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The Challenge of Retail

 

Click ARCast: The Challenge of Retail to listen to this ARCast.

Ron Jacobs:   Retail! Yeah, it's something that, you know, I think everybody goes, "Oh, yeah. I know retail, because I go to stores everyday, and I have things I like and things I don't like, you know, and...," you know, I can gripe on and on about my experiences in retail, but the truth is, it's a tough business out there, isn't it? I mean, everywhere you go there is a store. This store has the same thing as that store, sometimes the price is, you know, a little bit different here than there but, you know, it's just amazing that anybody makes any money at this any more or with all the channels of competition. Well, we are going to talk to one of my colleagues, who is definitely an expert on retail. So, let's welcome Moin Moinuddin! Hey, this is Ron Jacobs, here in my office in Redmond for once, where I am sitting here across from Moin, who is one of my colleagues on the team in the industry architecture space. Moin, tell us, um... How do you say your last name?

Moin: Sure. So, let me start with my name. I go by Moin Moinuddin… So, that's it….

Ron Jacobs:   Moin Moinuddin?

Moin: Moinuddin. Exactly….

Ron Jacobs:   Oh, OK, so you... Kind of sounds like the first part repeated again.

Moin: Repeated again, yeah….

Ron Jacobs:   (Laughs)

Moin: Yeah, that's right, that's right.

Ron Jacobs:   OK. See, isn't that awful that here we are in the same team, across the hall, and I didn't know even know how to say your last name? But that's the way it is around here, you know, we just say the first name, "Hey, Moin, how's it going?" and...

Moin: Yeah, that's right, that's right.

Ron Jacobs:   (Laughs) OK. So, you are doing, you are doing kind of retail-industry architecture.

Moin: That's right, yes.

Ron Jacobs:   Now, how do you qualify for this? Did you, like, work in the retail industry or something?

Moin: So, that's a great question. So, I spent about seven years in point-of-sale (POS) development. So, right out of school… You can say it was pure luck or whatever, my qualification met with a company that used to develop point-of-sale solutions for retailers, and in fact the solution I developed is still used by Starbucks. So, next time you order the lattè, my code, you are still executing the code I wrote….

Ron Jacobs:   So, do you, like, get a nickel every time...?

Moin: No…. It's a secret, I am not gonna talk about that publicly. (Laughs)

Ron Jacobs:   That would be a great deal, because I am telling you, they are selling a lot at Starbucks....

Moin: They are, definitely…and, really, that's… Really, I am proud of code still being in use after almost 10 years!

Ron Jacobs:   So, the point-of-sale system is typically like the software in the register, plus some server components and some back-office reporting solution. That sort of thing?

Moin: That's exactly right. So, typically a point-of-sale or a retail-store solution involves your front-end POS… Point-of-sale terminals, they are called… And then you have them connected to a back-end store server, which typically has manager workstation, manager-related applications such as purchasing, inventory tracking, labor management… Those are typical solutions that sit on the store server. But I worked mostly on the point-of-sale development, which is in the front, where you are being checked out by a clerk or you are being served by a… at Starbucks, by a clerk. So, that's the solution that I mostly spent (time on)…. After that, I spent another five years at a payment-processing business, so I was one of the key people who really helped in building, architecting a solution to two-payment processing. So, what happens when you swipe your card at Starbucks, what happens magically at the back end… That's something I worked on. That transaction from point-of-sale gets transmitted to this back end, which knows which bank you bank with, and forwards it to that bank, so that the transaction is authorized. All of this happens within less than 3 seconds, really.

Ron Jacobs:   And, you know, it's funny, because the credit-card companies were advertising, you know, faster than cash, you know. And for a long time I am, like, "No way, that is not faster." Because, you know, they print out the thing and then, you know, the paper, and you got to sign it, OK. That is so annoying. But now I notice... the, the... I went through a drive-through the other day and handed in my card, they swiped it, gave me the food... out of the door and no signing or anything, and I thought, "Now, that's the first time ever it's faster than cash!"

Moin: (Laughs) You are right… Absolutely right… I mean, it's especially considering if you have to get change back and the clerk says, "Oh… How much do I owe you?" and takes the money out from different, you know, parts of the till… Compared to just swipe the card and out of the door. It's really picking up, especially if you remember until [the] last 6 months, 1 year, couple of years… Fast food was not accepting credit cards, [the] reason was they used to have dial-up modems in the store, which would take keying… All the noise that happens… So, the credit-cards thing would take longer than cash… Now that with every store has broadband, they are able to route the transaction over IP and get the transaction processed much more quickly, and what they have also become more intelligent in terms of processing transaction… If the amount is less than [a] certain threshold, they are willing to take the risk and don't want to go into having the hassle of having you sign it. So, if it is less than 10 bucks, they are, like, "Fine, we will take the risk," but at least the service is much faster.

