The CX Angle Podcast: CX and the Retail Industry
We are in the midst of a Customer Experience (CX) revolution and customers are demanding an enhanced experience. In this episode of The CX Angle, NTT DATA Business Solutions Corporate Communication Manager, Jeremy Cross, and Customer Experience Account Executive, Ryan Kubec, sit down with Sterling Raehtz, Business Development Manager for ShopperTrak, to talk about the impact of customer experience on the retail industry.
Read the transcript below or listen to the podcast.
(Jeremy Cross) And so we have an interesting situation today where we actually have a guest on the podcast. Ryan, you’re actually sitting with our guest … who do we have today?
(Ryan Kubec) We’ve got Sterling Raehtz, and he works with companies — mostly retailers — to improve their customer experience in a different way than what we have typically discussed in the past. So we’re excited to hear a different angle on how he helps companies improve their customer experience.
(Jeremy Cross) Well, Sterling, thanks for coming on the show. Go ahead, tell us a little bit. What do you do now?
(Sterling Raehtz) I get that a lot around my company. Yeah. So I work for a company called ShopperTrak, and we’re a division of Johnson Controls. And so we implement technology that measures how many people walk into a store — primarily retail stores — really where they’re going and what they’re doing. So some people might think of a typical heat map as the thing that we reference a lot; retailers ask us about that kind of technology. But essentially what we do is we would go into a retail store for a retailer and install essentially a track accounting camera. And then that provides us data of how many customers are coming into the store by day, by hour, that sort of thing.
(Jeremy Cross) So then give me an example of what are the kind of metrics that you are able to collect from implementing a tool such as this?
(Sterling Raehtz) Yeah. So the number one metric that we capture is just customer traffic. So how many people are coming in and out of the store in 15 minute increments for every single store? You know, all times of the day. So the reason that we collect that and the reason retailers love that data is because it allows them to understand some of their marketing performances, our specific marketing campaigns actually driving traffic to the stores. Another big ROI for retailers is to be able to schedule labor when there’s actually customers that are inside the store. So one of the major trends that we see right now in our economy with a very low unemployment rate is labor costs a lot of money to implement within your store, right? So you want to make sure that you’re deploying associates and scheduling them for when people are actually shopping.
And then a couple other metrics. That’s basically just the technology for what we would call customer traffic counting. We’ve got another technology, too, based on some Wi-Fi beacons where we’re able to collect things like, again, we talked about the heat map, so where are customers going, how do you travel from one department to another? Dwell times, how long are they spending there? Draw rate, so are you actually walking into a store in the mall or are you walking by? And then some interesting things like repeat versus unique customers. So is it somebody’s first time shopping in your brand or that specific store; that sort of thing.
(Jeremy Cross) So when Ryan and I get together, we do this podcast and our focus is really customer experience. So what I want to know is how is shopper tracking improving the customer experience through the use of these tools?
(Sterling Raehtz) Yeah. So it’s interesting, right, because we’re a technology company that is really providing data to retailers to inform their decision making. So as I referenced before, one of the big things that we do is help retailers understand when they should be scheduling associates to be on the floor based on customer traffic data. And that’s so critical to the customer experience inside brick and mortar.
So we’ve all been there where you walk into a grocery store or an apparel company and the lines are long. You know, you think of Black Friday typically, but maybe more classically on a Saturday afternoon. Lines are long, there’s product everywhere, it’s really messy, and there’s nobody there to help you. Whereas if you had a better labor model, a retailer might be able to ensure that they’ve got enough staff at registers or they’ve got staff on the floor to fold shirts or replenish inventory. So for us, it’s really providing them the data to control their brand image and to give the customer a better experience while they’re shopping, through the power of associates and some of the other data that we can provide them, such as, primarily that would be shopper-to-associate ratio, which is a KPI that we provide to all of these retailers — which is essentially how many shoppers are on the floor compared to associates.
(Ryan Kubec) All right, Sterling, so specific to that, ShopperTrak improving the customer experience, can you share with us — you don’t have to say the name of the store — but maybe a success story of what that looks like. You know, when you’ve worked for the company, you’ve gone in. What did it look like before they implemented the technology? What did it look like after? What was really the change and improvement that the store realized?
