Where is the magic in retail today?

Karl Haller: A lot of the magic is happening at non-traditional retailers. Probably the biggest thing that’s happening — at least in fashion retailing over the last three years — is the growth of the flash-sale sites such as Gilt, RueLaLa, HauteLook, and Ideeli.

It’s almost like a blue-light special, where the retailer makes a good product from a good brand available for a limited time. It’s a great opportunity that no one was tapping into previously, and I’ve been amazed with how quickly these flash-sale retailers have scaled up.

Shawn Dennis: Maya Angelou said, “People will forget what you said. People will forget what you did. But people will never forget how you made them feel.” The most respected retail brands have high empathy quotients and certainly that’s what happens at American Girl.

We make the girl and the mom feel respected. We honor what’s important to them. And, basically, how we’re going to make them feel drives every decision we make. We are an immersive brand experience — we’ve got a café, photo studio, of course you can get your doll’s hair done.

It’s a multi-generational opportunity and experience and it pays off. Our average customer spends over one and a half hours in our store versus the industry average of 20 minutes. So, if you appeal to how you make them feel, you’re going to win.

Dan Flint: The magic is definitely not in grocery. That’s the place we shop most often but there’s not a lot of magic happening there. I’ve been looking at the luxury category and haven’t seen a whole lot of magic there, either.

Any retail environment can be magical when it is more hedonic, experiential and becomes part of the shopper’s lifestyle. At that point, retail becomes something more than just a place to buy something. Shoppers actually forget that they’re shopping because they are there to do other things, as well.

Paul Price: There is magic all around us at retail, sometimes in conventional ways. I look at what Dollar General, Save A-Lot and Extreme Value have been able to do against Walmart. They’ve taken price leadership away from a retailer that no one thought could be unseated from its price leadership. It’s magic to be able to do that.

If you’re familiar with Jungle Jim’s outside of Cincinnati — people will drive 50 or 60 miles to shop there. That’s a one-store outlet, but there is obviously a lot of magic there. You still have some magic at Costco with the treasure hunt, too.

What is the greatest missed opportunity?

Haller: This is a difficult question, but if I had to roll it all up, I would say that retailers, in general, are not keeping up with what their customers expect. Customers come into stores and expect the sales person to be at least as knowledgeable as they are about the products, but that isn’t always the case.

Shoppers are doing their homework before they get to the store and can continue to do so through whatever mobile device they bring into the store. We need to do a lot more work to figure out how to keep up with the customers, let alone being ahead of them.

Retailers also need to bring sales associates up to speed. They try to build relationships and emotional connections with shoppers, but forget that their associates have those same emotional needs. They approach their associates from a fact-based perspective and sometimes forget to try to instill a sense of passion.

Dennis: Today, customers are less loyal, more informed, more critical and harder to retain than ever before. Delivering a consistent, positive, emotional connection is something that all retailers strive for, but they are not all hitting the mark.

At American Girl, we know that our number-one marketing tool is word-of-mouth. We have turned our customers into brand evangelists; while most retailers have shoppers, we actually have fans. Because they are fans, they not only create the opportunity to be with us, but they also share their knowledge and their passion about our product to their friends and neighbors.

Flint: Value is in the eyes of the consumer, but for shoppers there is a missed opportunity to invite them into a conversation by involving them in how the stores are laid out and in customizing products for them. Shoppers are saying that if you let them personalize products, they will pay for that.

Retailers are doing that online, but in stores shoppers don’t get to put their own packaging together or bundle their own products or special deal. Shoppers want retailers to be more flexible, understand their problems, and work with them to find solutions.

Price: The biggest missed opportunity is informative customer service. It should be the easiest thing for just about any retailer to connect with their customers in their stores. However, too many retailers have people tripping over themselves to serve you, but they don’t really connect with you.

The opportunity to connect through customer service is especially big with younger shoppers, who need more information. Retailers have the opportunity to connect with them in places like the meat or produce departments, to help them pick out the best products and offer cooking advice.

What will be the biggest change at retail over the next five years?

Haller: The biggest change will be that everything is changing in a big way at the same time. Baby Boomers will give way to the next two or three generations. The competition will change, because any type of business that has a relationship with a consumer could extend into a retailing business.

With changes in technology, retailers will have to augment with web, mobile and whatever else comes along over the next five years. Delivering a seamlessly integrated experience across all those touch points represents a tremendous change and challenge.

Retailers will have to think on a global scale, while also thinking more locally. They will have to think more broadly in terms of opportunities for a given brand or store concept and more narrowly in terms of customer needs in different communities or groups of customers.

Dennis: The biggest change is the complete switch to becoming channel agnostic. The transformation of where shoppers are touching your brand — from how they research you, how they buy from you, whether it’s brick-and-mortar, mobile commerce, e-commerce, social network commerce — means you have to have the capacity to ship from anywhere to anywhere as a true multi-channel marketer and retailer.

Our experience is not that shoppers want to leave brick-and-mortar. They want to experience, touch and feel the product and have that magic that American Girl delivers. But they want to know that their purchase history is recognized no matter where they are.

The expectation is that there’s going to be one truth and it’s going to be customer-centric — not retailer centric, channel-centric or even product-centric. It’s going to be customer-centric. The mom — the purchaser — is sitting in the middle, and no matter where she wants to interact with you, the retailer, you’re going to be there for her.

