good morning and welcome to day number twoof microsoft envision. i'm doug hope,i'm vice president, content for emerald expositions. welcome, so we have a big agenda this morning that we're goingto absolutely rip right through. it's gonna move very fast, i don't want you to be afraidof missing anything though, because all the information yousee here is gonna be available
to you through envision. so we really are going todo all of these things. we're going to talk aboutretail and cpg, size and scale, trends and current state, therealizations, the opportunities, the hurdles, and then we'regoing to get to the panel after just a few short minutes. so, before we get into data and all the exciting factsabout the marketplace. i want to admit to you that ihave a bias, my bias is for
retail point of view ofshopper facing experiences. so why do i have that bias? i have it because it's my job. about 30 years ago, i was part of a two-person scenethat started a magazine called design retail, which istoday the leading authority on in store shopping experience,design and technologies. retailers spent spendsome $62 billion per year on these products andservices that face the shopper.
either technology is flooring,and lighting, and fixtures, and signage, andgraphics, and seasonal trim, and props, and decoratives, all these things you see inthe store that are not for sale. and then, five years later, 25 years ago, we launcheda trade show called global shop. which became, and is stilltoday one of the top 100 trade shows in the united states. there's 22,000 trade shows soit's a pretty big one.
and this is allthe products that we used to have just in our magazine. and we like to call this tradeshow a shopping spree for the retail designer'simagination. so here's 30 seconds ofwhat that event looks like. [music] so, if that looks like anexperience that you would like to have, the bad news is,we staged it two weeks ago. the good news is,next march in las vegas,
we're gonna do it again. so you'll have your chance. all right, so now on tothe big picture of retail. retail is a big industry,and just how big is it? well, forthe first time in 2015, retail hit the benchmarkof $5 trillion. to put that in scale, u.s.residential home sales of new and existing homes lastyear was $2 trillion. united states government budgetlast year was $4 trillion.
so, the numbers that you seehere are actually tracked by the government andupdated every 30 days. and one of the reasonsthey track it so closely is retail is biggerthan the government. it's the biggestindustry of all. and by the way, very healthy. in the past 15 years,since 2000, that number has grownby 72% as you see here. there are currently almost3.8 million store fronts in
the united states and about 90%of those, for those of you who think we live in a retail chainworld this might be surprising, but 90% of those doors are ownedby independent retailers. i should note that it's only25% of the revenues but we're gonna talk aboutwhy that scale matters. there is a lot of retailspace in the united states. we are the leadingbuilders of retail space. there is currently 14 billionsquare feet of retail space, to put it intoanother reference.
for every man, woman, and childin the united states of america, there is a 46.6 square footstore with their name on it. and that number hasgrown dramatically, 142% in 15 years since westarted the trade show i mentioned to you,there was 19 square feet. so, there has been explosivegrowth in the marketplace and if you read the headlines,if you fall for the clickbait orread the newspaper, this last statistic is probablythe most surprising of all.
and that is that 93% of retailsales are in the brick and mortar space. and why is that? well, if you look, why is it,you'd be surprised by, if you look at the headlines, there's 99% of the headlinesare dedicated to e-commerce. when, in fact, e-commerce isonly about 7.5% of the total retail volume in the u.s.and it's not growing anywhere near as fast asbrick and mortar retail.
in fact, in two year's time, in2018, e-commerce will grow only by about $50 billion and it willequal 8% of the total market. perhaps that explains why somany former pure play internet e-commerce retailers are nowbuilding physical stores with hundreds of locationsin the past year and hundreds more comingonline in the year ahead. it's not just because they'reonly getting a 7% play of the revenue, but also becausethey need to create experience, which is one of the underlyingthemes that we're gonna talk
about here today in the panel. so it is no secret, though,that the brick and mortar world, all retail is in disruption. we know that in the next fouryears we're going to see more change in the retail channelthan we've seen in the past 50. so, it's really changedthe outlook and the mindset ofthe retail industry. here's a few thingsthat are on the minds. one of them,an evolved focus on the priority
on path to purchase. there has been a focus onall the things leading up the in-store experience, andnow the focus is on the in-store experience itself,and rightly so. that's wherethe decisions are made. there's an entirelydifferent mindset now about the notion of showrooming andits sister webrooming. both the shopper and the retailer feel muchdifferently about it.