Ron Jacobs:   Yeah, I mean, that makes a lot of sense, because nobody looks at those signatures, anyway.

Moin: Yeah.

Ron Jacobs:   Well, I mean, you know, it hit me the other day when I was going through the airport, and I bought something from one of the little shops there... I bought a book, and they had one of those little dial-up terminals, you know. So, it's worsening sound--"tee-tee!"--you know, and I am thinking, "Why don't they just have...? There's wireless in this airport," you know.

Moin: Absolutely right.

Ron Jacobs:   They could have... I can imagine those terminals are now coming out with a wireless adapter built right in, probably.

Moin: Right. For example, I think New York City taxies now are going to have these wireless terminals for swiping the card, and right there you get authorization over wireless much faster… than all the… knuckle-buster of getting imprint of your card and the cab driver depositing it by the end of the night, and by that time, you know, you might have cancelled your card or… Here is a risk for him. Now, that is out of the way, where they can get real-time authorization at the moment….

Ron Jacobs:   If they have connectivity! (Laughs) [Moin: Of course.] You know, because it happened to me... Where was I? In Sydney, OK. We pulled up to a hotel, you know, and it was, you know, in the downtown area... the big buildings, and this happened to be kind of, like, almost like a tunnel between buildings, you know. So, he parked right under this tunnel thing there, and he is trying to run my card... It's just not working... And I am going, you know, "I don't think you are going to get it working here." Well, you know, this is the thing... that retailers... OK, so one other thing we were thinking about was sort of architecture transfer retailers, and, um, it occurred to me that these electronic transactions... It seems like the retailers would want this, they would want to encourage these electronic transactions, right, rather than dealing with cash and checks and all that, because those things are error-prone. They take a lot of people touching things and getting involved, and the process... Electronic transactions are way better.

Moin: Way better, because they also… Now that especially what's happening is they don't have to walk to the bank to deposit the cash or have an armored truck coming to take the cash. It's all done electronically, where, you know, from your card, money is transferred into the store's account immediately, where there is no risk involved. Once you pay and leave, they don't have to worry about an armed robbery or even an armored truck coming in and taking it. It's… Money is done electronically, so they don't have to worry about that… That really helps them in reducing the risk… I mean, starting from the store clerk to the store manager to the potential robbery, all of that is gone, there is no more cash in the till… It's… All you have is a bunch of receipts.

Ron Jacobs:   OK, if this is so, I just want to know why I can go to the fast-food store [Moin: Right.] and if I use my debit card, they want to charge me 75 cents to use my debit card. I just did them a favor, OK, and they want to charge me 75 cents. That is really annoying.

Moin: Right… It has to do something with the back-end networks. So, credit-card networks are different from debit-card networks. So, credit card, for example, goes through a different network, through VISA or MasterCard processing networks, and of course they [are] also charging a certain fee that is paid by the merchant, not by the consumer. Debit card goes through a different network… There are networks called STAR and things like that… They also charge, and some of the merchants, what they want to do is, they don't want to pay that on their own, they want to pass it on to the consumer, which is really not the right way, because the merchant should take it as part of doing business or in [the] cost of doing business and just pay up for it. But not all of them do it, and there is really no easy way to get out of it.

Ron Jacobs:   You know, it's funny, it's just how things evolved and ... here in the U.S., probably, and it may not be that way in other places, but... but it's certainly, like, you know, they are doing it because they can get away with it, because the customers go, "Oh, well, I want to use my debit card and," you know. I just say, I have one card, could go either way, right, this could be debit or credit, I say, You are not going to charge me 75 cents when it is a credit card, then you can pay that fee, I am not paying it.

Moin: That is exactly right….

Ron Jacobs:   Well, and, you know, I am thinking, like at the gas station, I filled up this morning, this particular chain does not take credit cards... and... But they want to charge me 45 cents for the privilege of using my debit card, although I could put cash in that machine, I could give them a big headache, right. And they won't charge me anything for that.

Moin: Yeah, I… I know what you mean, but I think that's gonna change, because what's happening is more and more consumers are demanding that electronic transactions be acceptable or electronic-tender type be acceptable. I will see that… There is… I am kind of seeing that the charges will kind of slowly drop over a period of time. We… We are not there yet, but you can see that clearly we are becoming a cashless society. I was speaking at a conference recently, and the question I asked is, "Raise your hand if you have more than $20 in your wallet." Trust me, not more than a few hands went up, because we don't carry cash any more. We could be halfway around the world from home, but still have no cash on us, we are fine.

