Magazine

The new rules of retail

How do retailers thrive in today’s rapidly evolving marketplace? Faculty experts and on-the-ground alumni pros share their secrets.

By Kim Catley

2019-09-13

For more than a century, the idea that the customer is always right has driven retailers who want to demonstrate a commitment to customer satisfaction above all else. The execution, however, has evolved with the times. Today, companies want to communicate with you on your terms.

They want to recommend products that match your interests that you didn’t even know you wanted. They need to maintain an extensive inventory of colors and sizes, all ready to be shipped to your doorstep within two days and returned in-store at your convenience weeks later.

Many experts say these shifts in retail can be attributed to the rise of Amazon. When the e-commerce marketplace introduced free two-day shipping, flexible returns, and product recommendations, it upended consumer expectations. Suddenly, retailers had to dramatically rethink their business.

“Amazon is dominant in the U.S. e-commerce market right now with 47% of sales this year,” says Nancy Gray, who teaches brand development and advertising in the Department of Marketing. “Still, this means there’s another 53% of online retailers who are not Amazon. These firms can and do compete because we don’t purchase just on price. Our value equation also includes functional, emotional, transformational, and social elements.

Functional elements include quality, variety, and effectiveness; emotional elements include great-looking design, nostalgia, and fun; transformational elements can be access to a social circle or motivation to complete a goal; social elements refer to the joy and satisfaction we have in making a purchase that makes the world a better place,” explains Gray, who is a clinical assistant professor.

In response, startups angled to provide solutions to problems shoppers had never considered, offered through a purely digital shopping experience. From the comfort of their couches, customers could now order everything from furniture to underwear to groceries. But even that revolution was short-lived, replaced with a movement from clicks to bricks as digital-first brands began opening storefronts across the country.

Now, augmented reality is entering the picture. Consumers can use their phones to visualize furniture in their homes or shop the outfits of passersby on the street. A focus on omnichannel engagement is also dominating, as consumers expect a seamless experience as they migrate from digital to physical and back again. They want to research products and compare costs online, enter a store to touch and feel and test, place an order through an app, and pay their bills via text message.

The end result is that retailers are no longer solely in competition with other brands in their category. Instead, every company is a technology company competing to launch the most innovative customer engagement tactics — or, at the very least, keep up.

“The moment you got your Starbucks app and realized you could order your drink from your phone, you didn’t just go, ‘This is incredible. Other coffee places should be like this,’” says Eddie Davila, who teaches supply chain management. “You thought, ‘Wait a second, every place should be like this.’ At that point, Starbucks made McDonald’s, Chipotle, and your doctor’s office look old and slow.”

These shifts are great for consumers — but what about future CEOs, data analysts, and marketing execs? How can today’s students stay nimble when the landscape could look entirely different by the time they graduate?

Gray tells her students that regardless of technology or purchasing platform, today’s consumers want four key elements from brands: authenticity, a promise of satisfaction, multiple points of seamless and integrated engagement, and opportunities to co-create with the retailer.

Leslie Bush, who teaches fashion merchandising, helps her students see how classroom lectures and discussions play out in real life through assignments including a store comparison project and a team technology assignment. For example, they compare and contrast competitors within a category — like Sephora versus Ulta, or Lululemon versus Athleta — and consider their use of technology and performance in the marketplace. Every year, Bush also takes a group of fashion students to New York, to see how luxury retailers and wholesale distributors conduct business.

“[After visiting], students talk about engagement with the customer and how retailers get the customer to stay longer,” Bush says. “Lululemon has a place to have garments repaired. In Saks Fifth Avenue, the cosmetics area has a lounge for demonstrations, guest speakers, and brand events. Tiffany’s has different experiences by floor; the engagement floor has a totally different vibe than the silver floor.”

Meanwhile, Davila wants students to consider the ripple effects of a highly customized, on-demand retail environment. For example, when customers can order a shirt in seven colors and three sizes and return what they don’t want, how can retailers maintain sufficient inventory and deal with items that are no longer relevant once they’re returned? Or, when consumers call for an end to plastic straws, how can restaurants find a suitable replacement and suppliers that can meet the rapid surge in demand? And what about Amazon’s impact on the cardboard box industry?

Davila wants his students to think beyond store remodels, good prices, and shipping logistics; they also need to understand organic farming, psychology, real estate, and the science behind autonomous driving.

“I tell our students all the time that they don’t have to be experts in everything, but they have to understand there are questions to be asked,” he says. “I want [them] to read a book about how artists or scientists or doctors are solving problems. Having curiosity about how to solve problems is the only way you’ll discover little nooks and crannies that other people have overlooked.”

With W. P. Carey’s forward-looking mindset, it’s no surprise that many graduates are on the front lines of retail innovation, reimagining the customer experience and teaching companies how to leverage technology and consumer data effectively. Here, a few alumni outline their rules for navigating today’s retail environment.

