Guest Column | June 8, 2018

Retailers Cut Transformative Deals

By John Potter, PwC

Washington And Boeing ACO Deal

Consumer markets just experienced a record-breaking year for deal making in terms of total deal value and volume. While that activity paints a positive economic outlook for the retail industry, what is more telling — and even inspiring — is some of retail’s deals surrounding analytics, tech, and artificial intelligence (AI).

These deals are rooted in the need for retailers to quickly change with their customers as part of the Retail Evolution or risk falling behind. These particular acquisitions can help dealmakers build their analytical power, adopt emerging technologies and integrate AI into both operations and the customer experience.

The Customer Experience Drives Deals

Regardless of channel strategy or size, to succeed in today’s marketplace retailers must put the customer experience at the center of the business. Delivering an easy, engaging customer experience is one of the biggest values retailers can offer in today’s marketplace. What once was a competitive advantage is becoming table stakes. Today’s consumer expects unwavering quality, seamless shopping, personalization, and nearly immediate fulfillment.

Today’s consumer isn’t easy to please, but the payoff is there. People will pay more and pledge loyalty for the right experience. Even a few bad experiences will turn nearly 60 percent of loyal customers away according to a PwC survey. Thus the capabilities necessary to deliver this experience are either being built, or more often bought, as the time to scale and overall cost, even in today’s frothy M&A market, generates better returns.

Building A Data And Analytics Bench

To keep up with the pace of change, retailers must create efficiencies and partially automate aspects of operations. Through analytics and new software acquisitions, retailers will gain a deeper understanding of what is actually happening across their operations including supply chain management and manufacturing. Adding data-driven managers from tech or software companies to a retail leadership team can help identify areas where computers may be more observant and able to spot trends and correlations where previously only noise existed.

Retailers need operations — the true foundation of the customer experience — to help them meet expectations surrounding quality, availability, delivery, and, perhaps most importantly, to deploy talent to areas of greater impact in the business.

U.S. Foods Inc. acquired a deep bench of analytical talent through the acquisition of Food Genius Inc. a Chicago-based provider of foodservice data analytics. Bringing analytics in-house could help identify efficiencies in a complex supply chain, allowing the company to better predict inventory needs and evolve their services.

Powering Machine Learning With Customer Data

Advanced analytics — in which customer data can be deconstructed and then reconstructed to glean new behavioral insights — offers new ways to understand customers. The ability to get ahead of a customer’s expectation is important to the customer experience and a key focus for retailers.

Take for example, PVH Corp., owner of brands such as Van Heusen, Tommy Hilfiger, and Calvin Klein, as well as its recently-acquired True&Co. This direct-to-consumer intimate apparel e-commerce retailer developed a proprietary fit quiz to create a personalized shop and then leverages consumer-centric data from more than five million women. Imagine the possibility for PVH if they are able to scale this approach across their product lines, delivering the customization and personal experience today’s consumer expects.

Using a combination of consumer analytics, AI, and human expertise can be a potent combination for retailers. It’s the secret sauce for many startups — and established brands — in the apparel industry. Earlier this year NIKE, Inc. announced its acquisition of Invertex Ltd., a leading computer vision firm, in an effort to further build out its digital technology platforms.

In another example, Shiseido, a global cosmetics leader, acquired Giaran, Inc., a well-recognized, data-driven company specializing in AI platforms. The company aims to further transform the consumer experience through personalization with its new capabilities. The company also acquired MatchCo., a startup that creates individual shades of foundation for its users based on their skin tone using AI and a mobile app, moving the traditional counter capabilities right into your purse. These deals may help the cosmetics company create a brand new customer experience rooted in AI and data.

Eliminating Check Out Frustrations, Delivering Yesterday

Until recent, and despite its power to make a big impact on the customer experience, the checkout line has not changed much. But the market suggests the time has come: The checkout line must either transform to a seamless and customer-centric existence or be eliminated altogether.

Retailers are likely to continue to pilot mobile payment systems and progressive uses of technology and AI to ease the checkout burden such as scan-and-pay systems or in-app payments. Amazon Go grocery stores, which remove the checkout line entirely, show the important role AI will play in the stores of the future. Competitors will explore AI acquisitions to compete, and the convergence across industries will continue.

More and more consumers are eliminating the in-store shopping experience entirely, which has led to heightened fulfillment expectations and a flurry of M&A activity. Nearly one in four tech-savvy consumers expect same-day delivery, according to a PwC survey. Retailers will need to acquire the right back-end capabilities and consumer-facing platforms to compete against e-commerce wholesalers that often win customers over on prompt delivery.

Message received. Last year, Target agreed to acquire Shipt, a leading same-day delivery platform and Grand Junction Inc., a San Francisco-based software publisher that will help the retailer offer same-day delivery across its stores. Walmart acquired Parcel Inc. a Brooklyn-based provider of delivery and logistics services.

Creating Entirely New Customer Experiences

Reimagining the in-store experience, offering completely new ways to interact with brands and products online … in the retail evolution, creating new and engaging experiences is entirely human. Its human creativity that will build the M&A strategy for creating distinct customer experiences.

Walmart’s acquisition of virtual reality startup Spatialand could transform its online and in-store shopping experience. Amazon’s acquisition of Body Labs, a company working to create true-to-life 3D body models to support B2B software applications, may one day change how clothes are modeled for online shoppers.

Outside of M&A, newly formed partnerships are helping retailers transform stores from warehouses to places that forge authentic and engaging experiences. For example, GAP Inc. recently partnered with Google to develop an augmented-reality shopping app called DressingRoom which provides shoppers with a digital mannequin to try different clothing. Similarly, Adidas partnered with Microsoft Kinnect to build a body scanner for virtual fitting.

Macy’s is experimenting with an in-store shopping assistant, Macy’s On Call, using AI with IBM Watson and intelligent engagement platform, Satisfi. The cognitive mobile web tool helps shoppers get information as they browse in store.

These deals demonstrate the future of retail is closer than we may realize. The market is quickly evolving and bringing on the right talent and technology to reshape retail businesses. Retailers will be well served by watching market leaders pave the way for advanced use of analytics and intelligence to help guide their thinking and find ways to invest in their future — and to cultivate their own deals in an effort to step ahead of the competition.

About The AuthorJohn Potter, PwC

John Potter leads PwC's U.S. Consumer Markets Deals team, covering CPG and Retail. In his role, Potter advises corporate and private equity clients through acquisitions, divestitures, and joint ventures. In the complex world of deal-making, he brings clarity and focus to the inherent uncertainty of M&A while also helping his clients navigate the flow and tension that each deal presents.