the smartphone is notthe foe of the retailer, it's the friend, orat the worst, a frenemy. there's this realization of thelong term dominance of brick and mortar dollars. there's an apparel segmentthat's absolutely being devastated. the leaders in the industry,former leaders like gap and abercrombie and fitch andj crew, are being completely disrupted by fastfashion companies like h and m.
uniqlo, zara, and now primark,invading and actually exploding in growth faster than any ofthose former leaders were. generationally, boomersare giving way to millenials. in fact, they just did, and we're going to talk aboutthat at some length. and then this suddenonslaught of devices. and this has really caught thisgigantic industry by surprise. to put it in contrast, retailers had 50 years of takingthe embossed credit cards and
either stamping on top ofthose embossments or sliding the across the embossments toget the credit card number. 50 years of it before they hadto adapt to the new technology of the magnetic stripe. and now, today, in a few shortyears, we've had to deal with as an industrythe onslaught of devices, a powerful computer in the handsof virtually every shopper. and then with technologies likemuirfield communication and wireless transaction, reallyjust months by comparison.
this is a giant industry of3.8 million store fronts, they can't adapt ina matter of months. so it takes some time andthat's one of the things we'll see happen inthe next four years. the bottom line isthe changes in the retail industry are beingdriven by two things. technology and the demographicsthat are driving all the changes in the market place. so here is the realizationsthat in the market today,
those of us who servethe retail industry and those of you who are inthe retail industry. the realization that there needsto be the creation of a new and different retail experience. the engagement of a new anddifferent shopper. the structure inside theorganization to support those new and different needs. importantly, a differentkind of thinking inside the organization.
and then if we're reallygonna serve the entire retail industry, we need to thinkabout bidirectional scale. what does that mean? we're gonna talk a boutthat in the panel. so in those two areasof technologies and demographics, there'sone that's a given. technology is all aboutleveraging big data and little devices. and it's just a necessitythat these things happen.
it's on-demand, available,scalable, continuous. and how it adapts toyour particular business is really the areaswe need to explore. i mentioned millennialsa little bit earlier. if you're a baby boomer in2015 you became a minority. and the interesting thingis that the retail industry just woke up to this. we call it the great awakeningto the millennial generation. millennial's are now number one,and millennial's are out for
the most part, some ofthem are still in school. but for the most part, they'reout of school in the work force and disposing of their incomeand they dispose of it entirely differently thanthe generations ahead, especially differentlythan mom and dad. so, we're grappling withthe market and the millennials. so you would think that this$5 trillion industry would be looking at this generation andthey have and you would think that theywould be ready for them.
not so much. so whole foods last yearrealized that they don't get the youth shopper so they betterdo something about it because if they don't,they're not going to survive. youth shoppers don't go wheremom and dad did because mom and dad spent all their money inwhole foods on whole paychecks, instead of on the kids, andtheir not gonna do that. so whole foods invented 365,which is a smaller footprint look of store front, and locatedfor the most part in urban
areas, where the millennial'stend to congregate, and it's a value priced food store. they're not alone. macy's is the largest departmentstore chain in the world. the biggest macy's departmentstore chain in macy's is in herald's squarein new york. they leveled an entirefloor just for millenials. it's in the basement, yes, whereall the millenials are, but the area's called one below, andmacy's knows that millenials
are much more about theexperience then about stuff, and the way to sell them stuff isto create great experiences. and so what you see here is a large area that's dedicatedto browse called the brow bar. so you experience everythingthere is to know about brows, and have fun with your brows, and in the end end up buyingstuff for your eyebrows. but i think if you reallywanna see a great example that tells you the storyabout millenials and
about change, you have tolook outside of retail for a moment at a new developmentfrom hilton called tru. anyone heard of tru? t-r-u. so are there any yet? no, just like there's no 365s. are they under development? yes, there's 160 of themright now being built. here's what tru is.
an oversized lobby brokeninto three areas for eat, work, and fitness. and then rooms thatare decidingly small. 234 square feet with the largest bathroom vanityof anything in its class. and by the way, $80 a night. millennials are cheap. frugal, if you will. the analysts that studythe hospitality industry
are projecting thatin 5 years time, tru will be the biggest hotel chainof all 15 in the organization. bigger than hilton,bigger than double tree, bigger than hampton inn,bigger than embassy suites. 50 million millennialscan make that happen. so, if it's all aboutmillennials and technology what happens when weput them together into retail? we get selfies. more than that, what we getis engagement not just for
millennials, but also forall generations. technology is really atthe heart of changing the retail experience. and if experience mattersto millennials and we deliver a great experiencethen it is one that not just millennials buteverybody has. so that's a realization. but the realizationwithout the mindset is not going to deliverus where we need to go.
