A.I. In Retail.

While we are all being distracted by off color comments and crazy tweets, hurricanes, earthquakes and nuclear war technology; companies are quietly building algorithms and robots - both digital and humanoid - that can instantaneously analyze billions of data points, do routinized tasks, and create their own language (Do you speak BOT? Doubtful.) These bots have the potential to eliminate millions of jobs around the world. Retail is poised to be the hardest hit by these technological advances according to Klaus Schwab, Founder of the World Economic Forum. But before we can assess the threat level of this new technology, let’s define what A.I. means within the context of retail.

So what is A.I.? It’s the theory and development of computer systems that enable machines to perform tasks that would normally require human intelligence, or more simply said to my fellow retail professionals: A.I. gives machines the power to copy intelligent behavior.

A quick Google search will display hundreds of initiatives that are currently in development that will eventually replace current human tasks. So in the retail context , A.I. is much more than self checkout in stores and faster algorithms to make online shopping faster. Nearly every function in retail will be affected by A.I. from buying, planning, space and merchandise allocation to, yes, even product design and creative content.

Shoppers and retailers already interact with advancements in A.I. every day from the Google searches mentioned above to the lovely ladies or Amazon and Apple, Alexa and SIRI. Each use feeds information to the algorithms that are used in the drastically improved chatbots, voice assistants and product recommendations on sites that follow you across the web. As Japjit Tulsi, VP of Engineering at Ebay, wrote on Venture Beat, “...powerful new GPU’s (graphics processing units), dedicated hardware, new algorithms, and platforms are being created for deep learning. People’s interests and fears are peaked by advances that are happening so quickly.” Even though these technologies are not entirely new or foreign to retailers or the consumer, people are naturally concerned about the perceived rate of progress, along with headlines about growing discomfort about a lack of regulation in the space.

It’s notable that even Tech Titans like Elon Musk and Mark Zuckerberg strongly disagree (see widely publicized and ideological Musk v. Zuckerberg feud) on the potential impact of A.I. on society. Quoted in Vanity Fair, Elon Musk said, “I think [A.I. development company, Deep Mind, is] really improving at an accelerating rate, far faster than people realize. Mostly because in everyday life you don’t see robots walking around. Maybe your Roomba or something. But Roombas aren’t going to take over the world.” (Vanity Fair) While Silicon Valley is creating and the government is (hopefully) thinking about how to regulate, the retail industry needs to be charting the course of the innovations best suited for our sector that make customers happiest and differentiate brands and experiences.

“THOSE WHO DO NOT LEARN FROM HISTORY ARE DOOMED TO REPEAT IT.”—George Santayana.

Robots and automation have already eliminated blue and white collar jobs alike in the automotive industry. Self service gas stations made the gas station attendant virtually disappear, and toll collectors have gone the way of the horse and buggy. New technologies not only have the mechanism down but also the computing power to adapt to and learn new tasks. In this month’s Wired magazine, James Surowieki weighs the evidence on whether automation is destined to take our jobs and recounts the story of a Japanese cell phone store that replaced all its associates with humanoid robots named Pepper, which (or should it be who?) can “express his own emotions” and use a 3-D camera and two HD cameras “to identify movements and recognize the emotions on the faces of his interlocutors.” A 2016 report by the World Bank has a model where ⅔ of current jobs are lost to automation; however, most of those old jobs done by new machines will still need to be manned or overseen by humans like in automotive factories. As we move steadily towards the fantasy of self driving cars, connected homes and the Internet of Things; we have much to look forward that will reinvigorate the retail sector for the better of its employees and customers; however, the greater looming concern is the next step when automation is automated, and humans are no longer essential to the development of new technologies and operations of commerce.

Now that we have rehashed what is out there about the A.I. revolution more generally, we can delve deeper into retail’s role in the technological revolution.

First, the U.S. government has the responsibility to create and enforce regulations. If we want to avoid the mass hysteria of losing coal jobs, of which there were far fewer, the industry must create safeguards for its employees and training programs to seamlessly integrate those disenfranchised into new roles or industries. Public companies and corporations are always under pressure to increase profits and value for their shareholders; therefore, even the most socially minded companies cannot be expected to regulate the economic impact of their decisions - that’s the government’s responsibility. Without thoughtful technology regulations, A.I. can create an unemployment tsunami like we have never seen before.

