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Retailing:New Battlegrounds

By Roopen Roy Oct 22 2013

Tags: Op-ed
Entering the new battleground
Bloomberg
GET STARTED: Customers with shopping carts during the grand opening of a Walmart store in the Chinatown neighborhood of Los Angeles, California on September 19
 
A month ago, at a conference in Taipei, the CEO of a well-known hi-tech company was invited to speak. During the Q&A, he was asked, “Which is the most critical issue in your company?” He promptly responded, “Hiring and retaining the best people.” He elaborated that it is people who innovate and create. It is they and not machines or technology that identify the next big wave.

It was an extraordinary insight. In the age of disruption, the CEO of a hi-tech company is not looking at cutting-edge stuff or innovative models. He believes that the acquisition of the best talent is the sustainable differentiator. Not just technology businesses, this phenomenon is true for traditional businesses as well. For instance, retailing is being disrupted by virtual stores on the web. A Chicago-based Facebook friend recently posted how delighted she was to receive some saris from an online store ordered by her husband. She was even happier to see a Kolkata label on the saris.

At the beginning of this century, dotcom companies that had all click and no mortar, died like flies. But some companies combined the click with robust supply chains and intimate customer relationships to emerge as new challengers. The brick and mortar companies are now beginning to realise that the future battleground is shifting to a new theatre.

Walmart, the retailing giant, has realised that Amazon, which started life as a virtual bookstore, is emerging as a major competitor. It is, therefore, taking the battle to the lion’s den. A recent New York Times article put it insightfully: “Plucky Silicon Valley company, forced to compete for talented engineers, is trying it all — recruiting billboards on Highway 101; workplace perks like treadmill workstations and foosball tables; and conference rooms named after celebrities like Rihanna and Justin Bieber. The name of that arriviste company? Walmart.”

In this new battleground, Walmart is undoubtedly the 800 pound gorilla with a $500 billion revenue — almost 40 per cent of India’s GDP. But when you compare online sales, Amazon will clock nearly $75 billion this year. For a comparable period, Walmart’s online sales will be about $10 billion.

Cultural differences and traditions are key to talent acquisition and retention. We discovered that in our company. When we acquired a digital company with a bunch of creative talent, the ambience, the ecology and even the dress code mattered. Walmart understands that. And here is what it is doing to change its image and culture in Silicon Valley. According to a New York Times report, “For example, at press events in Bentonville, Arkansas, Walmart’s headquarters, the menu tends to be ham sandwiches, chips and iced tea. At a recent event in San Bruno, it was white asparagus panna cotta with house-smoked salmon tartar, morel mushroom macaroons and charcuterie from a whole pig. Borrowing a page from Google and Twitter, the company offers hack days when engineers can work on whatever they want.”

The combination of talent and technology are catapulting companies to leadership positions and creating immense shareholder value. Google did its IPO in August 2004 at $85. It has sprinted past the $1,000 per share mark last week. Thus, if you had invested $1,000 in the IPO and just held on to it, the shares would today be worth $11,899.

Twitter is about to float an IPO. As much as 70 per cent of its revenues is from mobile advertisements. The way products and services are promoted is going through tectonic shifts. A share of the pie is moving away from print media. Famous print publications are ceasing to exist. Advertising agents are losing power as a middleperson. They have to reinvent themselves as interpreters of big data.

Every day new channels are opening up. New formats and screens are being launched. If you thought social media was cutting-edge, think again. If you thought mobile phone was the last frontier of the battle, pause to ponder. Have you considered the impact of wearable watches and glasses (such as Google glass) on your next campaign?”

Sir Martin Sorrell, the CEO of WPP is worried. 75 per cent of WPP companies’ $18 billion in revenues now comes from digital advertising, data investment management and media planning. He knows that it is unrealistic to compete against folks like Google and Facebook. It is important to have them in the mosaic of its alliances.

Here is what he says, “The lines of difference between us and all those sets of competitors that I mentioned, particularly the ones that are closer, are going to get less and less. And that worries me because we’re not great data engineers, historically, as an industry. We need to invest more in technology.” WPP is on an acquisition spree as well. How dramatically is the ground shifting? Hear from Sorrell himself, “In 4 or 5 years, at least two-thirds of our business will come from the digital areas and the fast growing markets.”

Successful companies are either agile in adapting (fast followers) or staying ahead of the curve (innovators). They are juggling three issues skilfully. First, they are finding creative ways to attract and retain the right kind of talent. Secondly, they are deploying technology to make the online experience faster, better and cheaper. And last but not the least, they are making every effort to change their traditional culture and their image to become more attractive for both talent and the customer. They are all on a roller coaster journey as the rate of change outside begins to outpace the change inside
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