In a lab contained within his computer screen, eBags CEO Mike Edwards searches technology from more than 136,000 companies. Just a year into joining the Greenwood Village online retailer, he has tested a dozen and implemented eight.
“As a pure-play, I’m not really bound by traditional retail rules. We can try something on Monday and if we don’t like it, we can change it and try something different on Tuesday,” said Edwards, who comes from a very traditional retail background of Staples, Jo-Ann Stores and Borders, the latter of which he was CEO as it went bankrupt. “We are obsessed with how you act on our website.”
Stores of all sizes are investing in research and development of their own in order to compete with every retailer’s largest competitor, Amazon, which opened its first facility in Colorado in June. But even in R&D, it’s difficult to compete with Amazon, which spent a whopping $12.5 billion just last year. That’s more than the annual sales of Barnes & Noble, Williams-Sonoma and Pier 1 Imports combined.
But in the spring, Target partnered with Boulder’s Techstars on a business accelerator to groom technology startups. Toys R Us hired its first chief technology officer in May. And last month, Macy’s began testing “Macy’s on Call,” an artificial-intelligence system that uses IBM Watson to answer customers questions on a smartphone and learn from the experience to offer better answers.
In recent months, eBags.com tapped PCSSO, which suggests similar items if a product is out of stock. It rolled out technology from Thrive Commerce, which keeps coupon-code hunting shoppers on the site with its own deals page. And it added Yottaa, which improves the site for mobile devices. It’s currently supporting a Kickstarter campaign for Twyst, which is building a smart bag that pings the owner’s smartphone if he walks out of a Starbucks leaving his keys on the table.
Results so far? “We believe we have increased conversion and sales by 15 percent to 25 percent through these technologies,” said Edwards, who is working with Denver-based Iterate.ai to hunt for new tech.
Traditional retailers are continuing to fight for their life. Sports Authority didn’t make it and is near the end of closing 460 stores. From January to June this year, 750 stores have closed, which is up 27.5 percent from last year, according to Discern Investment Analytics, a retail consultant.
“Retailers are resorting to a few strategies to compete more effectively against Amazon,” Discern managing director Richard Church said. Those include tackling how shoppers switch between devices and physical locations, like mobile versus computer or home versus store — the omnichannel experience.
“The trend has become clear over the last several years — consumers are more price sensitive, if they don’t order online they are comfortable going to off-price channels for the same brands. Stores are once again reverting to smaller boxes and away from the large box, large chains are experimenting with new formats as a result, i.e., Target small box, Macy’s Backstage and Whole Foods 365 to name a few,” Church said.
The hope for Target’s retail accelerator is to mentor startups and also learn from them, plus infuse that spirit into headquarters, said Eddie Baeb, a Target spokesman. Two of the 11 startups, Revolar and Spruce, are from Denver.
“We’re a 57-year-old, Fortune 50 company and we’ve had a new CEO in the last two years. He was the first CEO to come in from outside of Target. We are in the midst of what we think is a very big cultural shift,” said Baeb, adding that CEO Brian Cornell, who came from PepsiCo Americas Foods, has hired technology executives from Amazon, Apple and Tesco. “Key differentiators are going to be technology and supply. That’s our new CEO’s focus in stores. Getting tech right.”
Target, which tapped Amazon to handle its online store until 2009, when it realized Amazon was a competitor, now lets shoppers order online and pick up at a local store. That service has rolled out to about 25 percent of its stores. Some stores are also now shipping orders to area customers. “It cuts shipping time in half,” Baeb said. “Order pick-up in store is already 15 percent of our online volume.”
Its Cartwheel app offers customers in-store discounts. It also lets shoppers scan an item with their phone to see if there’s a discount before dropping it into their cart.
“What’s remarkable is it’s all store sales. It really showed us the power of creating a convenient and great tool to let people personalize their own sales and offers,” said Baeb, adding that Cartwheel has found favor with a lucrative, young audience. “People didn’t think millennials would do coupons, but it shows that done right, they will.”
Amazon itself isn’t ignoring the physical side of this omnichannel. It opened its first brick-and-mortar bookstore last year in Seattle. And there are plans to open hundreds more.
“It provides a fairly clear signal that there’s a need for physical retail,” Church said. “Amazon even sees that, as do retailers who see there is a need to provide an online channel.”
Online-only stores have a different challenge. Like Zulily, whose Seattle headquarters are about a mile away from Amazon’s.
Zulily, which was acquired by Douglas County’s Liberty Interactive in October, seemingly popped out of nowhere in 2009 as a flash-sales site appealing to mothers. Each day, it starts and ends about a hundred different sales events that are based on a theme or brand.
But it quickly found appeal because it was different from Amazon. Luke Friang, Zulily’s chief information officer, calls that difference discovery-based shopping.
“It’s not so much that I need to get a stroller for my kid or I need new shoes for a party. But what’s new on Zulily today? What’s going on?” said Friang, who joined Zulily at the end of its first year.
On any given day, there are dozens of new tests running live that target select shoppers. That’s only possible because of its core technology, which was built from the ground up. That was a strategic investment that now helps Zulily roll out new features — or remove them — quickly, Friang said.
“In the very early days, we were using open-source solutions called Magento. That allowed us to get off the ground but when you think about how we operate, the feature set diverged very quickly,” he said. “Our business was growing at a very rapid rate. Technology had to be a competitive advantage. We didn’t want to run the same personalization that 500 other retailers were running.”
One new feature reminds mobile users about other sales. Mobile sales make up 60 percent of Zulily’s volume, but a phone’s real estate leaves little room for more than scrolling items. Zulily launched what Friang calls “interrupts,” which essentially look like an ad for a themed sale. By analyzing customer data, Zulily knows when interrupting a shopper’s scrolling is beneficial.
“We make sure you see the sales events, but we may not show you the interrupt because it wouldn’t make sense for you. It’s our technology. If we do something right, we can ramp up the investment very quickly. Or we can quickly disable it or turn it down,” he said. “As a mom is coming out of summer break and begins thinking about back to school, we want to be there.”
As for eBags? It relies partly on Iterate, which was co-founded by eBags co-founder Jon Nordmark. Iterate built a system to bring tech startups and retailers together and experiment fast.
But it also helps to play along with Amazon. Ebags went all in on Amazon Prime day earlier this month and saw the two days of sales volume outsell any other two-day period in the company’s 17-year history of third quarters.
“There was a belief over time for years that if you sell on Amazon, you’re never going to get the data on that customer. But if I don’t sell on Amazon, I’m never going to see that customer anyway,” said Edwards, who personally promoted Prime Day in videos for eBags’ Facebook page. “Nobody controls the customer journey anymore. They will buy wherever they buy. If you’re not in front of (the customer) when they want you to be in front of them, you’re just going to lose.”
