Retailing and the InfoBahn: Predictions and Advisories
Marcia V. Wilkof
Technology is dramatically and fundamentally changing industries and organizations. This paper is about the changes looming just on the horizon for the retail industry, in particular the clothing industry. It describes two visions, one of mass customization of clothing, the other of electronic shopping via video malls. Both technologies are described and some of the implications for the industry, relevant organizations and the consumers are explored.
In a recent address to the American Magazine Conference, Barry Diller, the chairman of QVC, described his decision to turn QVC -- the world's best-known electronic retailer -- toward software development:
It's only with patience that you can develop fluency in a new medium. Let me tell you what I mean. I have invested research and development dollars at QVC in a technology called Smart Agenting. Smart Agenting uses a computer to construct a profile of you -- your tasts, habits, your likes and dislikes. You build that profile by answering questions, endless questions with precise grades of sensitivity. Then, with that profile stored away in its microprocessor, that box does what none of us has the time and energy to do: it searches every corner of the information universe. It searches wide and targets narrow. It comes back to you in a split second. And it offers the goods and services, and information you want.
While it is common for us to think of retailing as the deployer of software technology developed by other organizations (and perhaps as the developer of software for its own internal operations), it is quite uncommon to think of a retailer as a developer of software for the broad market. Diller's decision to support a significant software development effort in a retail organization offers us a compelling and intriguing glimpse at a concept that is starting to gain currency in organizational design circles: the notion of a design center firm that, in the context of a large network of suppliers and manufactueres organized into a value chain, uses its unique and robuest understanding of a particular customer group and a particular delivery medium to control and direct the operation of that value chain. In the case of QVC, Diller's strategic intent is clear; to parlay QVC's mastery of the analog television medium as a channel to market into control over the next electronic channel to market for soft goods: the information superhighway, or, as well shall call it here, the InfoBahn. Diller's control over that medium, according to this strategy, lies in his control over the software that purchasers use to locate goods and services, particularly in the algorithms and psychodemographic assumptions that underpin the questions that the smart agent technology asks the purchaser in order to form an accurate picture of the purchaser's needs and desires.
This paper focuses on the area to which Diller's decision calls our attention: impact of technological changes that are looming on the horizon in the retail industry, primarily but not exclusively in clothing. In this essay, we present visions of what shopping may be in the 21st century, and raise squestions about the nature of the value chains that will serve the electronically-enabled retail customer to make these visions realities. We begin by describing the technology in use, and then explore its impact on the retail industry and the workplace.
Images Of The Future
Enter a Scantron store. Swipe your credit card, and enter a booth where, using both lasers and soundwave technology, a computer scans every part of your body, creating an exact image of each component, imperfections and all. Outside the booth, collect a small form-factor card with digital models of your body image stored in it, as well as the software required to display, from any angle, this data in aggregated form -- as an arm, a head, or a body -- on your personal computer.
Mass Customized Clothing
Go to your favorite retail clothing store to pick up a new suit. Using the store's computer system, select the suit style and fabric that suits you. Test an electronic mock-up of the suit, built on the fly by the computer, against a variety of accessories: shirts, ties, belts, shoes. Enter some information about your preferred fit: slightly big in the shoulders, tight waist, somewhat long in the legs. Insert your body image card in the computer system, and view yourself in the suit. Click a single button, fill in delivery instructions, and transmit the entire data set -- suit style, fabric choice, your digital mannequin, and your epersonal digital signature and electronic bank account information -- to a manufacturer's factory, where your job is queued for computer-integrated manufacturing (CIM) systems that, within 12 hours, have produced your suit to specification. Within 24 hours, via overnight shipping, the suit has arrived where you asked for it: your home, your office, or the next stop on your two-week business trip.
Turn on your TV and flip to the "video mall" channel with the remote control. Using a wireless keyboard and mouse, drive across the InfoBahn to your favorite electronic mall. A tops-down scehamtic of the mall, showing the electronic store layouts, appears on your TV screen. Click a button, and a list of the stores, sorted by type, appears in place of the schematic. Click another button, and you start a slow-paced "walk through" of the mall, glancing in the stores along the way. When you come to a store of interest, you "turn" into the store and browse around until you see an item you're interested in. You then click on the item, the TV screen fills with a rotating, three-dimension image of the product. You decide to purchase it by clicking the button at the bottom of the TV screen maked "BUY." The TV's set-top box transmits your digital signature and information about the store to your bank, which in turn uses electronic funds transfer (EFT) technology to cut a purchase order and send it to the retailer, with advisory instructions designating your home address as the ship-to point.
The Future? Or The Present?
All the technologies used in the scenarios described above are commercially-available today.
Laser technology for body mannequins costs between $250,000 and $450,000 for a laser scanner, depending on how much of the body is to be scanned. Several organizations have been working on this technology. According to Joseph Ott, Managing Director of the Textile Clothing Technology Corporation (TC-Squared), their version is an eight foot square booth that has lights and cameras in each corner pointed toward the center (Charles, 1994). People would put on a white tight-fitting body suit so that computers can calculate their exact shape based on how the light falls against their bodies. Clothing is then custom-made to fit.