Ron Jacobs:   That's true. Actually, when I go to other countries, I try not to convert cash... And I try to get as little cash as I can, because, you know, it's just a pain converting it. [I] never knew when you convert it, they charge you these fees and, you know, all that, and you can't convert the coins, and in some countries coins are a lot... I mean, you go to the U.K., get 2 pound coins, you know, and you got a pocketful of those, you got some serious money. [Moin: Serious money, you are right.] Yeah, OK, so I am just griping about my retail things. I have a couple more gripes, but we will leave those aside for a minute. Let me ask you about an interesting trend I am seeing...

Moin: Sure.

Ron Jacobs:   Um, the trend is self-service...

Moin: Right.

Ron Jacobs:   ... in retail. So, now I go to my grocery store and I go to the self-service line. I am telling you, if that... If there is one of those, I am going to that line. I love self-service, you know, because I am usually buying four-five things, you know, and I don't want to wait in line to hand it to somebody. I can just go swipe there, you know... And I took my son to Disneyland... OK, we go to get a lunch, and there's this place where you can get burgers and fries and, you know, that sort of thing, right. Instead of taking me up to a counter where I can talk to somebody and tell them what I want, they have a nice self-serve kiosk.

Moin Moinuddin: Kiosk, yeah….

Ron Jacobs:   It was amazing. Amazingly well done, very nice visual UI, and the UI prompts me, you know, what kind of things I want, it shows me pictures of them, allows me to change my mind. And it even does an up-sell, right, because it says like, you know, "Oh, would you like a drink with that?" and "Would you like the souvenir lid that costs $5 here to go with that drink?" and all those things, right.

Moin Moinuddin: Absolutely.

Ron Jacobs:   Way better than...than what most human clerks would do, right.

Moin Moinuddin: Yeah, yeah…

Ron Jacobs:   Right. And I am thinking, like, this has got to be a big, big trend in retail, isn't it?

Moin Moinuddin: Absolutely right, because if you look at retail, it used to be a single channel; that is, you walk into the store, you get your goods in the cart, you walk up to the clerk, and you pay for it. Now what's happening is, retail is becoming multichannel; that is, consumers want [the] same experience in [a] different channel. So, when I say channel, the store channel or the self-service within the store, or it could be on the Web, or it could be through mobile. So, they want same service, irrespective of where they want to go, they want the retailers to recognize that it's Ron or its Moin, whether I am coming from [the] Web, I am coming from [a] cell phone, I am coming from any other way. And also provide [the] same service. So, multichannel retailing is really the trend these days, and self-service, as you mentioned, clearly is picking up big-time… especially in [the] U.S. It hasn't picked up internationally yet, because people… It's more cultural than anything else… But in [the] U.S., you see people, for example, yourself… value in going to it, and don't have to deal with somebody, but deal with [a] machine and have the freedom to do whatever you want. It's really picking up. I think that's where Microsoft has a unique capability in that space. For example, if you look at Vista, right, the whole graphics experience it provides, the end-user experience… The kiosks built on Vista are really just amazing. We have seen [a] few demos of it… Of course, it's not quiet out yet… But it has amazing user experience that it's providing… for an end user. So, even through Web, the end-user experience is much more enhanced, if you use the Vista as a, you know, front-end user experience.

Ron Jacobs:   Well, that's a really important point, because I... As I was looking at [the] kiosk in Disneyland where I could order my burgers...

Moin Moinuddin: Right.

Ron Jacobs:   ...I was thinking how different this looks than... than, you know, the traditional kind of UI, and, you know... little text and radio buttons and push buttons, none of that.

Moin Moinuddin: It was purely graphics.

Ron Jacobs:   It was very graphic, it was animated... Here comes the burger kind of dancing out there, and... And it shows me things in a way that are gonna draw me in and grab my attention... very nice use of sound in there, also. So, I think, you know, to make these things work, there is really a science towards building a UI that your average person who walks up on the street can successfully order something from that UI and get it done right the first time. That... That's a challenge.

