The retail landscape has never been static. Big-box retailers like Walmart, Tesco and Carrefour have built their success on a foundation of price competitiveness, intuitive store layout, viable locations, deft buying strategies, strong brand partners and effective marketing. But they continually face their biggest challenge — maintaining that success. Stores can easily end up full of dead shelf space and empty check-out lines if they don’t respond to the ever-changing technological and social landscape of their customer bases. The choice is stark—evolve or die. With this in mind, the coming year could signal a fundamental change in the relationship between retailers, their suppliers and consumers. By taking a look at the macro moves of some of the world’s biggest retail power-brokers, a clearer view of the coming age emerges. The shift from a retailer as a point-of-sale distribution hub to an all-encompassing social platform has begun.
“It’s incredible how much retailers are getting out of the insular mindset,” says Carol Spieckerman, president of newmarketbuilders, a boutique retail consultancy firm based in Bentonville, Arkansas. “You have to look at retailers now as a platform, rather than just a collection of stores or a stand-alone website.”
Spieckerman’s assertion that retailers are moving beyond the point-of-sale perspective with an eye towards becoming more wide-ranging entities is supported by a number of acquisitions that the majors have made in the past 15 months.
On the crest of this wave, not surprisingly, is the world’s largest retailer—Walmart. In November 2011, the behemoth of Bentonville purchased Silicon Valley social media data aggregator start-up Kosmix for an estimated US$300 million. Founded in 2005 by Venky Harinarayan and Anand Rajaraman, Kosmix is a collection of social media filtering technologies that can monitor the activity on platforms such as Facebook, Twitter, YouTube and Foursquare in real time and extrapolate information.
The retailer promptly created an @Walmart Labs division to integrate Kosmix into its operations. Currently, @Walmart Labs employs roughly 500 people who work across its original office in Mountain View, California and a newer one set up in Bangalore, India. Kosmix represents the most significant social media acquisition by a retailer, but it’s important to note that Walmart is not alone. Its competitors have also been busy throwing capital at social media technology firms.
In May 2011, Dunnhumby, a UK-based retail media group and subsidiary of retailer Tesco, purchased Boston, Massachusetts firm BzzAgent for a rumored US$60 million. BzzAgent is a social marketing company that “creates word-of-mouth among consumers,” according to Malcolm Faulds, the company’s SVP of marketing.
“As traditional marketing channels have become a little less effective…brands are looking to create word-of-mouth to reach consumers—we run campaigns designed to get people talking,” he says. Social media, of course, often plays a key role in those campaigns.
Minneapolis, Minnesota-based Target is also “on the acquisition trail,” according to Lutz Muller, founder and president of Klosters Trading Corporation, a retail consulting firm based in Williston Hills, Vermont.
“[Target] is looking at three companies that look at consumer groups and their activities on Facebook, Twitter and YouTube,” he says, adding that the company names are still strictly under wraps.
Additionally, Muller says France’s biggest retailer (and the world’s third-largest), Carrefour, is looking at similar acquisitions in the social media metrics space.”There is definitely significant awareness that consumer behavior on social media matters to retailers,” Muller notes.
The upshot of these purchases and rumored acquisitions is that retailers are looking at the online environment in a more sophisticated and nuanced way than ever before. Just maintaining an online presence that enables customers to buy items, complain and post customer reviews on a website is not enough anymore.
“It’s moving beyond having Twitter or Facebook as a customer service, public relations or promotional tool,” confirms Steve Mader, senior analyst of digital retailing at UK-based consultancy Kantar Retail. “It’s becoming integrated with the overall operations of live retailers.”
Spieckerman also sees these acquisitions as an indication of a fast-changing retail culture. “They are mining data from social media and turning that into insights that can then be leveraged,” she says. “Retailers are realizing that social data is more impactful than the point-of-sale data.”
A look @Walmart Labs
While only 15 months old, the acquisition of Kosmix by Walmart has spurred the development of a number of programs that illustrate exactly where the world’s biggest retailer is headed. Shernaz Daver, spokesperson for @Walmart Labs, says the division is primarily “monitoring social media chatter” to “determine what people might like to see in the store.”
The most obvious example is Walmart’s 2011 promotion “Get On the Shelf.” The company asked US inventors to make a YouTube video detailing their inventions and why they should be on Walmart shelves. The public then got to vote for the innovations they would most like to see made available in stores.
“We figured we would get 1,000 entries,” says Daver. “But we got more than 4,000.”
The competition yielded two new products that are now stocked at Walmart, and an additional one that is available online.
Walmart, of course, hasn’t stopped there in its attempts to use social media data. For instance, by noticing that a great deal of discussion was taking place on Twitter about the Cake Pop, a confectionery product from coffee giant Starbucks, Walmart set its sizable buying power into action.
“It was trending on Twitter, and people on Facebook were talking about it, saying it was cool,” says Daver. “We saw that and talked to the buyers, who in turn talked to a manufacturer, and now we carry a Cake Pop maker.”
Last Christmas, Walmart also unveiled its Shopycat program, a Facebook gift-finding app created by @Walmart Labs. “It helped answer that question everyone has—’How do I buy a gift for my wife or sister-in-law?” says Daver.
The app aggregates a user’s Facebook “likes,” and based on his or her status-update postings, suggests gifts that would be appropriate. If your sister-in-law likes The Hunger Games, for example, the app would suggest a similar book, or perhaps fashion items associated with the franchise that other fans of a similar demographic also purchased. “Those are the kinds of areas we wouldn’t have thought of investigating in more traditional retail,” concedes Daver.