(Sterling Raehtz) Yeah, there there’s a retailer that I worked with last year. It’s a book chain out of Birmingham, Alabama. And this was what we’d call a Greenfield implementation. So they didn’t have traffic data about their customers prior to us coming in and running a pilot for them. And one of the things that they were interested in was, frankly, what is the ebb and flow of customers into their stores throughout the chain? And that alone is powerful information, because it gives you sort of the heartbeat of customer inside of your stores, because some stores might have what we call power hours — which are essentially peak periods of customer traffic throughout the week. You might have a power hour on a Monday afternoon for some reason in a specific geography, where the same brand might have a power hour in a store in a different part of the country on a Wednesday afternoon. So it was really just for them understanding when people were in the store.
So after we started a pilot with them, we collected that baseline information and gave that to them so their executives can just see these high level sort of KPI throughout their brand and again, by geography. One of the other metrics that we did with them, very common in retail, are conversion rates. So how many people are in the store and how many people are actually making a purchase? So that’s very important information for these retailers to understand, because if you have a low conversion rate in one store compared to another, you’ve kind of got to start to dissect why customers are coming into the store. But they’re not perfect.
And so that can be things like a messy store or there’s not product where it needs to be. You know, a classic example of that would be an apparel company where you’ve got people trying on stuff in the dressing rooms or the fitting rooms and somebody doesn’t put the product back. And so somebody else who comes into the store might want that, but they can’t find it, and it has those downstream effects on conversion rates. So anyways, when we came in and provided them those KPI is, it really just gives them a new understanding of their business. And it challenges a lot of assumptions, quite frankly, because everybody assumes that people who come into our store buy at a specific rate and then we provide them the data to say, well, this is actually what’s going on inside your stores.
In terms of lessons learned, one of the core things that we do with all of our pilots is that we want to make sure that the stores are smart about their own specific traffic patterns and, again, they are scheduling their associates to be on the floor in accordance with those traffic ebbs and flows. And so almost every single time when we’re running these pilots, if we can get the shopper-to-associate ratio down, that means that the associates are able to spend a little bit more time with their customers and help them find more product or the exact product that they’re looking for, and those conversion rates will go up.
So for every retailer who is listening to this, if your shopper-to-associate ratio goes down, conversion will almost always go up — and that’s the number one thing we’re looking for in our pilots. So before they had ShopperTrak or any track accounting solution that was kind of flying blind and going on a lot of problem knowledge for what’s going on inside your store. Afterwards, you’re able to influence your decision making based on the data that we’re collecting. And again, that feeds into a ton of other parts of the business. So primarily are project owners or sponsors would be operations for the reason that I just described, but it might even get into supply chain.
So one example with this retailer was they had their truck days, which is when all the trucks arrive with their inventory on a Friday afternoon, which just happened to coincide with one of their power hours or their peak periods of customer traffic. And what we realized was that their associates were busy putting product on the shelves and the customers were left unserved, and it was really impacting their conversion rates. So a big lesson learned for them, actually, they are now taking a look at their entire distribution and supply chain model to make sure that they’re not delivering product on days when they’ve got peak periods for customer traffic.
(Jeremy Cross) That’s fantastic; that is a great, great insight. One thing that comes to mind with what you’re sharing, it seems as if where you’re running this off of data, so how have privacy laws come to impact your business and what you guys do? Because that’s something that Ryan and I have talked about; good customer experience relies upon being able to collect data, but there is also that element of privacy. So have privacy laws started to affect your business?
(Sterling Raehtz) Yeah, so not to sound trite, but as a society we’re really starting to evolve in terms of how we look at privacy. Obviously, Facebook and Google, people are starting to realize just how much data is collected. And that’s no different in retail. So we know the targets of the world and you see a data breach with a retailer every now and then. And it has huge impact to your brand image. So we’re asked all the time about what are our security protocols and procedures, what’s our stance on it?
