Start-Ups: Bringing Innovation To Retail

By Erin Harris, Editor-In-Chief, Cell & Gene
Follow Me On Twitter @ErinHarris_1

May 2015 Integrated Solutions For Retailers

Seasoned, traditional solutions providers, beware. As part of their omni-channel offering, retailers are implementing innovative technologies developed by start-ups to deliver a streamlined customer experience.

A Q&A with Erin Harris and Mike Olmstead, founding partner, Plug and Play Retail

As the industry continues to advance due to the demands of the mobile-enabled consumer, some retailers are struggling in their efforts to become a true omni-channel retailer. Budget constraints, outdated systems, and lack of vision among the executive team exacerbate the problem. According to Mike Olmstead, founding partner at Plug and Play Retail, one way for retailers to keep pace with the likes of Amazon is to test new ideas developed by brilliant entrepreneurs. Indeed, savvy retailers are shifting their thinking, and they are partnering with start-ups to implement affordable, next-gen technologies.

Plug and Play Retail is a retail-focused start-up accelerator, and you partner with some of retail’s biggest brands. Explain what you do and why retailers should pay attention.

Olmstead: The retail industry is one of the slowest-moving sectors there is, but with that brings an unbelievable opportunity for certain retailers to gain a competitive advantage by leveraging the fast-paced start-up community. That being said, the core competencies for retailers (for the most part) tend not to be accessing and vetting the appropriate start-ups that can help solve their pain points. Additionally, it is also a question of bandwidth. It is a bit of a process for a retailer to source, vet, qualify, and eventually pilot start-ups. This is where Plug and Play Retail comes in. Through our retail-focused accelerator, we source more than 3,000 start-ups (globally and in the brand and retail space) per year that are catering to our partners’ tech focus areas, and through our built-out process we are able to curate tailored lists of companies for our retailers and bring them together in a way that uses few of the retailers’ resources. We do the legwork, sourcing globally, providing investment, infrastructure, and the resources start-ups need (space, data center, legal, HR, etc.), making sure they are ready and able to interface and cater to the often tall orders from our partners.

Start-ups are known for their high risk/high reward nature. Explain the realities and the benefits of partnering with a retail tech start-up.

Olmstead: While it is true that no one ever got fired for rolling out IBM, there are significant costs and infrastructure needed to support such systems. The only way retailers will be able to keep up with the likes of Amazon is putting aside a budget to test new ideas developed by brilliant entrepreneurs. In the evolving world of retail — one that seems to be disrupted at every turn — a wrong decision is better than indecision.

What are some of the retail technologies retailers can expect to see from start-ups in 2015? Which ones are worth the investment?

Olmstead: I see immense focus on predictive analytics and loyalty. If retailers can predict demand and forecast correctly and accurately, they will not only save money on overhead, but create loyalty with the customer, ultimately driving more sales and a stronger brand loyalty.

With regard to disruptive technology, what’s your advice to the retailer with strained budgets?

Olmstead: Start-ups are dying to get their products into the hands of retailers to help legitimize their business and validate their technology. With that, it is common practice that startups will run pilots for minimal to no cost in order to prove the technology’s value in the hopes that it will lead to a larger, recurring contract. The retailers that act first will receive all the benefits of cheaper pilots, while those that wait will be late to the game and may not receive the types of deals of those retailers willing to try out new technologies and that are hip to the fact that retail is changing at a rapid pace.

In 2015, what does the forward-thinking CIO care about?

Olmstead: In order to truly maximize value, there must be alignment between the marketing and IT functions within the start-up community. In today’s technology-driven world, marketers’ ability to align with IT can be the differentiating factor between successful marketing and failed marketing. Marketing and IT executives must work together on partnering with startups to develop and/or foster technologies to create a unique platform to initiate and support collaboration and ultimately bring value to the customer.

Online shopping continues to trend up with in-store shopping losing out to Amazon, Overstock, and more. What are retailers doing to account for these growing online trends?