Perhaps Walmart’s most revealing example of the power of information gleaned by tracking social media comes from an admittedly unlikely place. The small independent US documentary Fat, Sick and Nearly Dead was released in 2010, made on an estimated US$2.5-million budget that had scattershot distribution. The film would have flown way under the radar of any major retailer were it not for new social media aggregation data.
While the movie’s audience is a mere fraction of those for studio blockbusters like Marvel’s The Avengers, its fanbase was particularly rabid and—most importantly to retailers—motivated to make a specific purchase. The film tells the story of Joe Cross, the filmmaker, who along with a truck driver, sets out on an “epic journey” to lose weight and live healthy. One particular aspect of the film caught the interest of the social media world.
“All of a sudden there was a lot of social chatter about juicers because of this little cult movie,” explains Daver. “So, we reacted by carrying more juicers. We also knew geographically what areas should carry more of them.”
The example serves to illustrate Spieckerman’s point that retailers are realizing a new set of metrics, and analyzing data that goes far beyond traditional point-of-sale information. “The awakening of the power of that data is one of the reasons compelling retailers to get involved with social media,” she says. “The most valuable data is from the online environment, not the store.”
It’s an assertion echoed by Kantar Retail’s Mader. “[Retailers] are getting thirstier for shopper data that exists outside of their walls,” he says. “They know a fair bit about what is going on within their stores or websites, but they want to know what is happening on these social media platforms.”
Tesco takes on Bzz
UK-based Tesco is taking heed of the growing importance of digital in the retail space. Its acquisition of BzzAgent last year, combined with recent purchases of Mobcast (it paid US$7.5 million for the company that brings books to wireless devices), and internet radio station WE7, indicate the retailer’s desire to morph into a consumer platform.
“Tesco has always been an innovator,” says BzzAgent’s Faulds, referring specifically to the company’s well-known loyalty program. “We plug into that program. If we see through your shopping patterns that you buy a certain type of ice cream, we will send you a kit through the mail or a sample of another related product and ask you to write reviews, post pictures. Then we put that content up on different sites.”
Faulds says the retailer and the brands it stocks are interested in the end-product of these types of campaigns—the social media content. “There is definitely a trend with retailers figuring out social,” he says. “Many of the brands who buy into these types of programs are doing so for the content that they get from consumers—those testimonials and the pictures that they then use internally.”
While the program may seem like a simple extension of traditional market research, the two-way nature of the conversation between consumers and retailers that it facilitates is what’s valuable to Tesco. And there is plenty of evidence to suggest that Tesco is the UK leader of the platform approach, as Walmart is in the US.
A good example of Tesco’s reach outside traditional retail channels is its stake in Blinkbox. Founded in 2006, Tesco acquired an 80% share of the UK-based video-on-demand service, which has had more than 2.8 million registered users as of April. The service was quickly integrated into the retailer’s operations by connecting physical sales of DVDs in store locations to the streaming platform.
“If you buy a DVD at a Tesco, you automatically get a free online version of that DVD through the service,” says Faulds. “In many ways, [retailers] are creating platforms in which brands can engage with customers. There is a similarity between retailers and media properties. These retailers have an audience that isn’t just going to the store; it’s engaging with them online and in the real world.”
Powering up the pull model
Given what they’ve been up to so far, it’s fair to say that retail’s current fascination with mining social media data is altering the buying process on both sides of the pond.
“In traditional retail, the buyer is king,” says @Walmart Lab’s Devar. “But now there is a new model. Now the consumer is king. It is consumers deciding what they want to see on the shelves. They are voting with their social connections, as well as their wallets.”
In other words, making an elevator pitch to a buyer in a Brooks Brothers suit or presenting a Powerpoint in a drab boardroom in Bentonville might become as outdated as the fax machine.
“It’s starting to move in that direction, and it will have some very interesting implications for supply-chain logistics and new product introductions,” says Kantar’s Mader.
Spieckerman says the new dynamic operates on a “pull model,” and she posits that the major retailers are anything but passive buyers waiting to be sold on a new product or property. They are, with the help of these social media metrics, proactive buyers scouring the social media landscape for powerful brands that have deep affinities with the communities based around them.
“Retailers are finding the brands and the products they want through social media interactions,” Spieckerman says. “It’s moving from a conversation about how many sales have you driven to ‘What does your user base look like? What sort of affinity is out there?’”
So for brand or property owners operating in the kids and adult spaces, the goal will become creating social media currency that can then be leveraged into products, rather than pursuing the traditional model where products are created to fit into an established category and in a set store aisle.
“Look at success stories like Lululemon [the sportswear manufacturer],” says Spieckerman. “You don’t necessarily see one product—you see a user-base, an affinity base. Brands now have an ongoing conversation with their bases and those communities are going to become very valuable to retailers.”
In the kids space, in particular, Spieckerman points to Angry Birds as a “weapon of mass engagement” and a perfect example of a property that built a strong affinity and community in the digital space and eventually ended up putting products on the shelf. In fact, with the new metrics playing a crucial role in the buying decisions of retailers, she frames the future as a digital data arms race between retailers, brand owners and manufacturers.
“Brands and suppliers might assume that retailers will just turn over the new metrics to them,” Spieckerman says. “But that is not the case. Brands and suppliers will have to have a conversation to find out what the new data sets are, if retailers are getting richer data than they are, and how it can be leveraged. It’s a much more complex proposition than it used to be.”