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Intel leader: Why online retailers are leading store transformation, at least for now

Online retailers have an advantage in transforming physical retail with technology since they operate under a different P & L model, says Intel executive Joe Jensen. He thinks physical retailers will catch up, but in the meantime, there will be significant turnover in leadership.

Joe Jensen of Intel shares his insights about online and physical retail with Laura Heller of Performics at the CES show in Las Vegas.

February 8, 2019 by Elliot Maras — Editor, Kiosk Marketplace & Vending Times

Physical stores aren't going away, but they are losing sales to online retail. A big reason, according to many experts, is that online retailers are deploying technology that allows them to better manage inventory and thereby deliver a better customer experience.

Joe Jensen, vice president and general manager of Intel's retail solutions division, believes this is the reason online retailers — those expanding into physical retail — are taking the lead in introducing data, analytics and vision systems to physical retail.

Jensen, who was interviewed by Laura Heller, director of external communications at Performics, at the recent CES show in Las Vegas, thinks online retailers have an advantage in transforming physical retail with technology since they operate under a different P & L model. He thinks physical retailers will catch up, but in the meantime, there will be significant turnover in leadership.

Physical retailers have an opportunity to "up the game" and match what their online peers are doing, he said, but this will require more use of data, analytics and vision systems.

Inventory issues call for change

Physical retailers do a good job creating demand through their merchandising, but too often they create demand for products that are out of stock. Jensen said a study indicated over $1 trillion worth of profit is lost annually due to inventory issues.

Only 1 percent of shoppers have the patience to go through the process of working with a store associate to locate an out-of-stock item and arrange to have it delivered to them. "One percent of shoppers are patient enough to go through that entire journey," Jensen said.

The solution, he said, is better inventory visibility, an area where technology can help. "Vision systems have matured at an incredibly rapid pace," he said, which is good since maturity will make these new technologies more affordable.

Physical retailers need better tools

"Consumer expectations are changing rapidly," Jensen said. "The online retailers have just been better at meeting those changing consumer expectations."

Retailers who operate only one store are in a position to know their customers and their inventory well. Data from 3,000 small health food stores found companies with just one store did $1,000 per square foot per year in sales, Jensen said, while owners with five stores did half that amount at best.

The multi-store owner can't be in every store every day. Hence, technology is needed to provide insights about the shoppers and to enable the staff to make suggestions to customers and ultimately create better customer experiences.

AI has made a lot of progress, Jensen said, as AI cameras now can detect a customer's gender, age, size and color palette.

"When a woman walks into a convenience store, why are you advertising an energy drink?" he asked, since data shows men buy all the energy drinks. Retailers can know what female shoppers normally buy at a specific store at a specific time of day.

"There's an ability to use data that's being generated all the time in your store," he said.

P&L expectations need to change

Jensen acknowledged physical retailers are constrained from investing in technology by P&L models they are expected to follow, especially if they work for publicly-traded companies. Intel has conducted trials with retailers that show "amazing" results, he said, only to face difficulty getting approval to invest the capital needed to deploy technology.

"That quarter-by-quarter pressure that Wall Street is putting on retail is holding them back from making this transformation," Jensen said. "The analysts won't let you change tracks."

Online retailers, by contrast, have a P&L model that allows them to spend more money on technology, he said.

This is why online retailers that expand into retail bring a clearer understanding of the importance of data and analytics. "Their entire online experience has been about the data and analytics, and they can't imagine opening that physical store without the data and analytics," he said.

"You need to educate your analysts," he added.

Other challenges to consider

Another challenge is recruiting employees to work with data.

"The skills that have allowed physical retailers to excel for the past 500 years — they're a different set of skills than tech companies hire," Jensen said.

The subject of siloed departments in organizations was also addressed. Retailers have invested in technology, but too often they have not involved the "core" of the business in making these investments.

"How do we use data to help make the basics of retail better? It's not how do we replace retailers with a bunch of techies," he said.

The good news for physical retailers, he said, is that most already have an online presence. The next five years will bring a better mixing of the mobile experience with online and physical retail. "But I think we're also going to see a big turnover in leadership at retail," he said.

Jensen encouraged session attendees to visit China to see what the future of retail looks like.

"Social media is completely integrated into how people shop," he said of China. Once a customer sees an item they want, they exchange social media credentials with the shopkeeper. The customer then thinks about the purchase for a few days and discusses it with friends. Jensen described it as "the "complete integration of social and shopping; it's amazing."