There is good news! The store of the future - both online and physical - will be a showroom for the endless assortment the retailer offers. We already see this being tested by innovative direct-to-consumer brands like Away and Everlane, as well as with traditional department stores like Nordstom’s new Local store format. Retailers will already know what you want based on past behavior plus an algorithm to predict future behavior. After browsing the customer can choose to have the item delivered that same day or carry out any item in stock by simply walking out of the store, a la Amazon Go, as the customer’s credit card and profile data are saved to the cloud and read by sensors like EZ Pass reads cars as they speed down the highway. Relying on a primarily delivery-based fulfillment (thanks to driverless cars, which are related but a topic into itself), stores will be less cluttered, having only to display samples, and more easily managed by a smaller, better educated staff that relies on technology and tools informed by A.I.

While a lot of the news can feel dire and change happening so rapidly, it can feel overwhelming to a change and risk adverse industry like retail; however, we are more prepared for this technological revolution than we were for e-commerce. Let’s brace ourselves but experiment. Let’s be wary but optimistic about the back of house efficiencies and improved customer experience. Let’s be on the vanguard of change, rather than debating whether or not it is actually going to happen, because if there’s one thing I can promise you, it is here.

Mr. Stanley, Nieman Marcus.

I recently visited the Neiman Marcus flagship in downtown Dallas. The store still exudes the presence of “ Mr Stanley.” Beautifully selected merchandise, impeccable presentation and outstanding customer service. I have fond memories of my always stimulating conversations with him at the Zodiac restaurant and the thought that came to mind was, given all the problems facing retail today “ What would Stanley Marcus do ? ”

On Customer Service: Mr Stanley understood lifetime customer value and why it was more profitable to retain existing customers at the expense of always trying to attract new ones. One famous story is when Mr Stanley approached a young female customer who seemed distraught and upon his inquiring , he discovered that she was in need of two dresses for an important event but could only afford one. His solution was simple. Purchase one now and he would authorize a new credit card account for her. This young woman became one of the wealthiest woman in Dallas and never forgot his kindness and generosity.

On Technology: Mr. Marcus never saw the advent of the internet. But, I’m sure he would have embraced it early on, seeing the benefits to the store and to his customers. This is a man who at 91 started a new business “Narrow Casting” that matched high value customers with the right businesses. His mantra “You don’t need a lot of them ( customers ) you just need the right ones.”

On merchandising: A lifelong learner, Stanley Marcus loved to travel, experience new things and meet new people. His desire for quality products was insatiable.

He brought the world to Dallas via his famous Fortnite events and the ever entertaining His and Her Christmas gifts. He led by example and his merchants curated thousands of products they knew Mr Stanley would want and their customers expected. 

So, What would Stanley Marcus do if he was working in retail today? I guess we will never know. 

Less Is More.

Unless you've been living in a cave for the past year you've probably already heard of Marie Kondo. Her "KonMari" philosophy or the art of tidying up books have sold in the millions and her Netflix series was nominated for an Emmy. 

Her philosophy of evaluating all of your possessions to see if they "spark joy" in your soul and if not, give them away, may in itself fuel the recent retail resale trend. 

Everyday we are being bombarded with "less" messages. Health gurus preach us to eat and drink less. Technology companies are promoting driverless cars, cashless stores and farmerless farms and now, environmentalists are encouraging sustainable fashion with the mantra if you don't think you'll wear it for a minimum of 30 times . Don't buy it. 

Less is catching on more and more. 

For decades retailers relied on consumers insatiable appetite for consumption and never thought it would ever end, but all that is changing. Rapidly. 

So what are retailers to do? Embrace change for starters. 

Not that long ago, I remember attending C-Suite meetings where experienced retail executives played down Amazon's success. They argued that Amazon wasn't profitable and its business plan wasn't sustainable. They severely miscalculated Amazon's strategy and have been paying a dear price ever since with bankruptcies, store closings and right sizing just to stay afloat. 

The new consumer is smart, informed and has the tools to research not only the best price but who will partner with them to help make a difference.