so, in order to gain the propermindset, we're in america, where else would we go buthollywood for the answers? if you've seen the matrix, you know that keanu reevesis the character neo. and in one scene,my favorite scene, he's charged with the taskof bending a spoon. try as he may,he couldn't do it, until he got the sage advicethat there is no spoon. neo realized he wasin a digital world,
therefore the spoon was digital,therefore i can bend the spoon, and sure enough when herealized that he did. so moving a little bit closerto home and literally close to home, let's watch televisionfor a minute with hbo. two years ago it's a cabletelevision service delivered to your living room. and as they point out intheir own advertising now it's hbo anywhere. hbo any time.
there's hbogo,hbonow, hbo ondemand. you can watch it on your laptop. you can watch it onan airplane if you want to. you can watch it on your phone. and, it wasn't until hbo thoughtdifferently about their business model, until they needed totransform that business model. it wasn't until they realizedthat there is no sofa. and so in order for us to get into the right frameof mind in the retail context.
we need to take those elementsand put them together and we'll get to where the promiseland is if we realize that there is no spoon. there is no sofa, and yes,in fact, there is no store. and why do we say that? well, the fact of the matteris that the shopper is always in the store. in the right state of mind, we're thinking about the shopperalways being in your store.
the shopper expects to be ableto move seamlessly in and out of physical anddigital worlds. and they can't frankly understand whythey can't do it now. now we know it's hard. but, in order to get there weneed to do one more thing, which is to break down the silosbetween the e-commerce side of the business and the e-commerceside and the physical side. and blend them together, createa chief experience officer, or
someone who thinks that way, inorder to create those seemless integrations betweenphysical and digital worlds. that's the challenge andthat's the charge. and that's all we ask you to do,break down the silos. create the new kindof experience. lead the change andtransform the business. and with that, i thank you, andi'd like to introduce our panel. >> [applause]>> thank you. first of all, nadia shourabourais the ceo of hointer.
nadia? >> [applause]>> good morning, everybody. >> good morning. >> i'm going to askyou two questions. how many of you love shoppingin a physical store? can you raise your hands? and how many of you loveshopping at amazon.com? very cool. now, imagine the storeof the future,
the physical storeof the future. close your eyes. imagine you are shopping foran apparel, for a new outfit. you come into the store. instead of piles and piles andpiles of items surrounding you, which you need to dig throughand log to your fitting room. you are coming to a museum,and the garden of mannequins, and you walked downthe garden of mannequins, and you'll look atitems you care for.
and you point at the itemsyou like as you point them, those items magically, whoosh, into your fitting room, gettingready for you to try them on. you walk, you enjoy,you relax, you point, you come into the fitting room,everything is neatly there and you start trying on. you put it on, you don't likethe fit, you want a larger size, you point at it again in thelarger size magically whoosh in. you continue trying items on,and
then more itemsstart to come in. the ones you didn't ask for, but the ones which might bethe perfect fit for you. and you keep on trying. you want help,you click a button and a stylist is therewith you to tell you if your butt looks rightin this pair of jeans. so, that is the experience andthat is a future store, what if i told you that thestore is going to open in two
months in seattle in the largestdepartment store in the world, hypothetically? thank you. >> nadia, i know that that already existsin a company called pointer. where you go into the store andthere's one of every item and you point your phone at it. and it really does. you cannot beat that merchandiseinto the fitting room.
it's a fun race but you're always gonna lose cuznadia gets it to you faster, so to start off with nadia isa world renowned mathematician. and jeff bezos hired youto work at amazon with, as i understand it,no specific task. and tell us aboutthat first year. >> god, soi love retail as you can see. i love retail. i was born in russia, in sovietrussia, no retail whatsoever.
you come into the store,you walk in, you stand in line, they bring you something,you grab it. good for supply chain,not so good for customers. so, after i left russia andi came and i first saw the first store, which was in hungary i justcouldn't believe it was real. so i totally fell in love. so, years ago, when, butmy background is in mathematics. i was born in soviet russia,it was either that or
ballet dancing, andballet did not pan out. so, when i came to the unitedstates many years ago and i met jeff bezos, he had this,it wasn't the big vision which it is today,but he had a vision. and soi followed him to seattle. and with my backgroundin mathematics, i wasn't exactly sure howam i going to fit in. and forthe first year i didn't fit in. i didn't know what to do.