Moin Moinuddin: It is a challenge… And I think there's where we uniquely qualify, and the unique advantage we bring to retailers in terms of having a rich user experience. So that people are not only able to do what they want to do, but do it in a much more easy way, even for somebody who is not computer-savvy. Like, think about a 70-year-old or 80-year-old grandma walking up to the kiosk [to] be able to order, that requires not your typical text-based or radio-button-based UI, but more rich UI with graphics, where they are pretty much playing with images– that prompt them, that up-sell them and cross-sell. At the same time, that UI or that information, that application has information about [a] person, as well. So, when I log in, it says, "Wow! Moin has bought a lot of things, so now I know what he buys in general, he is a gadget person or he is an apparel person, I need to cross-sell him." And that's becoming key, is that… provide rich user experience, provide custom… customized experience, along with the intelligence used behind the application.

Ron Jacobs:   You know, kind of... I remember a few years ago, I saw a demonstration that Starbucks had done, a demo project, where they wrote down... You know, I could go in and set up, like, the kind of drink I like to get from them almost everyday, maybe I have three or four of them, you know, and then when I am in my car on my way to Starbucks, I can, you know, dial up or go through a Web interface or something, and say, "I want my number 1 regular today." Then when you get there, it's, like, ready and waiting. Now, that would have been huge, I would have loved that... but... but I don't think they ever did it or rolled it out. Maybe it wasn't quite... Maybe it was too visionary.

Moin Moinuddin: They know…… Actually, I think it was kind of ahead of its time. Technology wasn't there quite yet, I think you will see it come back again, now that especially you are having mobile devices much more capable with the smart phones or CE-based devices… You… Now, people are able to use it more… I… I think it's come back, it was just kind of ahead of its time… It was during the dot-com boom days when, you know, anything and everything people thought was, you know, hyped… But I think it is gonna come back, and you will see that experience again, probably will pick up much more. And it's already happening, I would say, in Europe much more than in [the] U.S., but it's just a matter of time here.

Ron Jacobs:   Well, I think you are right about the mobile devices, because actually I just picked up--finally, about a month ago--this Palm Treo smart phone.

Moin Moinuddin: Oh, cool!

Ron Jacobs:   And this thing is great, because I can do... It finally has a usable Web interface, you know, most phones I had before the Web... You can browse the Web, but you don't want to. This one, actually, you can do it. I can see my e-mail on it, and that sort of thing now. I am just picturing, if I was in a store or maybe a Starbucks-like place or fast-food place, and there is a big, long line of people...

Moin Moinuddin: Sure.

Ron Jacobs:   ...if I could just, you know, flip up the browser on my phone and log in and go, II want this," and then somebody from behind the counter goes, "Hey, Ron! Your drink's ready!" You know? I would be sold in a minute. I would love that. That would be... And it would be very doable from this kind of phone.

Moin Moinuddin: Yeah, yeah.

Ron Jacobs:   Now, as I talk to people who especially look at emerging markets like Asia and other places, they are telling me a lot more people are going to access the Web over a device like this than they are over standard PC.

Moin Moinuddin: Absolutely right. China, for example, right? A standard PC is much more expensive for a consumer to reach, compared to a device like what you have in your hand. It's much more easy for them to use, and that will be their main source of getting to the Web. And, in fact, retailers want to tap into that. For example, retailers want to use maybe a RFID or opt-in, where you can say, "If I walk into a store, I want to be recognized as me—Ron, walking into the store." With that, they can provide… They can alert the manager saying, "Ron is in the store," so that he can greet you, meet you, and try to sell you on new things.

Ron Jacobs:   Well, in fact, this phone is broadcasting my location.

Moin Moinuddin: Absolutely, it is.

Ron Jacobs:   And I turned it on, so you want the privacy thing, you can turn it off, but that would be very cool... If I walked into a store and the store said, "Here comes Ron, you can see his phone"... You know... "Get his drink ready, because he is here," right.

Moin Moinuddin: Yeah, yeah, absolutely… I think you will see that coming. In fact, we have a nice video, I think I will put a link on my blog to it, about… What we have shown is, a consumer walks into a store, a store like Target store, for example… And he or she opts-in and her shopping list is displayed to the sales agents in the store, because she has agreed to share her shopping list. Now, they are able to come up to her, not only help her shop better, but they… They also know her history of buying pattern, and now they are able to offer new deals or cross-sell her new things or up-sell her new things. So, she is happy that she is getting a customized experience, retailers are happy that they are able to sell more than they would have in a normal instance, and I think it's the best… good thing for both of them.

Ron Jacobs:   OK. So, they... I mean, the thing is, in the retail business...

Moin Moinuddin: Sure.

Ron Jacobs:   ...there's tremendous competition, price pressure from every side, and so, to survive in that business, you've got to find the way to eke out the profit where you can...

Moin Moinuddin: Right.