Flint: We’re going to see a more sophisticated use of data, which is related to having more technology in the store, from checkout scanners to digital signage. Shoppers are also bringing technology into the stores themselves via mobile devices.

The challenge is, how do you analyze the data and utilize it effectively? It won’t be just store-collected data; it will be retail-related data that is shared by brands, as well. The big constraint will be the shopper’s comfort level with sharing and opting-in to certain kinds of data.

We’ll also see more two-way engagement with shoppers via social networking. We’ll see more smaller format stores, which will create greater intimacy with shoppers. And we’ll see more blending of online and offline shopping. Retailers will need to decide whether certain products are best sold online, in-store, or both.

Price: The number-one change is the move to digital. Big-box retailers like Walmart and Target have a substantial amount of their footprint dedicated to media — books, magazines, games and music. Those categories are quickly going digital, and that’s going to change the way they go to market.

We’re also at a point where the heavy-buying households are migrating from Baby Boomers to Gen Xers, and then Millennials. The Boomers are becoming empty nesters, which will change their shopping patterns, while the Millennials are starting homes. The way Millennials use technology will radically change retail over the next five years.

What will be the greatest challenge for retailers over the next five years?

Haller: The biggest challenge is how to create an environment where our organizations want to change, evolve and move faster. We really need to think about the internal change in the same way we think about external change. We really need to try to appeal to emotions.

The other big challenge is that you can’t do everything at once. At some point you have to pick the things that you’re going to focus on because they make more sense for your customer or your brand.

With the technology changes, sometimes you just have to go on a hunch. But it’s not necessarily about the tool or the technology; it’s about using them in ways that make sense for your business and your customers.

Dennis: The greatest challenge is that 360-degree view with one version of the truth — customer information, inventory, instantaneous customer recognition, having shopping history visible no matter where the shopper is, and seamless inventory.

The seamless inventory issue is not as big an issue for American Girl because we have a well-defined and relatively smaller group of products than some other retailers do.

But imagine if I’m Macy’s: The expectation is that if I’m looking for brown, leather gloves, size medium, that Macy’s can find them for me and deliver them wherever I want them delivered. That requires a pretty intense IT infrastructure.

Flint: Because each store will need to be unique and tailored to local tastes, supply-chain management will be the biggest challenge. Retailers will need to offer unique items on a by-store basis, which makes the distribution problem that much more complex. This will require retailers and manufacturers to work together more closely.

In addition, as regularly bought items move online, people will only go to stores for social reasons and the experience. This means that retailers are going to have to be as much entertainers and event planners as they are distributors of goods.

Finding good talent with a diverse skill set is another big challenge. Even new hires on the front lines will need to have an amalgamation of marketing and branding, sales or account management, business analytics skills. They will need an understanding of merchandising, operation and finance.

Price: Relevance and differentiation are the greatest challenges. Learning how to compete by providing more information and connecting with the emotion of the shopper is going to become as important as the transaction itself.

If retailers would do something as simple as put a sign up showing a mom and child baking and a caption that says, “bake a memory tonight,” that would be more engaging than a traditional promotional offer, which limits the engagement to a transactional level.

Which retailer do you most admire?

Haller: From a customer engagement standpoint, Lululemon does a great job. For just being great merchants in the apparel space, I admire Anthropologie and Urban Outfitters. What Macy’s is doing with localization is very exciting and I admire them for really committing the resources to do it.

I admire the retailers who do things differently, like all the flash-sale sites. I admire what Whole Foods has done by focusing on product while still buying regionally and trying to work locally.

Trader Joe’s does a great job of editing the assortment down and building excitement over relatively mundane products.

Dennis: I admire Amazon because the thread that has wound its way through my career has been the brand and the power of brand. I’m fascinated by how Amazon has been able to stretch its brand well beyond books and yet not lose equity. That’s pretty rare.

I also just toured the new Microsoft store in the Mall of America. I was very doubtful, but the store was hopping. I don’t know how profitable it is or how long it will last, but it was interesting to see Microsoft take a brand that’s as flat as a computer chip and turn it into an experience.

Flint: I admire a retailer that can transition from niche to scale and still manage to keep its core shoppers and consumers solidly in their camp. LL Bean has done that. They know their customers extremely well, and they also learn from their mistakes.

I also admire Ikea, because they understand how their target shopper shops and how they consume goods. They know what their price point is and they know that shoppers are willing to engage in a little bit of work to assemble their furniture themselves. Their stores are organized as solution centers.

They are also masters of supply-chain management. They engineer all the products such that you practically don’t need instructions to build them. And they standardize bolts, assembly components. This helps them keep their costs down from a supply/chain perspective and it keeps their costs down when they sell to the marketplace.

Price: I admire Kroger. Before the economy tanked, just about every Wall Street analyst said that Kroger was being squeezed between extreme value and upscale premium retailers. The analysts were exactly right, but Kroger did an unbelievable job of becoming relevant because of their “customer first” strategy.

Kroger took a very deliberate approach to stay relevant by understanding its customers and how to connect with them. They realized that if they put their customer first in everything they did — including the layout of their stores, the way they communicate to them, the offers and the pricing — then they could stay relevant with those customers.

Fast-forward three years later, and Kroger is one of the few big-box retailers that’s been able to sustain throughout recession, while other retailers experienced some pain through that same time period. You have to admire that they were willing to listen to the customer, understand them and then try to connect with the customer and stay relevant to them.

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