i couldn't apply myself. and i couldn't figure outwhat i am going to work on. and a year went by andjeff would pass me in the corridor andhe would say how is it going? and i would say not good. what are you working on? well, nothing. so i thought he'sgoing to fire me. and then i went, we werereally busy that christmas.
so i went and i started towork in customer call center. and i thought that i'm goingto talk to customers and help them find the rightitems and select items. i was really,really excited about it. but the first call came in and the person asked mewhere's my stuff? and i said i don't know. and i asked people around andthey said, yeah, we don't know, but there arebetter ways to say i don't know. so,
>> [laugh] >> for the month, for 30 days, i was answering the phone andi was saying i don't know and boy do i know many politeways to tell it to you. i don't know, and then therewas a second question and that was when are you going tobe in stock, when is it coming, it's not in stock, it's not available,where is it going to be. say i don't know inmany different ways.
so, when i came back to seattle, i just knew that thosewere the two questions. there was nothing else. and so for the next many years,i spent all my energy on answering those two questions,making sure that we know where every item is,we know where every person is. we know where every truck is and we are always instock on everything. and that we have the largestselection and it's there and
if it's not there then we knowexactly down to the day, and later it became down to an hour,where it's going to be. >> thank you nadia. so my parents were right. you can use math in real life. >> you can use math in retailand it's a perfect match. >> thank you, all right forour second panelist we'd like to bring up jeff roster who is vicepresident retail strategy for ihl and i know there's kindof a humble beginning here.
your dad had a retail meatmarket that you worked in and somehow you ended up goingfrom there to mervyn's and from there to one of the top 50technology experts in retail. >> that is true. >> tell us a littlebit about that. >> that is true, i worked probably for the worstboss on the planet, my father. he was an amazinglysensitive man. he grew up in the depression,fought world war ii successfully
with 20 million of hisclosest friends, and then decided to get home, getmarried, and have seven kids. all of us workedthrough the business. my dad literally wasthe toughest boss i ever had to this day. i worked forhim getting started and ended up doing an internshipin college and it was full time internship,it was with the city of chico. first day, eight o'clock showup, i'm in the accounting
department, go show up at eight,work the day, everyone gets up at ten o'clock,leaves, now i'm still working. day two, eight o'clock,ten o'clock everyone gets up and leaves. about thursday, i said,where's everyone going? and they said, taking a break,i said, break, what's a break? i grow up in retail. you get a 15-minute workbreak every four hours. i call my dad, i said,hey dad guess what,
you know i just found out aboutthis thing called the break. you owe me about two grand. >> [laugh]>> and he says that great son, you owe me about 15 grand forrent and so we decided to call it even. worst boss if i had honest, buti learned more from my dad as an independent retailer, as ananalyst working with the biggest clients on the planet, thebiggest retailers on the planet. everything goes back to my dad.
everything goes back tothe classic retailer of a bygone era. when we talk abouttechnology today, when we talk about tryingto personalize, when we try to talk about everything,every time i hear the smartest people on the planet talk aboutwhat we're doing in technology. i think they're justtrying to make my dad. my dad had it dialed. the problem is my dad'snot leverageable.
and we in retail need to reallyfigure out how we take that amazing heritage thatwe've all grown up in. most of us, none of uscome here by accident. we end up here on purpose. and we're just trying to takethat amazing heritage we have and figure how to leverage itacross, not just across lodi or stockton or sacramento butacross the world. fantastic experience growing andstarting out, and being here today.
>> thank you. all right, soi'm going to spend a little time putting questionsto nadia and jeff. and we will be able to take somequestions from the audience when we sort of winddown a little bit. but first question i have for jeff is the notion of bopis,b-o-p-i-s. buy online and pick up in store. that seems to be a trendthat is growing.
tell us a little bitabout that area. >> yeah, so it's fascinating. we're trying to figure, well first of all we have thisamazing competitor out there in retail called amazon. and it's great to sit next tosomebody that helped build this behemoth that we'reall wrestling with. but the idea of whatamazon has done is has fundamentally challengedeveryone of our precepts about
how we do business. and so, a few years ago, werealized, you know what, we as physical retailers, and i'm ahuge fan of the physical store, but they need to be, we need tobe multi-channeled, we need to be operating in the physicalworld and in the digital world. and at some point, we realized, we need to be able to buy onlineand pick up in the store, because we, as retailers, understand that it's not, we'renot trying to sell one item.