Ron Jacobs:   ...right, without annoying people. So, there is a lot of amazing science that goes into this, you know, a lot of business intelligence looking at what kind of buyers buy what kind of things and then appealing to... So, you know, it seems to me that if you built these kinds of systems, they are gonna appeal to the kind of buyers that you want, you know, not the kind of buyers who are, like, "Show me the clearance rack! I am gonna buy the cheapest possible thing!" but the person who wants that... that better experience.

Moin Moinuddin: Right… Right… Exactly right… I mean, that is the whole, you know, the price-management art behind the retailing is that "How do you… How do you target what kind of prices?" so that (a) you remain competitive, (b) you are enhancing your profits or increasing your profits, while not compromising your own brand. That's always the big art behind it and… and retailers have different types of systems in place, the whole PIM, which is called "price-information management" to make sure that for a particular location, you know, for a particular brand in the store, the item is priced right, because they know that demographics of the consumers for that store, and that's what they need to target. And that's where we bring unique capabilities, you know. Microsoft has a huge ecosystem of partners who provide solutions in this area, and that's where I think we have unique opportunity, because SQL Server, especially with its 2005… you know, capabilities, has come up as a really… a good BI… a good BI tool where you can look at the sales data and look at the trends, and then change your prices or change the inventory, based on what is selling or what is not selling. So, these are some unique capabilities that we bring to the retail business.

Ron Jacobs:   You know, it's interesting, because when I think about every retailer kind of has their strategy.

Moin Moinuddin: Sure.

Ron Jacobs:   And... Oh, say, like a Wal-Mart, right, right. Their strategy... They say like, "Lower prices every day," that's their strategy, they are going to drive the price down to the bottommost, low as they can get it, and they are going to make money by, by driving a lot of efficiency in their supply chain and their... Their whole warehousing and distribution networks are amazingly famous for doing that very well. But then you look at a Starbucks, who absolutely does not compete on price. In fact, they are gonna charge you a really high price. (Laughs)

Moin Moinuddin: High price. (Laughs)

Ron Jacobs:   And they are gonna make you feel good about it. When you leave there. (Laughs)

Moin Moinuddin: They are… They are going after the service, really.

Ron Jacobs:   And, and the environment, the feel of the place, it... It is a cool place... You wanna be there.

Moin Moinuddin: Yep, exactly right… It's more a brand, the service and the customized service that they provide, really, to say, you feel good and… And you kind of display the cup in your hand, saying "I… I drink from Starbucks," right? (Laughs) So, that's the whole idea behind that.

Ron Jacobs:   Yeah, I don't go to that cheap little place on the side of the road, man, this is... But, see, the thing that is interesting about that is that as each retailer evolves their strategy for how they are going to make money in the marketplace, these strategies all need, you know, the support of the IT systems that are gonna give them the information they need to make their strategy work.

Moin Moinuddin: Absolutely right… I mean, retailers, especially if you look at their… their retail landscape, right, they are facing demanding customers… So, customers are becoming more and more demanding, because now, because of broadband, customers are more educated… They are aware of alternatives, right? They know if they don't get a good service here, they can go to another store, they are very well aware of it. Second is, globalization is bringing competition… new competition. For example, Tesco, which is a large European retailer, is coming to America now, which is really a scary thing for local retailers… Here is, like, Tesco is a well-known brand, and it's very famous for its efficient supply chain and… And it's a huge retailer… Now, they are entering into the U.S. retail… It's already [a] pretty tight business market here, now you have this huge competitor coming in. On top of that, you have logistical supply-chain problems because, you know, if the manufacturing is moving away from local to far away in the East, you know, Far East Asia, how do you manage your supply chains so that (a) you don't have out-of-stock situation in your store, (b) you don't have [a] lot of inventory in the back of your store lying around? So, you need to make sure that you intelligently map… You know, it's… Analysts have termed it as demand-driven inventory management, which is, you drive your inventory or you manage your inventory based on demand, not just by somebody walking in on the store with a sheet saying, "Oh, I see some gap here, that means I need to order some soap," or "I see a gap here, I need to order some pet food"… No, it is really based on your sales data, and it's done in a real-time manner. And that's where IT plays a critical role.

Ron Jacobs:   OK, so let's talk about one of the really big disruptions that we see happening in retail, and... and manufacturing. RFID! Now, I am not really up on this, OK, but I know it's something like these stickers that you put on stuff that kind of sends out... But it's really amazing technology, because it sends a signal, but it doesn't have any power source of its own.

Moin Moinuddin: Exactly.

Ron Jacobs:   How does that work?