Olmstead: While online commerce is growing, in-store retail still accounts for 90 percent of sales. Essentially the pie is growing, and in order to keep a larger slice, retailers need to have a strong focus on enhancing their online experience. A significant portion of this growth is coming from mobile, and that is a reflection of the “new consumer” or “millennials.” Retailers need to tailor their offering to where millennials are spending their time, and taking a “mobile first” approach is smart, but retailers must also be cognizant of streamlining their experience across all channels. Mobile is the new storefront, but it needs to be consistent with their core “brick-and-mortar” business.

How will Google Shopping Express and Amazon same-day delivery impact the shopping experience? Will grocery shopping finally be fit for a delivery service that will succeed (i.e. Peapod)?

Olmstead: These services are growing more and more prevalent, and I do not see the growth slowing down anytime soon. This can be seen with InstaCarts recent fund-raising round of $200 million dollars. It is all about the here and now. As a consumer, why would I take hours out of my week to go to a store to look for products that may not even be in stock when I can pull out my phone, order everything I need, and have it delivered to my doorstep within hours? While this isn’t necessarily the point of view of the stereotypical mom shopping for her family, this is the type of mindset retailers need to have in order to keep pace with the next generation of moms. It is a long play.

Concierge and customer service solutions are increasingly becoming automated. How will this change a big box retailer like Walmart or Target?

Olmstead: Both Target and Walmart are taking advantage of these types of services already, and I commend these large retailers. Target is one of Plug and Play Retail’s partners, and they realize the profile of the constantly evolving consumer.

I’ll add that Lowe’s has recently begun to pilot one of our portfolio companies, Fellow Robots, an autonomous robot that gives customers information about products as well as the exact location of the product by leading the customer through the store. You know how hard it is to find anything in these stores.

What are some of the retailer’s biggest friction points right now?

Olmstead: Security is a major friction point. Consumers need to feel that their data is safe with the merchants they shop with. Security ties into loyalty by way of consumer identity and their payment avenue. If you have a customer who feels secure and trusts they are in good hands, this will increase loyalty. Security needs to be a huge focus for all retailers; there is a reason the “Chief Security Officer” is now a common position for Fortune 500 companies.

In 2014, there were more than 750 breach events, and since 2005, there have been more than 650 million records stolen. This includes millions of credit and debit cards’ information being stolen from varying retailers. The average cost paid for each stolen record, according to IBM’s 2014 study, is nearly $150 per record. The implication of losing faith in a retailer or their payment provider is paramount for the industry. The question is not “if,” but “when” an attack will happen. Just because a retailer hasn’t been exposed to a breach yet doesn’t mean it won’t happen to them. For that very reason, Plug and Play has launched its FinTech and Security accelerator in partnership with Citi, Capital One, Intuit, and several other financial services companies that will run concurrently with the Plug and Play Retail program. We see huge overlap between the two programs and have recently brought on Target Retail and Financial Services as a partner to help bridge the two programs and create synergies between the industries. Ultimately, Retail and FinTech intersect at the POS and travel back up the stream of integral systems for accounting, data, and supply chain management, so this is core to any retailer’s future success. To answer this growing problem, the whole ecosystem needs to work together — the retailers, the brands, the solutions providers, the payment companies, etc. This isn’t just a retailer’s problem, this is an industry problem. All must play a part in order to find solutions to security-related issues, and the best place to be looking is within the start-up community, because it is obvious that the current solutions are not working.

Think ahead three years. Regarding retail technology and the entire ecosystem, what are the savvy retailers doing differently and better than they are today?

Olmstead: The savvy retailers are swallowing their pride and realizing they need help! They are looking to the start-up community to help augment their current activities in regard to innovation. True innovations need to come from outside, and there needs to be a companywide focus on partnering with vendors that have fresh perspective and don’t sit inside the four walls of their own company. Forward-thinking retailers are engaging with Plug and Play to help with this. Since the 1990s, Plug and Play has been a part of the journey for some of the most innovative start-ups that have changed the way we search, browse, shop, and pay for things (e.g., Google, PayPal, Vudu, Milo Local Shopping, Zong, Retrevo). And now, through our brand and retail-themed accelerator, Plug and Play Retail, we are bringing together a roundtable of top CPGs, retailers, and solutions providers to find and invest in the next wave of start-ups that will change e-commerce and brick-and-mortar retail.