Here at the Future Stores conference in Miami, the air is abuzz with talk of innovation.
Retailers like Neiman Marcus and American Eagle Outfitters are talking up their latest technology experiments, such as their Memory Mirror program and chatbots for bra browsing, respectively.
But while some retailers are finding ways to invest in innovation, it's clear that many are prioritizing more immediate problems — such as dealing with declining sales and mounting debt. With many brick-and-mortar retailers hurting on multiple fronts, innovation often gets bumped down the priority list. Retailers are still struggling to figure out which new ideas and technologies are worth investing in, how to effectively experiment with innovations and when to call on third parties for help.
For Ryan Broshar, managing director of Techstars Retail, a startup accelerator in partnership with Target, retailers can't afford to delay or avoid innovation efforts altogether. In many cases, it's a necessity for survival.
"[I]t's important that retailers continue to budget and put priority on the innovation stuff," Broshar told Retail Dive. "It's really easy to get away from it when things are bad."
This summer, Broshar helped launch the first Target technology accelerator in Minneapolis, pairing 10 startups with Target and other retail executives for three months. The program extends mentorship to these companies, but it's also a way for Target to glean lessons on speed-to-market, agility and out-of-the-box thinking. Right now, Broshar is making his way around the country to meet with potential candidates for the next Techstars program, which is accepting applications for the summer until April 8. The final picks will be announced in July.
Retail Dive sat down with Broshar to discuss how startups can help spur innovation in retail and how to bridge the disconnect between the startup community and the big-box retail industry. The conversation has been edited for length and clarity.
People who say, “That’s the way it is,” end up getting left in the dust. If you’re going in with that mentality of, “Well that’s just really hard” or “That’s just the way it is” — that’s the beginning of the end.
RETAIL DIVE: You've had a range of experiences with startups extending beyond retail. How would do you characterize venture capital interest in this industry?
BROSHAR: I think the retail industry is going to fundamentally change and that screams opportunity for startups to play in that tumultuous next period of time. From a VC perspective, they are very interested in it and they are waiting for the stalwarts of the retail industry to catch up and have that realization that this does need to change, and I think we are at the very tip of that.
We are just beginning to see major retailers, like Target, like the members working with our organization, starting to realize, “Oh man, we have to get out ahead on this because if we don’t, we’re going to be left behind.” I think a lot of VCs are looking at it as an opportunity. We had a lot of funding for our companies in our program and we’re really interested in trying to get the alignment between the startup and the retail community, so that startups want to build companies that service the retail industry because right now they’re not looking at that first.
They’re looking at, “Hey, I could build a company that services hospitality or it could be the auto industry or all these other people that have adopted it fully.” And I think auto is a great example, where now Ford is saying they aren’t a car company, they're a mobility company and provide services, experiences and it goes beyond the manufacturing of the car. I think retail is going to have that epiphany any day now, hopefully.
What’s the catalyst that will tear down the gap between legacy retailers and startups? Are retailers going to startups or are startups going to retailers?
BROSHAR: I think the balance tips more toward the startups trying to tell [retailers] what’s actually going on in the market and how things are changing versus the retailers coming to the startups and telling them, “Here are our problems.” I think traditionally retailers have had difficulty admitting they have problems. They don’t want to say, "We’re not good at this." There’s a lot of benefit to saying that because then people will come to you with solutions for those problems.
So what you're seeing right now is the startups being like, "We’ve talked to a lot of people, we know you have this problem, let us help you with that problem." Then it’s a matter of [retailers] accepting internally that they have this problem and putting the processes in place to actually work with an external company to help them internally on an innovative new concept.
"I think the retail industry is going to fundamentally change and that screams opportunity for startups to play in that tumultuous next period of time."
I don’t really buy into a retailer saying, "We can’t innovate because the legacy thing.” That’s just like the excuse of, “That’s the way it is.” People who say, “That’s the way it is,” end up getting left in the dust. If you’re going in with that mentality of, “Well that’s just really hard” or “That’s just the way it is” — that’s the beginning of the end.
Given that many retailers have small innovation teams, is it better to bring innovation into a retailer through a partnership or acquisition?
BROSHAR: I think innovation teams don’t need to be huge and they don’t need to be like, "We hire this team to do all of these innovative things." More than just being a big team, they need to have power in the organization to say, "Strategically, as an organization, we want to go this direction and we need you — business unit A, B, C — to get behind this.” There should be some alignment of success. So if it works, there should be some bonus tied to this, but if it doesn’t, it doesn’t take away. [Retailers] should be incentivizing risk-taking.