PCMCIA technology for personal computers allows between 2 and 10 MB of digital information to be stored in a device with a form factor of a credit card, and provides a standard interface for connecting such "credit card" devices to any computer system.
Levi-Strauss announced a program in the fourth quarter of last year that might be a benchmark in mass customization and customer focus, and a harbinger of the future of retailing. In a nutshell, Levi-Strauss announced that its customers, by the end of 1995, would be able to walk into certain retail outlets, have their lower bodies scanned by laser, and, from the measurements captured by the scanning equipment, have a custom-cut pair of Levi's made for them. Furthermore, Levi-Strauss announced that whenever a customer who had been scanned needed a new pair of jeans, that customer would be able to call a toll-free number and request a new pair of pants. The catch, and it was a subtle one, escaping almost all the commentators who covered the announcement, is this: the customer must always go to the retail outlet where the initial scanning was done to pick up the custom-cut jeans.
Electronic Mass Customization
The integration of computer-integrated manufacturing environments with the Internet is already in the late existence-proof stage. It is already possible for example, to get custom-built integrated circuits or machined metal parts developed and delivered in a matter of days by sending special instructions, in the form of a mail message, to Internet-connected CIM environments at various US universities. The specified components are manufactured and shipped automatically.
There are today over 2000 digital malls and retail outlets using World Wide Web technology on the Internet alone, selling everything from cars (http://www.dealernet.com), car parts (http://www.teleport.com:80/~carparts/) and real estate (a href="http://www.fractals.com/realestate.html) to men's suits (http://www.clark.net/pub/menswear/suits.html), perfume (http://infoweb.net/perfume/) books (http://www.bookwire.com), music (http://www.voyagerco.com) and marital aids (http://www.bianca.com).
Although placing an order over the Internet today is a risky proposition, involving the exchange of credit card information in unprotected ways (Lang, 1994), there are four standards for secure digital currency proposed and two of the four are currently operational on the Internet. Microsoft and Visa International will offer a fifth when Marvel debuts with Windows95 (Murray, 1994). Mosaic Communications, developers of the most popular commercial interface to the World Wide Web, has entered into an agreement with MasterCard to implement the payment protocol described in the video mall example above, with likely commercial availability in early 1996. It is expected that a de facto standard for digital currency will be established by the end of 1996.
Reliable, secure digital signatures are already possible For example, Pretty Good Privacy (PGP), is available free on the Internet, and has about 250,000 users worldwide today.
Andersen Consulting's retail division has opened The Retail Place, a demonstration facility targetes at its retail clients that exhibits alternative technologies of the future (Holton, 1994). The home shopping station, set up as a living room, gives people the opportunity to interact with a "video mall." A remote control moves the mall; the consumer can "walk" down the corridor clicking on stores they are interested in. They then get fully animated descriptions of the store's products. Andersen believes that customers would identify a product they want to purchase, enter their credit card number and indicate where they will pick up the product or where it should be shipped.
Nordstrom offers its customers today a 24-hour electronic-mail (e-mail) shopping service. A collaboration between Nordstrom's Seattle, Washington branch, MCI Communications Corp., ConnectSoft, the service, dubbed Nordstrom Personal Touch America, or NPTA, provides "personal shopper" assistants and a two-day Federal Express delivery of the selected goods. The new service accepts Nordstrom's in-house credit card, Visa, Mastercard, and American Express.
There are of course, all kinds of technical and human barriers that prevent the rush to the world we have outlined above. For example, Time Warner's Full Service Network trials in Orlando, Florida have cost $750 million just to wire 4,000 homes, and estimates are that equipment will cost several thousand per household and wiring several thousands more (Shiver, 1994). Similarly, noteable early network-based e-malls like MecklerWeb failed utterly to stimulate the level of digital revenue they expected (The Wall Street Journal Oct 20, 1994 pB7(W) pB7(E) col 3).
Given the expense associated with readying television as a platform for interactive shopping, given a decided mismatch between the socioeconomic groups with high levbels of disposable income, and the socioeconomic groups for whom television shopping is appealing today, and given finally that the InfoBahn is up and running today, and used by the sociodemographic groups with the highest levels of disposal imcome, we believe the networked personal computer is a more likely platform for interactive shopping.
The Infobahn As Electronic Marketplace
Ultimately, the InfoBahn is nothing more than an electronic channel to market, although it exhibits very different dynamics from the channels we are used to in conventional retailing. To get an idea of how large the consumer electronic purchasing market will be by the end of the century, consider these trends:
While the absolute numbers are not relevant and may be inaccurate at this juncture, and while telephone and cable companies' trials have been largely inconclusive to date, there is a whole set of younger, smarter psychodemographic groups going online. These groups have both the inclination and the wherewithal, in terms of disposable income, to purchase the majority of their goods and services electronically. And
children, who are the most computer literate of us all, will view this use of technology as an integral part of the landscape of their lifestyles, as they grow up interacting with Walt Disney and Random House multimedia software products the way a previous generation used books and board games.