we're trying to do what? we're trying to sellan additional items, not one but two, four, five, six. that's how we make the business. that's why i think some ofthe peer plays really don't understand all that well thatit's not about selling one item, it's selling an additional one. so the concept of bopis isfascinating because it marries that physical and
the digital, it bringsthe consumer in to the store. and as somebody that shopsbest buy quite a bit, my wife hates it when i do that,because she knows i am going to absolutely buy two, three,four additional items. the thing that's magic about, or the thing that's, well,magic as an analyst about bopis is the fact that we get to watchthis fundamental transformation. and how i say it's cool,and you in the room that are practitioners in the roomare saying, jeff, it's not cool.
it's very very difficult becausewe need to break down these silos that you soeloquently talked about. the magic of tying the physicaland the digital is the ultimate retail experience in 2016 andthat's what it's about. how do we bring our greateststrength as retailers, that's our physical store, buthow do we sweat those assets enough that we can begin toleverage the digital world and bring that together? game, set, match for retail.
>> can i very politely disagree? >> [laugh] sure. >> okay, cool.>> okay, so i'm debating a worldclass mathematician. okay, game on. >> [laugh]>> [laugh] >> buy online, pick up in store. to me, this conceptcombines two worst things. >> mm-hm.
>> buy online, you don't see,you don't touch, you don't feel. everything looks the same. if you're buying a pair ofjeans, they all look the same. you're buying a expensive ring, $1000 ring looks exactlylike a dollar ring. you are in a worst experience,and then, schlepping to the storeis the worst experience, too, out of the physical world. so, to me, buy online pickup instore exists because we are in
a transition phase to makingdigital experience great and making physicalexperience great. none of them are great today so there is this reallybizarre concept. you do the mostinconvenient shopping and then you show up tothe store to pick it up. i don't think it'sgoing to live. >> [applause]>> [laugh] it is living. >> and it's you can't just gofrom zero to 60, it's a process.
the point i think that's reallykey to understand is we're in era what i call now the eraof intentional innovation. so when i started as a retailanalyst at gartner in 2000, my first piece i wrote,i mean, very creative. you can tell he's going tohave a great career being a creative analyst. retail moving from techphobic to tech centric. okay, stupid, i know. but the point was, back then,
none of us in this industry wereat any gartner conferences. we weren't doing any of thekeynotes at gartner symposium. why? because we weren't viewed as a technologicallysophisticated industry. now, i always argued that. i actually said well,walmart is a good example. target, a bunch of themare really sophisticated technologically butwe don't talk about it. and so all my horizontalcolleagues, some of the best and
the brightest peopleon the planet, were going to financial service. i got so sick and tired of hearing aboutfinancial services. and they were doingthe most basic things. and they were gettingthe big keynotes and all that stuff because we inthis industry didn't wanna ever talk about it cuz everything'sstrategically significant and we can't share anything.
i couldn't bring my mba classto my distribution center at mervin's, because somehow welaid out conveyor belts so much more sophisticated thananybody else that i couldn't let a bunch of engineers lookat my distribution center. nonsense! but you cannot go to a magicalworld where everything happens. it needs to be a process. we need to learn,we need to innovate, we need to stay in businesstoday because there's a guy up
in seattle that wants toeat everyone's lunch. and so i agree it's maybe notthe best, but it's a process. we need to fightthe retail wars today. we need to win them today. we need to use the technologythat's available today while we innovate for tomorrow. it's reality. >> see,to me the reason buy online and pick up in store existsis because it's very hard
to find the productin the store. it's easier to finda product online. that’s why people search onlineand then they go to the store. if it would be phenomenallyeasy to find a product in a physical store and we haveto do that then why would customer pre shop online anyway? >> so they asked me tomoderate not referee but. >> [laugh]>> fair point, i think on both sides and nadia you justmentioned, they look at home or
wherever online and then go intothe store to actually buy it and that is what's calledweb rooming, and web rooming turns out is muchbigger than show rooming which is the opposite going in thisdoor trying to price compare, which turned out, according tothe latest research, that it is not the trend that everyonethought that it was, which is why the better attitudeson both the shopper and the retailer behalf all right soi have a two part question. first part.>> i get the easy one right.