Moin Moinuddin: Yeah, that's… That's… You bring in… That's a great question. I want to little bit elaborate on that, is that… That is a simple example of emerging technologies… how they are disrupting the whole value chain or the whole retail business… Because RFIDs a good example, then you have the whole mobile area, then you have the broadband or Web multichannel area that's… All of these technologies are disrupting how traditionally retailers used to operate. So, now let's get back to RFID. RFID, in a simple term, is basically a chip, a simple chip or an IC, or you can call it… that is embedded in a sticker or in a tag that you put it on an item. And there are two types of RFID tags, it could be an active tag, which means it's constantly transmitting certain information, and if there is a reader it can pick it up, or this passive tag which… which… it sleeps, unless you ping it, so you… A reader says, "Hey, wake up, give me what you have in stored," and it will wake up and give you the information… to the reader, basically. So, these tags have huge potential, especially in the supply-chain area. So, what happens today is when a pallet pulls in or a truck pulls into the warehouse, and they are unloading the truck, somebody is walking around each pallet with a handheld barcode scanner reading each pallet, and walking back, you know, to the docking station or a workstation and transmitting that information or moving the information into the workstation, and then it gets transferred all the way into the system. That's a lot of manual steps here, whereas RFID, what it can do is, if you have a reader in the door… Let's say, you know, docking door… When the truck pulls in and pallet is down… unloaded from the truck, that information is immediately read by the RFID reader and transmitted instantly to your server in the back room. And that can trigger all kinds of workflows and alerts a manger can be notified, saying, "Hey! Truck has arrived and the items you are looking for [have] arrived," and he can tell his, you know, floor guys to say, "Hey, go load up" or "Put it on the shelf" or whatever he has to do. He can immediately work on it. Not only that, now you have inventory updates in real time, so that really helps in management of inventory and supply chain for a retailer, and Microsoft, you know, as always, tries to be, you know, ahead of the… in the emerging area, and we are building a RFID middleware in this area, which… It can help the retailer or supply-chain vendor to build on it a complete solution, where you can plug-in different readers and provide, you know, a great solution, you know, from end to end in a store, to manage the supply chain.

Ron Jacobs:   You know... So, when I think about the areas that really cost retailers a lot and, lot of their expenses and the personnel... the people that run the store, right, and the employees, and I can just imagine, you know, round inventory... For a store with thousands and thousands of items on the shelf, you know, keeping track of what they have, what's coming, what's going in the... whole inventory process... has got to be a nightmare and, you know, sometimes you see... Just the other day, I went to go to a store to buy something, and there is a sign at the door, you know, "Closed at noon for inventory." So, you could see inside all these people working, and you are going, "Not only did they have to bring everybody in, but they had to actually shut down the store during regular retail hours," which... This was a small store, the big guys don't do that, but... But I am thinking, this is an area where something like RFID would be huge, because you could just walk down the aisle with some kind of a scanner, and it would be getting feeds from all these things that were on the shelves and saying, "Here is what's on these shelves."

Moin Moinuddin: Yeah, absolutely right. In fact, I don't even have to walk around with a reader. What you do is, you provide a reader in the shelf itself. So, when an item is picked up by a consumer, the reader in the shelf immediately updates your server in the back, saying, "Hey, one item is less from the shelf." Now, what you can do is put a threshold to, say, when certain… an inventory of an item on the shelf falls below a threshold, let me know, the store manager, or the, you know, floor clerk or whoever it is on the floor employee, and he or she can go back, pick up from the back room, and reshelf the items that are low on the inventory. So, this is really already happening. For example, I think one of the razor… Gillette… There, if you look at Gillette, pretty expensive razor blades, they have… They range from $10, $20, $30, $40 dollars, and they had huge problems in terms of managing their inventory, they are expensive items… People can walk out and not pay for it, so they started putting RFID tags with a reader in the shelf. So, when somebody picks up a razor, not only does it update the server about inventory, but it also notifies the manager that somebody has picked up a razor! It's up to the manager, of course, to check on every one of them, but he could ignore, but at least you have a real-time inventory update happening, saying, "I am selling these razor blades, I am low on the razor blades, I need to go reshelf the razor blades." So, that really gives you a real-time management of inventory within the store.

Ron Jacobs:   Yeah, and I would imagine that these are the kinds of things that lead them to avoid the situation like it happened to me the other day. I go in the store, they got this great sale on something, right... great sale... I go over to their empty shelf, there is nothing there, and I am thinking, well, I don't know, maybe they are glad for that, maybe they are, like, "Wow! We have really taken a beating on that, glad they are all gone, because we are not going to sell any more of those." Or, I don't know, maybe they wanna sell a lot more, because I think they hate to have an empty shelf.