Lesson 1

Use technology wisely

Michelle Tinsley (MBA ’99) knows what consumers want — and has the data to back it up. After 25 years with Intel, where she focused on deploying technology in retail spaces and extending internet connectivity into products like smart home devices, she launched Tinsley Retail Insights to consult with retailers on deploying technology. Now she’s the CEO of Remitter, a mobile platform for banks and merchants to collect late payments from customers. In her own words, she shares what works — and what doesn’t — with today’s retailers and consumers.

On personalization

“Retailers want consumers to feel like it’s a one-to-one relationship, that they’re personally recommending things that customers are going to love. From a retailer’s perspective, they have to organize and structure their data to come up with their top 5 or 10 personas that they want to personalize to, but in a way that’s scalable and cost-effective.

“It’s a fine line, and companies have to know their customers. Millennials or digital natives are going to be more comfortable sharing their data. Baby boomers or Gen Xers are going to value privacy.

On paying anytime, anywhere

“Remitter is frictionless; consumers don’t need to download an app or know a login ID and password. It doesn’t allow you to transfer money and do a lot of fancy things, but it’s going to let you pay a bill if it’s late. It’s putting the consumer in the driver’s seat. Like Venmo, it enables purchases to happen anytime, anywhere. In the tech world, we do a lot of learning by experimenting and iterating. You’ve got to try 10 things to find out that there’s one version that works.”

Retailers want consumers to feel like it’s a one-to-one relationship, that they’re personally recommending things that customers are going to love. From a retailer’s perspective, they have to organize and structure their data to come up with their top 5 or 10 personas that they want to personalize to, but in a way that’s scalable and cost-effective.

— Michelle Tinsley (MBA ’99)

On deploying technology thoughtfully

“There’s no shortage of tech. As a consultant, I would say to narrow it down to the most important problem you want to solve as a retailer or the new experience you want to light up. We can be laser-focused on narrowing down those choices.

Lesson 2

There’s no one way to reach your customers

After leaving behind a career in accounting in search of something more forward-looking, Nick Arambula (BS Accountancy ’08, MTax ’09) was trying to figure out his next step. One night in 2015, while searching for startups in Phoenix, he stumbled on Tuft & Needle’s website. He was immediately drawn in by the aesthetic; only later did he realize that the company sold mattresses.

Arambula says Tuft & Needle sought to change the mattress-buying process through direct-to-consumer sales and significantly lower price points. It also replaced fluorescent-lit showrooms and high-pressure sales environments with online ordering.

“I read the founding story and thought, ‘My wife and I went through the same thing,’” he says. “We got married, bought a $2,500 bed, and hated it. The problem [the company was trying to solve] made so much sense to me.”

He reached out to the Tuft & Needle team on LinkedIn and started up a conversation. A few months later, Arambula had an offer in hand. Now he’s the chief operating officer in charge of customer experience, supply chain, retail, and partnerships.

Tuft & Needle’s approach caught the eye of Serta Simmons Bedding (SSB), one of the largest mattress brands in the world, which acquired Tuft & Needle last year. Arambula says the acquisition created a cognitive dissonance in the way SSB approaches its own business practices.

“Our companies had pretty significant differences around one word: ‘customer,’” he says. “Tuft & Needle always viewed the customer as the person who would sleep on it. Serta saw customers as their distribution partners, like Mattress Firm and Macy’s.”

This emphasis on the end user is most evident in Tuft & Needle’s storefronts, which are designed by in-house architects. Team members are available to guide customers and answer questions or give shoppers space to explore on their own using the iPads placed by every bed.

“Consumers nowadays are so much more informed than 15 years ago,” Arambula says. “And a mattress purchase is quite intentional, so more often than not, folks are pretty knowledgeable when they walk into our stores. It’s really important to let them choose the journey they want to take.”

Lesson 3

Use the startup model to solve problems

Tom Patterson (BS Business Communications ’02) and Erin Fujimoto (BS Finance ’03) are the husband-and-wife duo behind Tommy John, which sought to upend a previously stable industry: men’s underwear. They launched the company more than 10 years ago when Patterson, then a medical device salesman, complained to Fujimoto daily about his ill-fitting undershirts. After trying on every shirt on the market, the couple set out to change everything.

Patterson: I wanted an undershirt that had a longer, tapered design that would hug the body without being restrictive. I wanted to have neck styles that would never stretch out. I wanted the fabric to be soft and breathable. I wanted to design an undershirt that would make me forget I was wearing one at all.

We drew a sketch and went to the garment district in downtown Los Angeles to select a soft, premium fabric. We brought the sketch and a bolt of fabric to our local tailor in San Diego and had her mock up a prototype.

Fujimoto: In the early days, Tom was the idea man, while I was comfortable behind the scenes working on strategy and execution. We balanced each other out and supported each other during the more tumultuous early days of the business. There were plenty of moments in the beginning where we would be sitting in our 500-square-foot apartment crunching the numbers, convinced we didn’t have enough runway to make it through the quarter.

