Trailing a tangle of wires, banks of iMacs materialize out of nowhere atop the shiny glass and chrome sales counters in the Nordstrom’s flagship store in Seattle, along with an army of caffeine-infused tech experts who hover around color-coded sticky notes on a rolling glass partition.
This is a “flash build,” a technology version of a flash mob, concocted by the Nordstrom Innovation Lab, whose logo is a lightbulb and whose purpose is to invent new ways to keep the famous retailer ahead of its competitors—in this case, by developing an app, with feedback from curious customers, that lets buyers compare sunglasses on a tablet, side by side.
It’s just one of the many ways retailers are using technology this buying season to separate consumers from their money and to fend off competition from both brick and mortar stores and online sellers.
Much of this high-tech adoption isn’t happening on the shop floor however, it’s behind the scenes in a backend supply chain that is coming under unprecedented pressure. And the holidays will be a crucial test of whether many of these high-stakes gambles pay off.
“The most disrupted area of retail is the fact that supply chains were designed to move products from suppliers to stores, and that’s not how products get to customers any more,” says Nikki Baird, managing partner of the analyst firm Retail Systems Research (RSR). “Retailers are throwing up in the air all the assumptions about supply chains now.”
Businesses have spent the last year refining ship-from-store capabilities, for example, moving products from where there is supply to where there is demand—a bathing suit in Florida, say, that a customer unexpectedly wants in Minnesota.
“What retailers have found rolling this out is they have a lot more demand for their products than they think, but that demand gets missed,” Baird says.
Moving merchandise among stores adds shipping costs, but sellers are betting that it will also bring consumers back through the doors to pick up their orders, and potentially buy more.
In the age of e-commerce consumers expect this kind of service. And two fast-growing technologies are making it easier: quick-response, or QR codes that allow customers track down items on their own; and radio-frequency identification, or RFID which has vastly improved the efficiency of inventories so retailers know with greater confidence exactly what they have in stock, and where.
One department-store chain whose inventory accuracy once declined by nearly 40 percent over the course of each year credits RFID with improving its efficiency to within three percent.
Seldom have such technology been so crucial. A survey by the National Retail Federation (NRF) found that consumers plan to spend two percent less during the holidays than last year. An unusually late Thanksgiving cranks up the pressure even more. And competition from lower-cost online sellers is relentless.
Amazon and eBay, for example, are building local fulfillment centers that will allow them to deliver products within not days, but hours. Amazon opened 20 regional fulfillment centers last year, and this year two more in Florida and one in Baltimore. eBay Now offers same-day delivery around San Francisco, New York, and Chicago, and is scheduled to add Dallas in time for the holidays.
“One of the most fascinating pressures is from Amazon,” Baird says. “If Amazon can promise delivery within four hours, how do you compete with that?”
But brick and mortar stores have a weapon in this fight, too, she says: the back rooms of their stores, some of which can also serve as small, in-market distribution centers. (Or, if they can’t beat them, they can join their own e-commerce rivals; Target was a launch partner with eBay Now, which also delivers merchandise from Macy’s, Home Depot, and others; Google’s Shopping Express, a subscription-based service being tested around San Francisco, offers same-day delivery from stores including Toys “R” Us.)
If these things alone don’t force retailers to remake their distribution systems, customization could. Sellers are offering customization of everything from Nike backpacks to Motorola phones, another new way of distinguishing a product, but one that requires getting it quickly from the manufacturer to a consumer.
While there’s lots of high-tech going on behind the scenes for the customer, it seems that retailers are becoming more cautious about using technology to gather information on the customer. The fast-growing field of business intelligence, on which companies will spend nearly $14 billion this year, tracks where people go and what they buy inside stores, some of it by snooping on Wi-Fi enabled smartphones. But there’s growing sensitivity that, if they become aware of this, consumers will resent it.
“We’re seeing caution on the part of retailers because they’re concerned about getting the best information without ticking off their customers,” Baird says.
Instead, sellers are banking on making their customers happy by finding them a product anywhere within their chains.
Of course, all of the technology that makes this possible will depend on one low-tech link in the chain: employees.
“Retailers have gotten to the point where they’ve cut labor to the bone,” Baird says. “If you’re promising that I can come to this store and this item is going to be ready to go, how are you going to do that when you don’t have enough people to help me?”
Photo Credit: Patrick T. Fallon/Bloomberg via Getty Images