Moin Moinuddin: Absolutely… I mean, this is the most… You bring out the most common problem in the retail, it's called "out of stock." So, according to analysts, 17 percent of the consumers who go to the shops return with a bad experience, because the item they are looking for is out of stock. It is sad that you go… drive all the way to the store, you are really enthusiastic about picking up, you know, a particular item– that is out of stock. Retailers hate, I mean, they understand that that's a bad consumer experience… They want to do everything they can to minimize that. And that's where a key solution they can go after is the RFID-based supply-chain management, where they have a visibility into the store shelves to say, "Hey, how many items are on the shelf? And if the items on the shelf fall below certain inventory level, I should be notified so that (a) either I can reshelf it or remove the signs that are trying to promote that item," which is I don't have, maybe, you know. So you are… you are… You are ahead of the actual inventory level, as opposed to providing a bad consumer experience. Because next time, you will just hesitate, I mean, you are like, "Oh, that store is always out of the umm… stock, so I am gonna go to this other store," because now consumers have options. They have many… many more alternatives, it's just a matter of 5 miles this way or 2 miles that way. It's… It's all about that, so they need to differentiate that by ensuring that they provide a better consumer experience, so that consumers keep coming back and they build a loyal consumer base.

Ron Jacobs:   Well, when you think about it, I mean, in the... in the... Because of the thin margins and the competitiveness in the retail industry, you have to make a lot of bets, if you will.

Moin Moinuddin: Sure… Sure.

Ron Jacobs:   You know, how many of those are we gonna sell? If we are gonna offer them for a big discount, we are gonna have to get a good purchase price from the manufacturers, so we are gonna have to buy big lots of them. So you are making big bets and... And, so, when I go... You know, the other day, I was at this clothing store, and a big clearance sale was on, right, and amazing deals. I mean, I got a pair of pants that would have been $50 normally. I got them for $10, right, and I am thinking, "This is a retailer who made some bad bets."

Moin Moinuddin: (Laughs)

Ron Jacobs:   They ended up on the clearance shelf, because they got to get rid of them. Now, they are willing to take whatever they can get for them, right?

Moin Moinuddin: Absolutely, yeah.

Ron Jacobs:   So, in that business, they have gotta have good information to help them to make right bets.

Moin Moinuddin: Absolutely right. I mean, two points you bring out… very good points in this… in this question, one is the edge, which I will get to in a second; second is information analysis, right? It's all about ensuring that you have real-time information at the right time, so that your merchandising manager sitting at the corporate is doing the right decisions, right, taking the right decision. He is not ordering the pants that are not gonna be able to sell in this store, right? So, he needs to (a) understand overall sales patterns, overall demographics that a store is in, and also the demand. For example, if you order lots of, you know, winter clothing in the summertime, you are surely going to have a lot of inventory in the back room, or trying to get rid of them at less than normal price. So, he has to have visibility into that, and that's where I would say real-time data movement comes into picture, because typically what happens… Retailers have… Large retailers have 500 or 600 stores, and they need to get that data in real time, so that the people who are sitting in the corporate headquarter and ordering these items from halfway across the world are doing… making the right decisions. And that's where I would say BI or the analysis part comes into the picture. So, second part of the question you had was the edge, that is what I call edge, is the stores or maybe the, you know, storefront or Web front, that's where actually the consumer interaction happens. It's becoming very critical that the people on the [sales] floor have all the information they need to make the right decisions. For example, if they are… If they are seeing certain patterns, they need to notify the people at the corporate office, so they are making the right decisions. So, the edge needs to be more armed. That's what I recently spoke at a conference about, the importance of edge. That is, consumer interaction in retail really happens at the edge. I am in the store, and that's where I am buying something, that's where I am talking to a sales agent. I am not talking to the merchandising manager sitting in the corporate headquarters. So, it is important that salespeople on the floor are armed with the right information and have means to provide the right information back into the corporate headquarters, so that the people there are making informed decisions.

Ron Jacobs:   See, you know, in the old model, the merchandise manager, you know, gets a report maybe 3 or 4 weeks after the fact, you know, and then they are trying to make a decision and then... The things are moving a lot faster than that now, they need much... like you kept saying, real-time... real-time... We got to get real-time information.

