Retail is driving innovation, says NRF CEO | KPMG | SG

First person: Retail is driving innovation, says NRF CEO

Retail is driving innovation, says NRF CEO

Matt Shay, President and CEO of the National Retail Federation, reveals how technology is transforming the way retailers do business.


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Matt Shay


National Retail Federation (NRF)

On a wintry morning in Washington, DC, in the headquarters of the National Retail Federation, Matt Shay is sporting a crisp white shirt with cufflinks that pictured Winston Churchill. “It’s an American thing to have an affection for Churchill,” explained Shay, the President and CEO of the NRF, the world’s largest retail trade association.

Shay became the top advocate for America’s powerful retail industry in May 2010, after performing a similar joint role for the International Franchise Association for six years. He had worked his way up the ranks at the IFA, having started there as Chief General Counsel. In his first job, at the Ohio Council of Retail Merchants, he crafted two laws that earned businesses multi-million-dollar tax breaks. Washington insiders were impressed enough to hire him and, having spent the last 20 years working in public policy in the capital, he is well placed to achieve one of his stated aims when taking office – to ensure that the retail sector’s voice is heard effectively in Washington.

Right now, as the man who represents 3.6 million retail establishments that account for one in four American jobs, Shay is aiming to help his members by campaigning to ensure they suffer fewer restrictions from government red tape and rules.

ConsumerCurrents spoke with Shay about all things retail, such as what emerging technologies will change purchasing habits and how world events guide the way the industry does business.


Matt Shay, President & CEO, National Retail Federation

Especially for our global readers, please provide a brief overview of the NRF.


The NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and internet retailers from the United States and more than 45 countries.


What key initiatives does the NRF offer its members?


Our primary objective is to create an environment in which retail businesses can operate without too many impediments from government regulations. In the past few years, that has primarily been about getting our economy going again.

Retailers are more successful in an environment where consumers feel more confident in the overall health of the economy and they’ve got jobs. They need to feel they are in a stable position to make investments, spend money and buy things for themselves and their families.

Also, we believe we ought to do more trade deals. We believe we should do more to reach the 95 percent of the world’s consumers who live outside the United States.

Finally, we ought to get our immigration policy fixed, so that we can attract and retain the best and brightest talent from around the world, which is one of the things that has made this country so competitive, innovative and diverse for so long.


The NRF’s ‘This Is Retail’ campaign has highlighted the industry’s role in driving innovation. Do you believe the sector is becoming more innovative? And does it get enough credit for that?


It is becoming more innovative, but we don’t get enough credit for it. If you think about some of the innovations we take for granted today, like barcodes and RFID tags, those are retailer-led investments in innovation.

If you think about the way we do commerce today, with this [he points to his smartphone], customers try to find ways to innovate in their lives, to do things more efficiently, more quickly, to a higher level of satisfaction and confidence.

Consumers have been driving this revolution in technology that has caused retailers to spend enormous amounts of money on innovations just to keep up with their customers.

Customers are increasingly channel agnostic, and don’t care about whether they go to a store to buy that sweater, or order it online from their computer in the office, or on their tablet in a coffee shop, or on their mobile phone on the subway.

Additionally, they often make different choices about where they want to pick that item up, whether it’s at the store, or having it shipped home. It’s all becoming conflated to the point that retailers now are simply looking at the bottom line and trying to create an experience where customers feel they are moving seamlessly from one platform to another. It has required an extraordinary amount of innovation from retailers to develop systems that can speak to one another, while maintaining brand fidelity across all platforms, to make sure consumers have an integrated experience wherever they get it.

There has been a positive benefit for retailers. They can operate their businesses more effectively and more efficiently. Previously, they had non-integrated inventories. Inventories were located in distribution centers that fulfilled online orders. Stores fulfilled the needs of customers who walked in off the streets. Now retailers use technology and create platforms that can look at everything in every store and every distribution center, and decide whether it is more cost effective to ship items from the store close to the customer’s location, or whether it’s best to pull it from a distribution center five hours away.


In addition to technology, what other forces are inspiring new approaches?