So everything that we do actually is GDPR compliant, CCP compliant. And the reason for that is because the way that we collect data, it actually doesn’t collect anything that’s personally identifiable about an individual. So the traffic counters that we use, it’s honestly super grainy footage. I think it’s like 240 by 240 pixels. So you can understand that somebody is there, but you don’t even know if it’s a male or female. So there’s no facial recognition or biometric scanning, that sort of thing. We’ve taken a strict stance. You know, you come to a fork in the road where you’ve got retail technology providers who are either saying, we want to know everything we can know about a customer — i.e., facial recognition — or you’ve got providers like us that have to do these things at scale for 2000+ retailers. So we made a strategic decision that for right now ShopperTrak, and we ultimately roll up to Johnson Controls, we’re taking that strict privacy stance to figure out what’s going to happen over the next 5-10 years.
And, honestly, I like working for a company with that being one of the reasons. Because you never know how a piece of technology can get hacked and what would be exposed. And for the simple fact that we don’t collect any PII, it makes it pretty easy for us to get over the hump with retailers.
(Ryan Kubec) Can you talk a little bit about, you mentioned that you’re able to figure out who’s a repeat customer versus first-time buyer? Can you talk about how you’re able to collect that data and still be within those compliance aspects?
(Sterling Raehtz) Yeah. So this is probably the piece of technology that we have that gets up to the line of what is PII. This technology, essentially, is when your mobile device is looking for Wi-Fi networks and sending out a signal, and we’ve got a piece of technology and an infrastructure where it’s not providing any sort of Internet connectivity to the device if were to connect — and actually doesn’t connect. All it’s doing is looking for mobile devices that are looking for Wi-Fi networks. And so we’re able to immediately hash and scramble those MAC addresses when they’re recognized on the device. It’s not stored, but it is scrambled in such a way that it would be a unique customer ID.
So if I walk into a store for a retailer, it might recognize me Customer 1234 based on that mobile device or if I were to walk into the same store or another store within that brand later on, it would still scramble the MAC address and a number of other things, but it would still recognize me as Customer 1234. And I use MAC address just as a single data point. It’s actually looking for some more pieces of information that are broadcast, such as phone type or carrier or that sort of thing. Frankly, I’m a sales guy, not so much an IT guy, and I’m sure that if my CIO is listening to this, he might be rolling over in his grave right now. But that’s to say that an advantage that we have as a company is, again, rolling up to Johnson Controls, and so just last year, Johnson Controls being a $40 billion global company, we hired a chief privacy officer, which is something a lot of our competitors can’t say.
(Ryan Kubec) So it sounds like you’re taking the opposite stance than the Amazon Go stores have, where they’ve got tons of technology, facial recognition — they 100 percent know who you are. I just used one for the first time last week and felt like an idiot because I didn’t know how to check out. I didn’t know if I had to scan my product or not. But then in talking with some of our technology gurus, they said, oh, yeah, they’ve got all kinds of facial recognition product records, so tons of vulnerability there, and how are they storing it and keeping that data private?
You’re making sure that your retailers aren’t faced with those same levels of, are we going to be compliant, what’s our exposure or risk when it comes to GDPR, California Data Privacy Act, and who knows what’s coming next? We know that’s going to change, like you said, very quickly over the next 5-10 years.
(Sterling Raehtz) Yeah. Amazon Go is a really interesting example. Our headquarters is in the Sears Tower in Chicago, so there is an Amazon Go store just a couple of blocks down, and we all go as a company every now and then just to see what Amazon’s up to. Because, frankly, they are sort of a competitor of ours now – but who can’t say that?
Yeah, it’s funny because you’re walking into an Amazon Go store with an expectation that you are handing them all of your data. And if you look at their store like it’s a 7-Eleven, right, so you know that they’re not making money on the actual product that’s on the shelves. It’s all in the customer data that you’re handing over. And so that’s a unique circumstance for them, because I would consider that sort of a closed loop where they are collecting the information, they’re storing it; they don’t really rely on third parties as far as we know, whereas we have to be able to hand over technology to a retailer or implement it for them and say, hey, you guys are good to go and secure, whereas Amazon doesn’t really have to worry about that. They can tell you how many seconds you are in that store. You know, you get your receipt, you walk out and it says, thanks for visiting here for ninety three seconds.