>> first part is for you jeffand then the second part for you nadia and i think this maybe the one thing that resonates the most with everyone but it'lltake a little bit of time to evolve the story so>> last year in a single day, there was an announcement of anorganization in retail that made it the single largest consumerof technology in one day. walmart said, we're gonna spend $10 billionon technology for walmart. and the one thing that ceomcmillan said was that he was
excited about he really wantedto spend this 10 billion was really combining the physicaland digital worlds. so the question jeff is doeseveryone need to spend $10 billion and do you think this atrend that we're gonna see bleed out though the restof retail market? >> sothat is the great question. well first of all no one isgonna spend $10 billion because $10 billion would put youat about number 50 or so on the top hundred retail list.
so there literally, just unpackthat statement for a second, that number. $10 billion is 2,950,000retailers don't even have that as total revenue. so we're in a time, as i said, we're in the era ofintentional innovation. we are at a conference wherewe're celebrating technology. i was at a conference last weekwhere we celebrated technology. i'm going to another conferencewhere we're gonna celebrate
technology. we are in an arms race of technological developmentlike i've never seen before. it's a fantastic place forme to be as an analyst. not always the best for retailers cuz you have towrestle through these decisions. but the key there is to be inthe business of fundamentally transforming the approachto retail. walmart's come out, walmart,the ultimate physical retailer
that's doing what,becoming very digital. amazon, the ultimate e-tailer,that's doing what, becoming very physical. you are caught inbetween two gigantic, it's mothra versus godzilla, and unfortunately, retailis tokyo, or san fransisco. so what do we do? the immediate response is we'renot spending $10 billion cuz we only make our total revenueis a half a billion.
but we need to be looking atcreating an innovation ecosystem working with our partners,whether they're our host today or some far weakertechnology provider, but we need to be in the businessof absorbing technology and looking to do things smart. now, what we've donehistorically in retail, and ihl did a study where it poppedup again, that retail is now beginning to ramp updevelopment of their own code. god don't do that.
that's silly. do not write your own code. in the era of the cloudwhere there's enough good functionality, you're not gonnadifferentiate enough to gain the value and you're gonna be into an endlessdevelopmental cycle. work with your partners. develop a strategy. make sure the ceo, the boardof directors, or if you're
a one-shop operation, you as theperson that's writing the check, are in the business of thinkingfundamentally how we use good technology that's off the shelftoday to transform our business. because your customershave already transformed. you have any doubt about it,pick up my daughter and two of her friends who are aclassic millennials and go for a four hour drive and,honest to goodness, you will see more technology intheir hands than you, as a 55 year old like myself, probablyhave used in a lifetime.
our customers havealready transformed. how we transform the decisionswe make today over the next three to four years, will tellus whether we're gonna be in business, becausewalmart's not slowing down. our friends at amazonaren't slowing down and you need to be moving. >> thanks jeff. i like the hollywood analogies. it really is abouthollywood in the end so-
>> can i say something about $10 billion. >> well, i have anotherquestion for you onto that. it really is->> i wanted to talk about $10 billion. >> it's a lot of money, right? >> yeah. i can find a use for it. wouldn't be intechnology though.
>> so it's about scale. the question and we're probablygonna speak to your point. so how many in the room have 10billion to spend on technology? probably nobody, right. so the big questionis how do you scale? bi-directionally, you sawthat in the presentation. well, the answer to the everyman retailer is i can't do that. so, how do i goout in the market? if you're a worldclass mathematician,
you can open one store andliterally change the world. and i can tell you nadia hasbeen on the speaking circuit. there's journalists all acrossretail that've been writing about the hointer experience andthe story that she told about the world's largestdepartment store is true. so here's a one store operationthat had a concept of taking technology and really puttingit to work for the shopper. and then all of the sudden oneof the biggest apparel brands in the world, and the largestdepartment store chain in
the world, is using it in,what, a couple of weeks. so, how did youscale up to that? >> yeah,it's a really good question. i started and made a bigmistake in the beginning. so when i openedmy small store and i went through all the struggleof running it, and then i thought aboutreinventing it. the first thing i envisionedwas this beautiful customer the one i described.
