NRF 2020 - retail must take back control of its digital future, says Microsoft's Nadella as IKEA cuts loose from Amazon

Profile picture for user slauchlan By Stuart Lauchlan January 15, 2020
Summary:
"You cannot be cool by association with a tech vendor." Retailers need to build out and skill up their own digital stacks and not depend on third parties, such as a certain online behemoth...

Satya Nadella

Following in the footsteps of Nike and Birkenstock, Swedish flatpack giant IKEA chose the eve of the NRF show in New York to confirm that it was cutting loose from Amazon - and if Microsoft CEO Satya Nadella has his way, it won’t be last retailer to do so.

In practice, IKEA had only flirted with Amazon, having joined a limited pilot program in the US back in 2018. That’s now ended and there are no plans to take it live or for IKEA to sell its goods on the Amazon marketplace. Instead it will focus on its own digital ambitions, possibly including, according to unconfirmed scuttlebutt, its own online marketplace.

The vexed question of how to operate in an Amazon-world is one that has troubled many retailers, as diginomica has noted many times. Some co-exist - Kohl’s is a prime exemplar; others want nothing to do with online behemoth - see various luxury brands passim. It’s a problem that’s not going to go away anytime soon, with the allure of a global platform providing a route to market competing with the wider concerns about opening up your customer base - and its data - to a third party aggregator.

Last year Nike became the highest profile brand to distance itself from Amazon following its own pilot partnership. Just before Christmas, outgoing CEO Mark Parker expanded on the reasoning behind the divorce:

We have a clear framework for partners in the digital space, and what's guiding us is really to be in the path of the consumer in a way that's really right for the brand. We continue to see, just on a macro basis, great momentum with our partners, including partners like Instagram and Google and Tmall and WeChat. Brand is really what's important here and that's [about] building those relationships with the consumer through better presentation, elevated, authentic, consumer experiences on whatever digital platform. This means ensuring that we have an environment where the consumer can be certain that they're buying authentic Nike product from authorized retailers…That’s kind of led us to our decision in terms of moving forward.

In other words, Nike wants full control of its digital destiny, an ambition that will only be strengthened as a priority under the management of incoming CEO John Donahoe, formerly CEO of ServiceNow and eBay and whose tech industry experience has been flagged up heavily in anticipation of his new role.

Trusting who? 

The desire for digital independence is crucial in an industry that accounts for 31% of the world’s GDP, argued Microsoft chief Nadella in an expedient pitch to delegates at the National Retail Federation (NRF) jamboree in New York. The IKEA news couldn’t have broken at a more convenient time - cynical eyebrows may have risen quizzically -  as the retailer is (a) a Microsoft customer and (b) a strong use case for a wider thesis espoused by Nadella.

Take away the more high-minded wording and that thesis basically boils down to - don’t trust your digital retail future to Amazon.

There are  40 petabytes of data generated every hour in the retail sector and it’s not just any data, said Nadella, it’s a “demand signal for the world”. That has implications for all retailers:   

In an increasingly digital world [success] is going to come down to one thing and one thing alone - your own tech intensity, your own independence when it comes to digital technologies.

What is tech intensity? Is it perhaps buying stuff from Microsoft? Well, yes, clearly there’s a barely-concealed sales pitch going on here and one that’s intriguingly counter to the as-a-Service messaging that’s dominated so much debate in the tech sector. Nadella wants retailers to buy in tech and skill-up in order to make optimal use of it, not sign up to a third party who will do everything for you:

It's not about taking away the art of retail in fact; if anything it's about reinforcing that core art of retail, that core operational excellence of retail, with tech intensity. It's got a couple of key pieces to it. One is how fast are you adopting the latest and greatest technology? The key thing you don't want to do is fall behind because you don't want to be in a place where you're reinventing the wheel. You want the latest, in fact if anything the commodity, technology that you can import into your company into your operation. 