Stanley Marcus of the Neiman Marcus lineage would often say " Spend your money once " in reference to the logic of buying quality clothing that lasts. 

Given the current environment that sounds like good advice to me.

The first time I heard the futurist Edith Weiner use the term "incapacitated thinking" I was thunder struck by the brilliance of it. Basically the way Edie defines the term is that once we become experts on a particular field it's harder for us to think new and differently and therefore never able to think outside the proverbial box.

Hence, we become incapacitated to think differently.

Edith Weiner quote : "We begin learning from the time we are born. And the older we get, the more knowledge we acquire but this makes it harder to see the future objectively. We call this educated incapacity." 

Conversely, many start-ups don't know what they don't know and make many mistakes but they also approach problems with completely new perspectives. Often with a "Why didn't I think of that result?"

Enter the consultants. Clearly consultants have a role but at times only rely on the information they are given by their clients supporting the old adage that "consultants borrow your watch to tell you what time it is" knowing that if they propose too aggressive solutions that they will be tossed out of hand as being too radical, even though it actually may be the best solution for the problem.

The other problems consultants face is the high rate of recidivism by their clients. 

Even after significant research is done and a proposed hypothetical solution is adopted along with a well-executed  strategy it’s not too long before it goes by the wayside with the retailer going back to their old ways of operating citing that the results didn't come fast enough.

But the reality is subconsciously they "think" they know better. 

"Insanity is doing the same thing over and over and expecting different results." – Albert Einstein

So are legacy retailers suffering from a fatal case of incapacitated thinking?

Maybe they should get a second opinion. 

As Joni Mitchell once said, “Let’s face it. We’re all on our own." The “future of work” as a topic is not new. Google that phrase, and you’ll find 520 million links in just over 1.1 seconds. What is new about how we will work in the future is that it’s already here. We just haven't recognized it yet. According to Tom Friedman in his book Thank You for Being Late, 2007 was a pivotal year for the new sharing economy. While many of us were discussing the meaning of the “The Sopranos” final episode, big tech companies were quietly changing the world and our connections to one another.

The iPhone, Facebook, Twitter and Airbnb all launched in 2007. IBM introduced A.I. (artificial intelligence) to a much wider audience in 2007 via Watson, the first computer capable of answering questions in natural language. What’s most revolutionary to me about these companies is that the majority of them do not own any inventory - that's new. They built billion dollar evaluations solely on creative ideas (or I.P./intellectual property) and customer data. Let's examine some of the intended and unintended consequences. 

News flash: Your current employer does not want to pay for your health benefits, 401k or retirement plan. In fact, they would rather not even pay you a regular salary. The unspoken truth here is that we are moving more quickly than we realize towards a freelance economy where the majority of workers will be “independent contractors” hired to do a specific task for a set period of time. The good news is that these “at will” employees will be free to work for different employers and run their own business(es) at the same time. According to Forbes, over 44% of Millennials already consider themselves entrepreneurs and supplement their incomes with side businesses in addition to their regular full- time jobs. Companies are reorganizing, preferring to have only a “few essential” employees on their payroll with the majority of work being done by this new independent-contractor workforce, commonly being referred to as the Freelance (or Gig) Economy.

Think this won't happen in your lifetime? Well, think again. Just look at the dramatic rise of WeWork and the other temporary workspaces that house this generation of independent contractors. The new freelance economy (Uber, TaskRabbit, Rent the Runway, and Fiverr) is more evidence that this change is happening rapidly. The lifestyle altering effects of A.I. is more imminent than many believe, and needless to say, it’s accelerating the rate of change for professionals and corporate structures faster than corporate America can adapt to it. Recently, Macy’s and JCPenney announced that they will implement A.I. to replace some of their buying and planning functions. Remember, Watson does not need health insurance, unless he gets a screw loose! 

I’m frequently asked, "What happens to people’s income when A.I. takes over the majority of the workforce?" The short answer: the new freelance economy is providing a smooth transition until a universal basic income (UBI) becomes a reality. Rapid change is disconcerting to many, and the reaction to it is often fear. Let's face it, fear hampers our ability to change. Maybe the freelance economy will give us more time to read thoughtful books (and blogs) and getting to the most important tasks on our lists. The key is to learn how to accept change and acknowledge that it’s a part of life.