In much the same way that many people do the vast majority of their banking through ATMs, finding it foolishly unthinkable to waste their time in a bank, today's children may very well have the same attitude about e-shopping -- why would anyone waste their time walking from store to store, getting undressed and redressed to try on outfits, when its easier, more effective and more efficient to shop on the InfoBahn?
We believe that the primary implications of the emerging electronic channel to market are those that affect the arrangement and power relationships in the retailing value chains that serve customers today, particularly the contenders for the "design center" of that value chain: the firm whose understanding of the market served places it in the position to control and orchestrate the activities of the other firms participating in the value chain.
The current value chain structure of the retail industry, in general, is that textile manufacturers design and produce fabric. These companies sell their fabric to apparel manufacturers who design and produce finished garments which, in turn, are sold to retail outlets. The impacts on this industry as a result of the new technology will challenge our conventional ways of thinking about and organizing the production and purchase of clothing, suggesting a range of "strategic advisories" to companies in this industry.
The best study of this design center model of retail value chains is Clark & Stanley's study of Marks and Spensers (Clark & Stanley, 1989). In that study, Clark and Stanley described an extensive value chain, driven by Marks and Spensers and including raw materials manufacturers, clothing manufacturers (both private label and brand), and the UK central government, all orchestrated by Marks and Spensers, whose intimate understanding of the particular upmarket it served gave it control -- full or partial -- over the activities of other value chain participants, control that was so complete as to threaten the economic viability of some of those participants. Commenting on the study, Clark and Staunton concluded that:
[The] example illustrates the case of existing chains which are the outcomes of past investment and foresight, but does not highlight how economic restructuring is altering those and providing new opportunities. Clearly existing chains are also political and power systems in which vested interests occupy certain positions. It must therefore be anticipated that new chains are emerging, especially across national boundaries.
Other much-used examples of retail value chains where the design center is held by the retailer include Wal-Mart and its much-discussed use of category management processes driven by its vendors, and the uses made by Benneton of GEISCO networking services to link its operations to those of its suppliers. But it is by no means the case that, in all retail value chains, the retail outlet chain unit is the design center; consider, as a case of the designer-as-design-center, Liz Calibourne's control over both the manufacturing elements in some of its value chain as well as the raw materials vendors who supply those manufacturers.
The fundamental promise of the InfoBahn -- a solution to the logistics costs problem in the traditional multi-tiered retail channel -- is undeniable. If, on average, recovery of the cost of moving made goods to the point of sale accounts for 50-75% of the retail price of an item, then the rationale for forward integration through the InfoBahn is compelling to every player in the value chain, from the design house and the manufacturer through to the wholesaler and distributor. The only factor mitigating against massive forward integration is the fact that historically the retailing agent firm has functioned as the designer center firm in the value chain: managing the analysis and definition of offerings based on its (relatively speaking) intimate understanding of customer needs.
So, what the availability of the InfoBahn and associated technologies does, generically, to the retail industry is open up, in a broad way, the battle for control of the design center of retail value chains. It allows both manufacturers and designers to forward-integrate, past their wholesale and retail channel elements, and touch the end-consumer directly in intimate ways. It challenges the retail outlets, traditionally in the bext position to command the design center role in the firm, to hold on to their control over the needs and tastes of psychodemographic groups. And, for all participants, it changes radically the cost structure of the retailing business.
It is too early to develop any comprehensive model of this change; we have no long-lived examples of successful eletronic retailing and only anecdotal evidence of firm intentions and programs. Nevertheless, we would like to examine some of the issues raised by this looming "battle for the design center" focusing on the technology, the industry, the organization and the consumer.
There are no significant issues around the availability of the technology required for retailing on the InfoBahn: all critical technological components are in place and operational. Instead, the technological issues are those of standardization and penetration.
The relationship between retail outlets and video malls. Retail outlets may want to form strategic alliances with video malls in the same way that some now have a catalog business or utilize home shopping channels. Early e-shopping malls based on World Wide Web technology have yet to demonstrate that such partnering synergy exists, however -- they function much more as electronic billboards than as actual sales outlets.
What we have tried to do, in this paper, is to spark discussion about the convergence of several technologies that we believe will change the way we shop in the not too distant future. To summarize the major points:
It is hard not to give into hyperbole, to proclaim ourselves on the cusp of a revolution as disjunction and shattering as that of the Industrial Revolution. One thing is certain -- like the Industrial Revolution before it, the InfoBahn Revolution will not announce itself. We should expect no watershed, no defining moment, no formal declaration that the age of electronic retailing has arrived. As with many of the technology-based markets, one insignificant event -- the last, anonymous, silent grain of sand in the balance -- will likely be enough to tip the scales quickly (and painfully) in favor of electronic channels to market. Some people would argue that that grain has already hit the balance -- in the past month the two largest players in the high technology market, Oracle and Microsoft, made significant announcements with respect to the InfoBahn. Microsoft declared, in typical fashion, that it intends to own the InfoBahn in toto, and Oracle Corporation -- the only firm likely to thwart Microsoft's world-dominance strategy -- announced that it will sell its software -- retailing from $50,000 to $350,000 -- electronically via the World Wide Web.
The authoritative source of this document is http://www.noumenal.com/marc/retail2.html