(Ryan Kubec) I mean, that’s actually a good lead into one of my next thoughts is where you work with retailers all the time. We know that there are different retailers — and there’s actually one here in Michigan, a furniture store that is probably the biggest furniture store in Michigan — and I’ve been seeing articles that they’re either looking at closing, filing bankruptcy or just closing a lot of stores. And a lot of that is driven by those big online retailers taking market share from them. How important do you see customer experience to the future of retail?
(Sterling Raehtz) So, it’s a really good buzz word to get a lot of clicks on your online articles when you talk about retail apocalypse and all these stores that are closing, and certainly the retail industry is limping — we call it right sizing, that’s kind of the politically correct way. And lots people are shutting stores down, some people aren’t.
In my opinion, the future of retail and customer experience is really just evolving. So if you look all the way back in and we were talking about this a little bit earlier, retail has been consistently disrupted, frankly, as long as people have been selling products. So if you look way back, merchants were disrupting the agrarian society by being able to provide food in one location. You don’t have to go out to your field and grow it. You had people who would do that and then merchants would buy it and bring it to a marketplace.
And maybe a little bit more recently you were able to go to a ‘Mom and Pop’ shop in the late 1800s to be able to go to a blacksmith or a grocer or a drug store. And so that kind of got into a little bit more specialization of retail. And then really came the department store as in the 1800s. So Macy’s, Bloomingdales, Sears, these are all iconic American brands that were disruptors during their time.
When we start to shift towards the 20th century, Sears then disrupted everybody else by saying they were going to introduce a catalog. So you don’t have to go to the department store anymore. You can just get a catalog delivered to you in the mail and then ultimately the product can be delivered to you, or you could go into the store to purchase it and then — not to beat the issue to death — but after Sears, it was shopping malls and then at the same time Wal-Mart came around, so you could get tons of different products in one location.
And so now we’re getting to the point where we’re at the e-commerce industry and Amazon are what we’ve seen over the last 10-20 years and truly disrupting brick-and-mortar retail. But even now, we’re starting to see cracks in that Amazon and e-commerce foundation. So you’ll see plenty of articles now, and I’m sure people who are listening have had that experience where you go onto Amazon and you search on bath towels and you’ve got ten thousand different choices for bath towels. So now the question is, how do we figure out which ones are the best? And you look at the reviews, and that’s what Amazon built its company on, was being able to have customer reviews and crowd-source data. Well, now those reviews are getting faked, and people are being paid for reviews, and so that trust is really starting to crack the foundation of Amazon and even the poor product quality that’s coming out of that, too, where you got some fake reviews on Amazon, you might get the product because it had 4.5 stars and you ultimately get it realized it was a knockoff.
And so Amazon has had to figure out what the return policy looks like. So that’s why you’ve got the partnerships with Kohl’s and some other companies to return products pretty easily. And so as we look towards the future of retail, obviously I can’t look into my crystal ball to say what is going to be the winner in the next 10 years. Otherwise, I wouldn’t be saying this on the podcast, I’d be investing in that.
Again — this is another sort of common saying — is to focus on the customer. But that’s what retailers have been doing for the last 200-300 years, is figuring out how do people prefer to purchase products and then to cater to that need. And so, again, looking at the future, even e-commerce companies, we call them digitally native brands, where you might have a company like Bonobos or something like that, where it’s an apparel company that started in the e-commerce space, and now we see those companies that are opening stores because it does a number of things where it gives their brand a little bit more recognition and, frankly, a little bit more credibility.
What we hear from those brands all the time is, this store isn’t actually making us a bunch of money, but it’s getting us out there. And people trust us as a brand because they think that if they see a brick-and-mortar store, that’s the sign of health for the company — and it is.
But again, it’s going back to you and I, Ryan — and I don’t know about you, Jeremy — but we’re part of the Millennial generation and the generation that’s coming after us, they kind of like going into stores is what our data show. And so you’ll see brands now, they might not have a ton of product in the stores, and you can see something like Macy’s where they’re doing their ‘story store,’ where they’ve got themes where their entire floor sets change with a story that they’ve got running throughout the store. And there are spaces that these retailers have specific to be able to make it a great spot to take an Instagram photo or to post on social media. So it’s all about what do customers actually want to do or how do they want to buy, and then meeting them there.