But the most important thing is what's that proprietary digital technology that each of you can claim as your own? One of the key things I keep telling every retailer I talk to is you cannot be cool by association with a tech vendor. You have to be cool on your own. You have to really take pride in the digital capability you have built.  No press release with us or anyone else is going to do it for you. You will need to build your digital capability… It’s not about growing your dependence on us or any technology or any tech vendor community. It's helping you all build independence when it comes to digital technology

And just for good measure, there’s a dollop of FUD - fear, uncertainty and doubt - thrown into the mix:

Thinking through where your data goes, this is the way for you to protect so that your data just doesn't get leaked out. Remember in the AI world people don't even need to see your data to steal it. Just curve fitting on your data they can take out all the value. So some of the things you have to watch for in a world where some of the biggest aggregators also happen to be technology vendors, you have to make ask yourself the question  - who can you trust in the world going forward? And if you really don't have that transparency, I think that retail dynamics can be very, very tough.

Digital flatpack

OK, so Amazon bad;  buying tech from Microsoft (and others) good; developing your own proprietary retail tech best.  That’s the vendor angle. Where’s the proof point? In this case, the user exemplar came in the form of IKEA and its own digital transformation program. The Swedish retail group has moved 70,000 of its staff to Microsoft’s Teams software and plans to have the rest of the 165,000 global headcount up-and-running on the offering within a few months. The firm also runs Microsoft Azure and will be rolling out Office 365. So it’s a prime example of buying in Microsoft tech.

But it’s looking to take that tech and do its own thing, according to Kenneth Lindegaard, VP End User Enablement, Ingka Group of IKEA, as part of its ‘Store of the Future’ wider ambitions:

Basically, we want to meet the customer and we want to spend the time meeting the customer instead of doing a lot of the tidy work that is on the back side. So what we're doing is, we operate 374 stores in 30 countries and we're on a mission to create a better everyday life for the many people, so it's more affordable and more fitting in home furnishing solutions for everybody. It's again how can we create that better life and we can do that using our co-workers so it's just phenomenal working with them in creating that customer experience.

So basically we're changing everything. We're improving the whole customer experience and also changing the way that we organize. We're doing that to become more affordable and more relevant for the consumers, the customers that we have out there, but also to be more sustainable and positive for the planet. What we're doing is we're changing the way we engage with our customers, how we meet them and we knew that we needed to change that way. So we went from a very kind of a traditional way of empowering the co-workers out there and now have kind of enabled the full-blown modern experience for them.

To that end, IKEA has been on a mission to trim unnecessary ‘fat’ in its tech deployment. Lindegaard explained:

I’ve always been passionate about the ones that are using the technology out there and the ones who build it. The more people in between just kind of clutter it up. So what we've done now is working either ourselves in a way that allows it to be very much closer to where it actually happens.

We all know legacy systems. We all have them. They're very easy to hide behind. First what's super important is to think about the customers and think about the ones that are meeting the customers and that's what we do. That's who we engage with, those are the ones that we really work around and see how can we help you guys meet the customer in a better way. We've done that using Microsoft Teams, we’ve done that using a different array of technologies. It’s just so lovely that we could put people that know the tech together with the people that know the customers and then jointly we can enable them in a better everyday.

My take

This was an opportunistic address by Nadella, but hey, that’s part of his job and that's why companies pay to sponsor conferences. That said, there’s no doubt that he will have struck some chords across a retail sector still conflicted by its attitude towards - and response to - Amazon.

The vision he pitched of retailers tapping into tech to build their own digital stacks and prowess is a hugely appealing one, but for many organizations a hugely daunting one to execute on. The success stories in omni-channel transformation that diginomica has highlighted in recent years have one thing in common - they all started early. See Target as the main case-in-point, then compare and contrast to the likes of The GAP, Bed, Bath & Beyond or Marks & Spencer (M&S) to see what happens when you leave it too late.

Actually, on the question of whether digital catch-up can be achieved despite years of neglect, M&S will actually be a good use case to track as its high-profile partnerships with both Microsoft and online grocery platform Ocado kick in in 2020.

There is of course a further decision that needs to be made by all retailers. If you buy into Nadella’s ‘you can’t trust everything to Amazon’ mantra, the immediate next question must be, ‘Are you then ready to trust Microsoft instead?’. Make sure you can answer that one as well...