Patterson: We confronted many challenges trying to figure out how to sell underwear online when customers couldn’t touch and feel the product and had probably worn the same brand for the past 10 to 20 years. Word-of-mouth has been a big part of our growth. We started a new conversation in the category talking about the uncomfortable truths people face with their underwear, like wedgies and excess fabric gut.

Consumers nowadays are so much more informed than 15 years ago, and a mattress purchase is quite intentional, so more often than not, folks are pretty knowledgeable when they walk into our stores. It’s really important to let them choose the journey they want to take.

— Nick Arambula (BS Accountancy ’08, MTax ’09)

Fujimoto: We took notice when female customers began writing in to tell us that they were wearing our men’s product because it was the most comfortable underwear they could find. We knew we could apply our core focus on fabric, fit, and function to solve the unique problems women were facing. The success and growth of our women’s division proves we were right. We never stop innovating at Tommy John, which allows us to stay relevant to our customers and continue to scale.

Patterson: No matter how tough it has been at times, Erin and I never considered the possibility that Tommy John wouldn’t work out. We knew we had a great product and we pushed forward to build a great business around it. That said, there are definitely milestones that astound us. Whether it was Howard Stern discussing how our underwear changed his life, Kevin Hart investing in the business, or even opening a store at Scottsdale Fashion Square near where Erin grew up, these moments are incredibly humbling for us as we reflect on where we started 11 years ago, and the team we have that brought us to where we are today.

Lesson 4

Today’s passionate small audience MIGHT be tomorrow’s majority — and you have to be ready to respond

When Drew Sullivan got a summer job stocking shelves at a Safeway in Southern Maryland, he didn’t think he was launching a career in the grocery industry. But once he worked in the produce department, he says, something clicked.

“There was an art to how produce was merchandised, with each day bringing a slightly different combination of items and arrangements to entice the eye,” he says.

Twenty years later, Sullivan had progressed through a series of management positions, ultimately landing a job with Safeway’s corporate team with responsibility for pricing, assortment, promotions, and schematics for different regions and national categories. He also enrolled in W. P. Carey’s BA in food industry management. In 2016, Sullivan took a position at Sprouts, a farmers market–style grocery store with more than 300 locations around the country.

Along the way, Sullivan has developed tactics that have shaped the grocery shopping experience in ways consumers probably don’t realize. For example, one simple change — positioning single-serve salad bowls on five shelves in a space dominated by four shelves — allowed him to maximize premium refrigerated merchandise space while creating visual distinction and appeal for shoppers.

Sullivan is always looking for which subtle shifts in consumer interests — elimination diets, flavor trends, and interest in growing practices, for example — will cross the tipping point into a full-blown movement.

“Today’s passionate, small audience might be tomorrow’s large majority,” he says. “It is vital to offer a diverse assortment at all points along the innovation adoption curve.”

Lesson 5

Go all in — for the right reasons

A few years ago, Hartley Rodie (BS Finance ’12) was part-owner of a bar and an event company in Arizona when he experienced a spiritual transformation that prompted him to reconsider how he did business.

“Until that point, I’d been in business for selfish reasons,” Rodie says. “I was focused on how we made money, and how we made our investors’ money. I realized I wanted to keep my faith at the front of my business.”

Whether it’s The Churchill or Abbot Kinney Boulevard in Venice Beach — walking the street and going to the shops, there’s got to be an experience there.

— Hartley Rodie (BS Finance ’12)

That’s when Rodie and his business partner, Kell Duncan, developed a plan for a business that would provide sustainable, affordable opportunities with a low barrier of entry for startups in the food and beverage and retail fields. Three years later, in September 2018, The Churchill, a community-driven gathering space that now hosts 10 small local businesses, officially opened its doors.

Rodie says many small businesses struggle to raise capital, find retail space, and secure a guarantor for a lease. He and Duncan eliminated those barriers by not requiring guarantors and establishing rent models based on reasonable sales for the space. Restaurants even share communal eating spaces, furniture, and staff to help cut individual business costs. Meanwhile, profit-sharing on bar revenues ensures The Churchill’s investors are happy.

“While it still takes someone with a good business sense to be successful, we at least give them the first step into that brick-and-mortar world,” he says.

Rodie acknowledges their concept was a hard sell at first, but he believes the partnerships are stronger as a result. Investors and tenants must share a commitment to The Churchill’s mission, and businesses are expected to give back to the Phoenix community, whether through volunteer work or profit-sharing with local nonprofits.

Tenants are also intended to be complementary rather than competitive; one bar focuses on beer, while another features craft cocktails. Restaurants offer elevated but fundamental menus that draw customers to return daily. The result is a space where customers of all stripes — parents pushing strollers, bachelorette parties, and couples from the retirement home down the street — come together for a meal, and to be part of their community.

“I’m no expert,” Rodie says. “I’m just a 30-year-old who somehow pulled a rabbit out of his hat with The Churchill. But I think that retail has to be experience-based. Whether it’s The Churchill or Abbot Kinney Boulevard in Venice Beach — walking the street and going to the shops, there’s got to be an experience there.”

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