we believe change should be expected, embraced and incorporated continuously through development and innovation, because good software is never finished.