Bricks-and-mortar retailers steal a page from online merchants

Bricks-and-mortar retailers steal a page from online merchants

Note: This post originally appeared in The Globe and Mail. Story by Peter Nowak.

There was a time you could walk into a store and buy something without anyone there knowing the first thing about you. In the near future, there may not even be a point to shops existing unless they do the opposite. They’re going to have to intimately know you and the things you like.

“A lot of our customers go into our stores with their girlfriends,” says Ethan Song, chief executive and co-founder of men’s clothing retailer Frank and Oak. “Our role is to be our customers’ girlfriends – a trusted adviser to help them look good.”

Retailers are increasingly relying on customer data to augment their role as “trusted adviser,” since many feel it’s their best way to compete against cheaper and expedient online alternatives such as Amazon. People do still want to shop in actual stores, but e-commerce websites have made consumers expect more personalized service – like Amazon’s recommendations – which requires data. And where there’s data, there are opportunities for startups.

Despite the fact that its stores sells clothes, Montreal-based Frank and Oak is among those companies that considers itself a data-driven startup. Started in 2012 as a strictly online operation, the company in some ways bears more of a resemblance to a social network or dating website than a traditional retailer.

New customers fill out an online profile where they list their sizes, preferred styles and colours. Algorithms, coupled with human style advisers, suggest purchases, which are then shipped to the customer. The more a person buys, the more bespoke their future recommendations. It’s similar to how Netflix suggestions improve the more you watch.

Last year, Frank and Oak began opening physical stores to grow its brand and to provide even more personalized service, Mr. Song says. The company now has nine outlets in Canada and three in the United States, with each new location based on actual user data. A new store is more likely to open where existing customers live, rather than just in trendy shopping locations.

The company’s growth is attracting venture capital money and defying the financial arc of clothing retailers such as Target and Jacob, which recently shut down operations in Canada. Frank and Oak last year raised $15-million (U.S.) in Series B funding, led by Goodwater Capital.

Customization and personalization are the key. Customers can make store appointments on their phones, then have associates ready with recommendations in the proper sizes as they arrive.

“You literally have someone helping you out for half an hour. It’s highly personal,” Mr. Song says. “You can’t just sell a product anymore. Experience is one way that retail can innovate.”

Ali Asaria, founder and chief executive of Toronto-based Tulip Retail, says that “experience” is verging into the theatrical. Buying music in a store, for example, is dead, but going to concerts is alive and well. Retailers are having to create a similar experience.

“You may buy your coat online, but you might want to go into a store to try it on and feel different fabrics,” he says. “You can’t just have a store with a bunch of shelves with associates behind a counter.”

Part of that “theatre” is having in-store staff who are better prepared and more knowledgable when it comes to their customers. Today’s shoppers are able to price match and research products on their phones, and they’re also naturally aware of their own preferences.

Tulip is trying to even those odds by arming store associates with iPads or other mobile devices that are loaded with a suite of software modules, which can manage individualized customer profiles and product catalogs, enable mobile point-of-sales, and allow for in-store communications between employees. Toys “R” Us, GameStop and Frank and Oak are among the company’s customers.

“We’re taking e-commerce-like technology and bringing it into the store,” Mr. Asaria says. “You can’t just have zero-skilled workers. We just haven’t traditionally given these associates the tools they need.”

Crunching customer data and forming it into something usable is also opening up opportunities.

Toronto-based Coherent Path, for example, is trying to help retailers apply Netflix-like personalization by analyzing their products and then suggesting specific actions to put customers onto a long-term path toward purchasing them, which increases loyalty.

The software can help retailers figure out which customers should get pitched by e-mail, and when, and can also automatically arrange products on a website according to the shopper’s previous purchase history, which creates a customized experience for anyone who uses it.

By mapping out potential future purchases, Coherent Path can help retailers nudge customers into stores for products that need to be seen or tried in person, such as hammocks or cosmetics. Coherent Path’s software is currently being used by several smaller chains such as Jean Machine and a few large companies including a major U.S. pharmacy operator.

Retailers’ ownership of detailed profiles on customers brings up privacy concerns, but the tradeoff will ultimately be in the hands of the consumer. If a shopper wants to remain anonymous, they’ll likely have to forego the personalized service that comes with making data available.

Retailers themselves, however, are going to have to start thinking more like technology companies – which means gathering and using customer data – if they want to compete.

“You do see these traditional bricks-and-mortar companies not being able to keep up with that pace of change and not being able to rewire their culture,” says Sue McGill, head of consumer and commerce at the MaRS Discovery District startup incubator in Toronto. “Inevitably, they fail.”