and i started to implement it, and i knew roboticsbeing from amazon. i knew large,massive investments in the physical world andso i engineered my store in a completelyover-engineered way. literally, there wererobots whooshing for you. there were things moving,rotating, and everything else andwas expensive. and then i started tothink about it and
i started to thinkabout scaling it up. and we in physical retail havea huge challenge because we have many stores anda very complicated environment. kids are playing. they are pullingstuff everywhere. customers, everything is moving. associates don't have anytechnology experience to maintain this stuff. and so when you go to manyretail stores, anybody's who's
trying anything looksbeautiful in a flagship store. you go there two months later,it's dead, it's black. it doesn't run. and i had the sameproblem in my store. and sowhat we did is the following. i took all that expensive stuffout and i put it in my garage. i was crying wheni was doing that. it was very dear to my heart and i told my guys that you have$100 and empty store and
you have to recreate exactlythe same experience. with everything movingeverything is pushing customers is pointing all magic ishappening but you have $100. go do that. because otherwise itwill never scale up, nor it will never work beyondmy own little store. and so, my engineers werecursing for several weeks. they thought i'm totally insane,but that's what we did. so, to me, to scale up,
we in retail havea particular challenge. we have to be very, very, verycheap, and it has to be very, very simple, and it has to be very robust, andit needs to be totally magical. it just needs to work. it needs to be magic. but magic for $100. so, that's that. >> sounds more reasonablethan $10 billion.
>> but i'll take $10 billion andgo shopping with it. [laugh]>> all right, so you touched on a point thati would like to ask to both of you,the prototype to the rollout. in my world of design,we see prototypes and flagship stories repeat this,pretty much the same process. we see a new conceptroll out and then roll out into a flagship,but we don't ever see it actuallyexecute a rollout to the chain.
and, in our experience anyway,the prototypes and flagships are developed bya consultancy design firm, if you will, andthen a lot of technologists. and the engagement of the peoplewho actually design, plan, and merchandize the store, are neveractually part of that process. and so 90% of all of theflagships don't actually happen, and most of the time,we attribute it to the fact that those other people weren'tbrought into the process and that, particularly,
content seems to bethe hitch in the process. so, the people whoare responsible for physical content, the people whoprint signs or what have you, are the people who are going tohave to do the digital content, if that's the way thatit's going to go, and digital's a lotmore complicated, needs a constant attention. and yet if you don't plan forthat ahead of time, then it is doomed to fail,and so
i'm curious about your takeon that jeff and nadia. >> that's a hard question. >> [laugh] yeah,that's what i thought. well, here's the point. i mean,i learned the best lesson. so, i have an mba. i have an undergrad degree. the best lesson i ever learned about retail was in adistribution center in fremont,
california as a very youngguy installing a new system, and we came in, andwe said hey this is great. this will be more efficient. and basically,my team looked at me and said yeah you'regonna cost me my job. why do i want to makeyou more efficient? and i thought well, becausethat's the right thing to do for the business. but, then i learneda really good lesson.
that wasn't necessarilymaybe the right thing for each one of those guys. and so, when we try to dothe process of re-engineering of creation, of innovation. i'm not saying we needto go bank work, but we need to be takinga lot 'o partners, starting withthe board of directors, if you're a public company,certainly the ceo. and, you have to havea balanced team, and
you have to understand ina time of transformation, most likely somebody's going tolose some power, politically. and sowe need to be working with them, we need to be smart about that. you can't bethe wunderkind coming and pushing something becausethe people that have to execute it will make itvery unsuccessful. and so, part of the era ofintentional innovation is figuring out how weactually do that.
and how we empower our teams,and how we make sureit's okay to fail. you cannot fundamentallytransform your business if you can't fail. now i would like that. i'd probably get fired [laugh]if i went and said, yeah, let's fail andspend tons of money. we need to fail quick,we need to fail fast, but we need to experiment.
and those kinds of fundamentaltransformations, or those kinds of prototypesneed to have partners, need to have teams, and need tobe infused in the organization, and the organization needsto be about that business. that's, i think, the hardest thing wehave in retail right now. when i look at it,when i talk to you guys. when we're in the privaterelationship, i know it. i get it.i used to be a retailer.
i understand howdifficult it is. i understand how we'retrying to build a 747, while we're doing 550 miles anhour screaming to new orleans. it's a tough job, and it's fun. it's a complex job, butit's one we gotta get right. we need to transform. i'm more worried abouttransforming our organizations than i am deployingnew technology. because if our organizationsaren't ready to absorb
the amount of technology youneed to absorb in the next three to five years,it doesn't matter what you get. i mean,nadia's got a great example. technology fortechnology's sake does 0.00. an infused and poweredorganization where people can experiment and can risk andnot lose, that's what we need. >> so nadia, you with your onestore, with the really cool experience of being ableto go into the store, tap on to whatever apparel item,
race to the dressing room,>> that already made news. the world was payingattention to it, and yet, there was a designer whohappened to go to your store, pretty famous designer, and he didn't like the experienceat all, right? so, tell us about that,and what you did about it. so, i opened my store and there is this magic experienceand i'm so proud of it. and dreams are washing in andcustomers are trying on.
and then one night i am sittingin my store in seattle, and i see a gentlemancoming into my store, and he's really,really well dressed. and in seattle if you havea well dressed person, you know somethingbig is happening. >> [laugh]. >> you can see that personfrom far, far, far away. so, i looked very carefully andi saw, and i recognized him. and he was a veryfamous designer.