I think the innovation teams can align themselves around identifying internally where the problems are, making it easy for startups to work with them so there is a clear process of getting to a pilot — and be more or less the facilitators between the unit and the startups. You just don’t see that in retailers as much — to have the innovation teams have that ability to really implement change, not just think about it but enact it.
What about innovating through an acquisition? The most notable example of this last year was the Wal-Mart/Jet deal. How can retailers avoid a culture clash when these acquisitions do occur?
BROSHAR: I think retailers are way behind when it comes to mergers and acquisitions and the ability to acquire a company and make it work. A lot of time, if a retailer acquires a company, it goes to die within that retailer. They could focus on not just acquiring companies for the sake of acquiring companies, but figuring out the process so that if they were to strategically acquire a company, how do they make it work? A lot of times that's [the startup] being autonomous: They have the benefit of the big corporation and the upsides of it, but still have the autonomy to act like a startup and they aren't forced into a business unit that will change the culture and everything.
"The retail industry needs a change of mindset of uncertainty and risk taking, so a little shakeup there is painful to begin with, but it should be embraced to some extent."
The other side of me thinks that change of culture is needed. The retail industry needs a change of mindset of uncertainty and risk taking, so a little shakeup there is painful to begin with, but it should be embraced to some extent. That thought process is needed in the retail industry.
We're seeing a lot of retailers going through turnarounds. What role can innovation play in turnarounds?
BROSHAR: I think it's essential. You have to continue to do it.
I think it's important that retailers continue to budget and put priority on the innovation stuff. It's really easy to get away from it when things are bad, but continue to have that be a priority because turnarounds don't happen from doing things incrementally better. Turnarounds come from doing something really risky right, and really exponentially different from what is happening today. That stuff may take two to five years to play out but you have to be able to get the right people in place to implement that.
Tell me how the Techstars partnership is going with Target, a legacy retailer, now that you're nearly two years into it.
BROSHAR: It's great. They're phenomenal. They've been a really good partner for us and had that mindset really from the beginning of, "Look, this shouldn't be a transactional relationship. We really want to learn from these startups. We want to mentor them and help them." That mindset actually has paid way more dividends than, "What is the immediate ROI tomorrow on our engagement with this startup?" Getting beyond the P&L and into more of the long-term strategic thinking has worked really well.
"Turnarounds come from doing something really risky right, and really exponentially different from what is happening today."
Target was super-involved with the companies from a mentor perspective. [CEO] Brian Cornell was super involved. It wasn't like, "As my role at Target, I am therefore supposed to be here." It was like, "No, I am Brian Cornell and you're the startup. What can I help you with?" That type of approach is very welcome in the startup area, of being like, "Well, we're both CEOs of companies, right? Yours is just a lot bigger than mine. Let's talk about that versus the what you can do for me or what I can do for you." That was very eye-opening for everyone involved.
What’s the biggest takeaway for Target — the speed and agility of startups?
BROSHAR: That is one of their major takeaways — how do these startups do what they're doing? Some of the stuff the startups iterate and create would take Target 50 people and $50 million to do and it would take three years. These startups, they can do it in a week with two people and no budget and [retailers] are like, "How do you even do that?"
We also found tangible results: Eight out of the ten companies ended up doing work with Target, some sort of pilot in the program, and many of those are moving on into full blown-business relationships, where these startups are hitting pain points or sales growth opportunities
How do you weed through all of the applications you get and whittle it down to just 10?
BROSHAR: We are trying to find the best entrepreneurs, who have that startup juice that we're looking for and have that Techstars-first mentality and the drive. It's hard to describe, but you meet some of these startups and you're like, "Wow, yep, they've got it. They're going to change the world somewhere, somehow." We're trying to find those people first and hopefully they fit into our areas of interest — and if not, maybe we can guide them.
"Some of the stuff the startups iterate and create would take Target 50 people and $50 million to do and it would take three years."
What will the relationship between startups and retailers look like five years from now?
BROSHAR: I think they will become further and further aligned as far as startups interested in working with retailers and retailers being more interested in working with startups. The retailers will come down and the startups will step up, and there will be a nice middle ground there for them to continue to work together. Startups would start to think of a retailer as a possible exit opportunity versus just the tech company down the street who services the retailer. I think a lot of the retailers will look to bring that stuff in-house and use it as a competitive advantage for them.