So I think that’s a lot of information; I don’t know, do you want to break it down? I don’t know where it’s going, but you can see retailers reacting to the market in a really good way right now.
(Jeremy Cross) Well, I think it’s interesting. You, I believe, referenced Best Buy earlier. I mean, Best Buy is one of these situations where given the existing landscape of tech retail, you’d think there’d be no way that Best Buy would have survived this period of time. But they re-thought their model and became much more of a store anchored in a place where you could experience technology. Then they’re not always even selling it there in-store. I mean, some people might go in and then still make a purchase online. But I remember I believe Best Buy started this with that Samsung experience aspect of it, where they had a section of the store cornered off specifically for Samsung products, mainly mobile, I believe at the time. But they re-thought their role in retail and became very much customer-experience focused in the way that they were approaching things. And they’ve been able to stay viable for much longer than I think a lot of people probably had thought.
(Sterling Raehtz) Yeah, I think Best Buy is probably going to go down in a lot of business books as one of the most miraculous turn-around stories for retail of this era. Hubert Joly, their former CEO, did a tremendous job of turning around their entire strategy. I believe it was called the Renew Blue strategy that lasted about six or seven years. And frankly, it might still be going on.
But Best Buy was right there on the front lines with Amazon. You know, they talked for a long time about the showroom of fact, where you go and you look at a piece of technology, you stand or you see what it costs on Amazon. You buy it right there in the store. So one of the first things that they had to do was stop the customer from walking out of the store without buying that product that they were just going to have delivered to them a couple of days later. And the way that they did that was being able to start with the price matching guarantee. So instead of walking out of the store because you can get it for a cheaper price, you just take that product to the customer service desk and say, hey, Amazon is selling this for $2 cheaper, can you match it? Yeah, and you can have it right now. So the customer does make the purchase right there. So they were able to capitalize on business pretty much immediately with that.
What I’d also say is Best Buy has got two more advantages over Amazon. You know, as of about 5-6 years ago, one was the Geek Squad and the power of an associate helping you find a product, explaining to you the differences between high-value items like TVs. So if you think about Amazon five years ago, TVs are a big ticket item, and the prices certainly came down over the last couple years. But that’s kind of one of the things where, as a Millennial, I wanted to go in and see what the actual television looked like. How black is the black, what does the resolution look like? And then to have an associate there who is empowered to teach the customer something that they didn’t know about the product.
The other part of this is that now with the shopper, you come in, and I certainly did this about a year ago trying to buy a TV at Best Buy. I had one picked out based on all the research that I had done online. I was 95% of the way there to making the purchase, and I just wanted to see the TV. And the associate had just kind of showed me some of the differences. And in fact, I bought a different TV, for better or worse.
I wouldn’t have done that if their associate had not educated me on some of the drawbacks of the model that I was looking at. So their Geek Squad and the customer service and associates, they have just been outstanding. And it’s because BestBuy spent a lot of money training them and giving them the tools to be able to reference product specifications and what-not. And not to take too much time, but the last advantage they have is that Best Buy has 1000+ stores, and so they already have a distribution model for their products. So if you wanted to do same-day shipping or next-day shipping, they’ve got a thousand stores all over the United States where they can pull inventory and ship from the store. So they were a major retailer that fronted that strategy.
(Jeremy Cross) For me, Best Buy was one of those places that I remember when they started, it was like, oh my gosh, it was Best Buy, Circuit City … those were your two options. But again, to see Best Buy survive all of this, I didn’t know all of those things as well, specifically around that whole Renew Blue strategy. But it has certainly worked for them or appeared to work.
(Sterling Raehtz) They definitely started to build themselves out with the brand recognition, for sure. Everybody knows Best Buy, and like you were just saying, Jeremy, who remembers being in middle school or high school and going to Best Buy to look at your favorite band’s CD that was out there on the Web. So they were there before even streaming services came on the scene and kind of disrupted that entire industry. So they’re one of the iconic American brands that’s just such a great turn-around strategy. Again, I think it’s going to go down in business books for a while.