>> [laugh]>> and i was i was very scared, and i was very excited. and he shopped for a long time,he shopped for over two hours. he tried everything and jeanswere whooshing into him very, very quickly. he tried 50 items, he wasgoing for that experience. and then he came back to thestore where i was sitting, and he introduced himself,he didn't need to do that, and he said i didn't feel anything.
i didn't havean emotional connection. and i'm a scientist,i'm a mathematician, so to me the words emotionalconnection meant nothing. [laugh] and i'm from amazon. you had what problememotional connection? [laugh]ha. [laugh]and we started to talk, and i didtell him that i didn't get him. so, he brought me to europe.
and i spent a lotof time with him. and he was showing mehis design process and his team and the mood boards. and he was trying toput me in the mood. and i wasn't getting it at all. mood board? seriously, you need a moodboard for something? so, and he would tell me something andi didn't understand it and
i would tell him something andhe wouldn't understand me. so, and then he said lookwe're not connecting, so why won't you try to find onething in your life where you actually feel emotionalconnection to something. and i started to think what inmy life do i feel emotional connected to,an emotional connection with? and the, we have nochildren here, no children, the only thing which cameto my mind is making love. i can connect, i'm emotionallyconnected, i'm paying attention.
i'm feeling it,i'm not destructing, i'm in it. i got that. and then he said, try toextrapolate it to shopping. so now any time he would tellme something, he say shopping, i think making love. and i started to understand him. he would say, wouldn't it bewonderful if customer come in and they would shop in ourstore, enjoying for 30 minutes. yep.
>> [laugh]>> sounds really good. >> [laugh]>> what about 2 hours? swell, yeah, yeah. >> [laugh]>> longer than that, probably not. sounds really good. so, i started to understand him. and then it helpedme tremendously, because to make physicalstores a thing of the future,
it needs to be a great technicaland operational experience, so you are not distractedwith little things. but it also needsto be a beautiful, emotional connection you feel. and if we get thosetwo things right, that is a store of the future. so, what i startedto do after that in my store is tryto hide technology. so you come in andyou don't see it.
your focus is on a product,your focus is on how you look in a mirror, but you don't knowthat there is a technology. technology's just somethingwhich makes you not wait for things, or which makes younot dig through things, or which makes you not search foryour item, for your size. because if you're making loveand you get distracted every few minutes, it's notgoing to be fun. so. >> [inaudible] >> yes, and
there were severalthings mathematically why they increased. the biggest contributorwas what i saw is that the more items you try,the more you buy. so when my customers wouldcome into the store before, they would try two things orthree things and they were out of there,particular men. men, attention deficit disorder. come in, grab, try on,go to the fitting room once, and
he is done. maybe, maybe, he will scream forhelp, ask me to bring another size, and in the past,i would open the door, bring him another size,he's naked, i'm looking at him, we're uncomfortable,he will never ask me again. he would be done. so, what i saw is that ifwe can magically increase the number of items customersexperiencing when she or he comes to the store,the sales go up.
and so with my department store, we started withjust a few items. we got to 12. now our goal is to go to 30. so every customer on averagewho is going to come into the department store isgoing to try on 30 items. and for a man, my goal is 50,because boy, do they need help. that's it. >> [laugh]>> but, you go microsoft, guys.
lots of help. >> [laugh][applause] >> i'm dying. i surrender. [crosstalk] well,i think you'll [laugh] i think you got ourattention [laugh] and made the point about seattle. you know microsoftis in seattle right? about apparel in seattle.
so. so i think there's a cluethere about experience and what experience means. and if the greatest generationin terms of numbers, 50 million of themare all about experience. the great question is for you,what does experience mean? so with that, i think maybe we ask you tocome up to the microphone, we have more questionscertainly, if you don't.
but, we want to know whatquestions that you have, there's microphones here on thestairway so we, we would welcome any and all of you to come upand ask what is on your mind.