It’s the consumer experience. With something like mobile payments, we are comfortable putting credit card information into a laptop and sending it to the internet world. Rather than have to lug around a computer, maybe it is stored in a chip in your phone or in a direct link to the bank. Mobile payments and the evolving electronic wallet is one development retailers feel excited about. Retailers are clearly leading on mobile payments in ways no other industry is.

Also, we will see point-of-sale changes. The old method where the sale occurs at the cash register is not as common now. Now a sales associate walks around with an electronic tablet to make the transaction, like in the Apple store. On the experience side, it is much easier to have the sales associate walking around and interacting with the customers rather than behind a counter. It gives customers more human interaction, because the associate is with you and you’re doing something together.


What recent innovations in the retail industry do you feel have been particularly successful?


The use of mobile devices is the one that jumps out most quickly. Think of the ability to use technology to drive messages to mobile devices using geolocation systems while customers are in stores. This is a significant area where retailers will focus on and invest in, because it’s the way consumers want to shop.


How well do you think retailers are adopting new technologies and opportunities from using digital and mobile channels?


Retailers are at a high level of awareness and at a significant level of adoption. We are at the beginning of this development, not the end. More capital investment needs to take place. Retailers on the cusp of investment decisions now have to decide whether to build more stores or distribution centers, or adopt technology and invest in innovation? It’s a constant balancing act. The store experience is not going away any time soon. With certain items we need and want, we can only get them in a store. On the other hand, the investment in online and mobile will continue.


How is the interplay between online, mobile, and bricks and mortar shaping the retail industry?


Do you mean bricks and clicks? The CEO of Macy’s recently made the observation, almost as if he were surprised to hear this, that the department store chain is the tenth-largest internet retailer. So the big players on the internet are going to be the big retailers. They are not there yet. Part of that has to do with their investments in stores. But retailers don’t distinguish as to where they make the sale. Like consumers, retailers are increasingly channel agnostic. It all goes to the same bottom line.


With consumer confidence quietly returning, would it be true to say that generating the right kind of growth is the top priority for the US retail industry in 2014?


Yes. Consumer confidence has been up and down. Looking at the past five years, people shop differently today to the way they did before the recession. People at all income levels are more thoughtful in the way they spend. The affluent are not back to spending the way they did before. Everyone has adjusted to some degree.


Do you believe the credit crunch and the economic crisis have permanently changed customer behavior?


If you think of the recession as a credit recession. Yes, people are not confident about what growth is going to be and, therefore, they are not as willing to take big risks to extend themselves. That’s because they don’t know if the economy will grow. Am I going to get a raise? Can I make that investment? Home purchases were good this year, auto sales came back, and home improvements are doing well, but they came at the expense of other kinds of spending. Consumers could either spend money on discretionary purchases or make investments in durable goods, but they couldn’t do both. But we need an economy that can do both simultaneously.


What are the biggest challenges American retailers face?


Consumer confidence, job creation, and economic growth. If customers aren’t confident about the health of the economy, they are not going to shop. We can’t resign ourselves to 2 percent GDP growth. We take the view that we should be doing things to get the economy growing at 4, 5 or 6 percent.


What important developments in world events and economics are guiding the way retailers do business?


Trade. We need to reach consumers outside of this country. We need to be facilitating commerce across borders and encouraging a new generation of leaders, thinkers and innovators to come to this country.

Think of the phrase that the US sneezes and the world catches a cold. What we import creates opportunities for manufacturers in China, Brazil, Germany and around the world, because it helps markets in other places. The US needs to be a growing, consuming economy.

In terms of immigration, I tell people that if they think we should be protectionist and isolationist, then we are going to be a second-class economy.


Is there a particular management theory, thinker, writer or book that has inspired you or you feel would be important for retailers to read?


Having been a lawyer my whole career, I went back to Georgetown University a few years ago to get my MBA once I started working as a CEO. At graduation, one of our professors who taught strategy gave an address on the importance of strategy. Right after him, the keynote speaker, who was the CEO of a company, got up and came to the podium and said, “Professor, I just want you to know that culture will eat strategy every day of the week!”

In an organization, which comes first, the strategy or culture? I think culture comes first. If you don’t create the right tone or environment, then strategy won’t make a difference, because you will never be able to execute it.

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