(Jeremy Cross) Well, it seems as if it’s specifically based on what you were just sharing. It seems as if they are stable. I know that when recently my company decided to change our cell phone policy, I brought my cell phone to Best Buy because they were able to bundle it together, and I had a better deal than going just straight to Verizon. So, I guess the only drawback of their model is if they just choose not to carry a particular model of TV – we’ll go to that — if there’s a model that they just simply don’t carry in store or even online, you know, it’s just the amount of product that they can carry is about the only drawback. But even still, I’d say anything in the popular sort of the stuff that you’d likely be looking at, they’re probably going to end up carrying it.
(Sterling Raehtz) What retailers are starting to realize is something that department stores have been doing for a long time. So we referenced Macy’s earlier, this store-within-a store-concept, where Ralph Lauren might have its entire section at the department store, where it kind of operates a little bit independently, and in fact might staff its own people inside this department store. You’re starting to see that trend even in Best Buy. So when you walk into a Best Buy, you’ve got your Samsung section, you’ve got Apple, you’ve got Verizon, where it can be a mix where they’ve got their products and they’re actually operating within the Best Buy footprint and Best Buy is charging them a certain, whatever the theme might be, to be able to keep their store inside of a Best Buy.
The same thing is going on with Wal-Mart. You know, if you walk into a Wal-Mart before you go into the store and before you pass the cash registers, you look left and that’s the Town Center concept that they have. And so Wal-Mart is actually charging rent and writing leases to these different types of brands like Eclares or a Build-A-Bear. They have them inside their own stores, although it’s really part of a synergistic relationship between retailers where Wal-Mart’s got the brand and the space, and these other smaller brands can open up stores and have better lease rates and not have to devote the capital expenses to opening up stores.
(Jeremy Cross) It’ll be interesting if that persists. You know, specifically looking at something like a Wal-Mart, I can imagine doesn’t have to charge the same amount of rent that a local mall might charge for storefront space. And so if you start to see even further degradation of the mall. Just because this kind of a store-within-a-store model starts to become even more popular. That’ll be an interesting trend to take note of.
(Ryan Kubec) So, like you said, retail has evolved. I think there’s a lot of folks out there that are worried that brick-and-mortar stores are going disappear. Certainly there’s new competition for those online retailers. And that is really squeezing these retailers, squeezing their margins. So probably now more than ever, making sure that your staffing model is appropriate, so you’re not having labor bleed — where there’s not the right amount or there are too many associates when there’s not enough traffic, and then vice versa, the opportunity costs of missed sales because you don’t have enough associates when you’ve got willing potential buyers there. So traffic data to make those proper decisions is probably more important now than ever.
Sterling, if we’ve got folks in the retail industry listening today, what’s your elevator pitch? And how would they get hold of you, and why would they want to get a hold of you?
(Sterling Raehtz) Yeah. So whenever I meet retailers for the first time and determine that they’re not integrating traffic data into their workforce management model, the truth is that you’re overscheduled Monday through Thursday and you’re under scheduled Friday through Sunday. And what that does, is it not only puts a strain on your employees, because they’re having to help customers at a frantic pace on the weekends and they’re bored during the week, but it costs a lot of money to do that. You’re not getting the return. So you have to integrate traffic data with your workforce management data because retail’s a people business. You’ve got to put the right person in front of the right product at the right time, and that’s what your associates are supposed to do. So if there are any retailers out there who want to have that conversation, because if you don’t have traffic data, I guarantee that’s going on in your stores right now.
I think you are going to put my contact information in the show notes, but that’s what ShopperTrak does. We’ve done it for 25 years and we’re growing exponentially right now.
(Ryan Kubec) And I’m guessing they can also find you on LinkedIn, as well.
(Sterling Raehtz) Yeah, LinkedIn. My email address is going to be there. If you want to give me a call or link up that way. My contact information will be in the show notes, but let’s connect on LinkedIn to continue the conversation.
(Ryan Kubec) Well, thanks for joining us today, Sterling. You know, definitely I think this was a new insight than what we’ve previously talked about, using the traffic data that ShopperTrak provides to ultimately allow stores to make an informed decision of how they’re going to improve the customer experience, person-to-person, within the store. And definitely we’ll take you up on doing a future episode on the future of shopping malls in America.
(Sterling Raehtz) Absolutely. Well, thanks for having me.
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