Moin Moinuddin: Near-real time. I mean, the real time is a pretty aggressive goal to have, but even near-real time… What typically used to happen and is changing, but it's not there yet is, stores do the sales transactions all day and they store it locally, and at the end of the day when the store closes, they would create a big file or a big data file and upload it to the corporate. So, imagine the corporate systems downloading all this sales data from 600 stores, and then it will take another 48 hours just to process, because the volume of data that comes in at the end of the day is huge, and after 48 hours is when the reports are ready for [the] merchandising manager to go through the report and say, "Oh, what are the items I need to order?" That is late for this kind of world we are living in today. They need to be able to make that decision in real time, almost in real time. I.e., if an item falls below certain inventory level, our store systems need to inform not only the store manager, but also inform the merchandising manager, that he or she know that if they need to order something they need to order it immediately. So, the data movement is becoming extremely critical. Of course, there is broadband helping to some extent, but the legacy systems are still an issue, where they are not able to keep up with the, you know, the real-time information that is coming in.

Ron Jacobs:   You know, I... I read an article about Wal-Mart, and one of the things they said in there is that Wal-Mart requires its district managers from all over the United States to fly to Bentonville, Arkansas, like every week, and they meet on Saturday morning. OK, and they go over the figures. And they were saying, "Why Saturday morning? Why don't you wait till the following Monday?" They said that we wanna have all the changes to the merchandising done by Monday morning, so that the plan is in effect Monday morning. So, they actually think that the time difference of waiting over a weekend is that important that they are not willing to wait, they are going to meet Saturday morning!

Moin Moinuddin: Saturday morning, I mean, Wal-Mart has one of the best solutions in place… I mean, because they are really the trendsetters in the retail business, they have near-real time solutions in place. For example, Wal-Mart knows when you buy an item at a Wal-Mart, let's say in Renton here, you know, 10 miles from here in Renton, they would be informed in Bentonville immediately, almost immediately… within, I would say, 10 minutes that Ron has bought this from this store. That's kind of the data movement they have in place, and that's the kind of the, I would say, bar that the rest of the retailers are trying to achieve, so that they can get to a place where they reduce the out-of-stock experience for an end user, really… That's what they are trying to… Because retailers have [the] challenge [of] getting the people into the store, they don't want to turn them around and send them back empty-handed. So, the key is to make sure that when somebody walks in, they don't ever leave empty-handed, and the way to do it is provide the good user experience; maybe through self-service kiosks we were talking about; maybe through store terminals that are talking about, you know, providing information on products; or maybe through better-informed sales force that knows who you are, it knows what your buying pattern is, and it knows what product you are looking for, and it has information about products.

Ron Jacobs:   OK, so, to just kind of wrap up... We kind of... We have gone all over the map here, right? But you've been actually... Your job here is to think about: How do we take the platform, the technologies that Microsoft has and is producing, and apply them to this very challenging space of retail?

Moin Moinuddin: Yeah, absolutely right… So, my job is to really talk to or focus on retail vertical, especially the technical decision makers… They could be VP of supply chain or a CTO or an architect in retail… Help them understand what kind of capabilities our platform has that they can utilize to build the next generation solution, may it be the self-service kiosk that they plan to build, for example, or may it be the supply-chain solution that they want to build, and how can our platform help them in building it. For example, one of the things I am looking at is Office 12, right? The capabilities it has is ideally suited for retailers in doing an enterprise collaboration. For example, use a SharePoint portal within the store for employees … are not only able to get real-time information about the promotional items, but take online training and also provide feedback on what they are learning in real time to the corporate systems. That's one way. Second way is collaboration with supply chain—sorry, collaboration with suppliers—that they are able to use SharePoint Portal or Office 12 portals to collaborate with suppliers using some standards… industry standards. So, those are some of the guidance that I plan to provide. Pretty soon, you will see, we plan to launch MSDN retail-specific site where you will see a lot of technical content that we plan to publish about the capabilities of our platform and also examples… some reference architectures on building solutions around this.

Ron Jacobs:   Well, I am definitely looking forward to seeing that, and I am sure the many customers that I have run into, a lot of them actually who do retail business, and I am sure they are gonna be eager to see it, as well. Thanks so much, Moin, for joining me today!

Moin Moinuddin: Thank you. Thank you, Ron. Enjoyed it.

Ron Jacobs:   Moin Moinuddin, ladies and gentlemen! (Cheering) Yeah! Wow, I am telling you that retail business... challenging business... business that really needs information. I think, if you're gonna succeed in retail, you have got to have the right information to make the right decisions very, very quickly, because there is so much competition and so much pressure, and if you get into competing on price alone, man, you are just... You are in a tough spot, man. You'd better drive ruthless efficiency, which is, you know, what Wal-Mart has done. But, hey, we are here to help, we are here to help you figure out the right way, the best way to leverage this platform we are building here at Microsoft to help you. And listen to ARCast, so that you can find out more.

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