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Should Sears CTO Be Building A Tech Startup?

Definitely, if it helps drive needed change at the retailer. If it's a distraction, Sears is doomed.

Given all of the headwinds Sears faces, should its CTO be spending much of his time building a startup? Sears Holdings had operating losses four of the last five quarters. Sears chairman Eddie Lampert, whose hedge fund owns more than 60% of the company, started his chairman's letter back in February with this assessment: "Our poor financial results in 2011, culminating in a very poor fourth quarter, underscore the need to accelerate the transformation of Sears Holdings."

In that environment, launching a technology startup is risky, given the potential for distraction from meeting the IT needs of a $42 billion-a-year retail business that includes Sears and Kmart. With the MetaScale venture, CTO Phil Shelley is looking to take advantage of Sears' broad experience with using the Hadoop big data platform. MetaScale sells subscription services to manage large data sets using Hadoop, and it offers big data consulting.

Shelley doesn't see such a startup as risky. Lampert, he says, sets the expectation that executives need to make such moves. "It's a very innovative environment," Shelley says. "The concept of generating new business, a new business model, a whole new business, is very much encouraged."

Sears is doing cutting-edge work when it comes to Hadoop and big data management. Some of the most practical work--work that other big companies might buy as a service--is moving big batch processing data loads off of mainframes, cutting hours of processing time. Applied to Sears' own business, eliminating mainframes could save tens of millions of dollars.

But when it comes to applying big data tactics to change Sears, it feels like Sears could be doing more and moving faster. One of the most promising areas is for customized marketing promotions, using Sears' growing loyalty card program to know what customers bought in the past and what they're now buying, and to give them an intensely relevant offer to get them to buy more. Sears is just beginning to do that kind of personalization at scale.

"You're starting to see that much more personal, targeted, digital engagement," Shelley says. "It's a big company to change, so it will take awhile, but it is changing."

A critical advantage of Hadoop, Shelley says, is its ability to let companies keep and analyze all of their data. Whereas Sears used to analyze 10% of data on customers to figure out which promotions might work, now it can analyze all data on them. Because it's cheaper and faster to keep and analyze data, he says, it's collecting more of it--such as data coming into Sears' call center about which appliances are breaking and how often. But Shelley doesn't offer a clear example of how Sears is putting that kind of data to profitable use.

One argument in favor of Sears doing a startup like MetaScale is that, the most feared company in retail today, is doing its own tech startups. The e-commerce giant's Amazon Web Services arm pioneered the sale of commodity infrastructure-as-a-service, letting companies buy computing capacity by the hour with only a credit card. Sears is attacking a niche in the cloud computing market: high-end, specialized Hadoop workloads.

A more powerful argument in favor of MetaScale is that it forces Sears to stay on the leading edge of big data management and analytics, and lets it learn from big companies that are innovating in other industries while also driving some revenue. Shelley won't say how many clients MetaScale has, but he refers to a major healthcare company and another in financial services.

Retail Must Change

You can't walk into a Sears store today and really feel how Shelley's big data efforts have changed the shopping experience. But Sears isn't alone--up against this challenge is every single big retailer: Best Buy, J.C. Penney, Wal-Mart, Target, Home Depot, Lowe's. Every one of them needs to figure out how to make in-store shopping so appealing that customers come to their stores to make purchases rather than to just look around and then buy from discount competitors online.

It's no exaggeration to say that Sears' survival hinges on its ability to figure out how to serve customers across store, Web, and mobile channels.

Lampert, in his chairman's letter, listed the five pillars of Sears' business (see p. 22). One is "reinventing the company continuously through technology and innovation." Lampert said he spends more of his time on that pillar than any other. He realizes that people will soon, instinctively, reach for their smartphones as they shop in stores. "How people shop today is changing, and it isn't just the younger generation that is benefiting from iPads, Facebook, and online retail," Lampert wrote.

Retailers have yet to take truly daring steps to create this cross-channel experience. But imagine stores geofenced by Wi-Fi, so that loyalty card customers' smartphones automatically notify the store when they walk in. Sounds creepy at first, but that's exactly what many people have set up on Amazon. Give people a compelling reason to set that kind of functionality up in a physical store--say, to receive customized offers on their phones--and they will.

How about changing prices multiple times a day? Sears is building the data analytics necessary to make those kind of dynamic price and inventory decisions; like other retailers, it's also experimenting with digital price signs in stores that would make such changes feasible. Again, dynamic pricing would be a dramatic change, but perhaps one needed to compete with online retailing.

Retailers' survival depends on these kinds of changes in the mobile e-commerce era. If Sears' MetaScale work helps it figure out the omni-channel shopper, its startup will succeed. If it doesn't, or it distracts Sears from this mission, it will have failed because there won't be a Sears or Kmart left.

Go to the main story:
Why Sears Is Going All-In On Hadoop

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User Rank: Apprentice
1/5/2013 | 11:26:47 PM
re: Should Sears CTO Be Building A Tech Startup?
Hadoop will not save Sears. As a former Hadoop team member, Sear's use of Hadoop is laudable but is also born out of the absolute need to lower costs. Everything at SHC is about lowering costs because the retailer has lost it's way. They are trying to staunch the flow of blood because they do not spend on improving their stores, which in turn have a dingy look, non-existant personnel, and only fair to good quality. Establishment of Metascale is part of Sear's overall strategy to extract value out of anything and everything they own: let other companies sell Diehard, Craftsman. Lease floor space to other retailers. Anything they can do to keep the company going in an attempt to become an "integrated" retailer - Eddie Lamberts brainchild. Unfortunately, this idea is fatally flawed. It is based upon middle class customers wanting to come in to Sears stores to then buy products that often times they can't feel or touch. So in the mean time Sears is selling off it's assets to stay afloat. They are cutting their nose off inspite of their face. And, everyone inside knows it, and wants to leave or hang on until retirement. So that has become the problem with Hadoop as well. They had a great first year with Hadoop and then many of the leaders of the group left. They have several good people, but the team is very shallow and will be completely overwhelmed with 2 customers.
User Rank: Author
11/21/2012 | 2:39:54 PM
re: Should Sears CTO Be Building A Tech Startup?
I received this comment via email from a reader, who agreed to let me post it anonymously:

"I am a programmer involved with data management, but nothing so big. The use of the data to make my in-store experience better caught my eye. Want to break your customerG«÷s trust? You donG«÷t need to change prices three times a day (Yikes! Is morning or afternoon cheaper?), since three times a week will do. I think that retailers may have forgotten that the customer is a person that does not always make logical decisions, but will hold grudges.

As an example of this, I use my typical Hope Depot experience. Has this happened to you?

When I go to Home Depot, the probability that I will get everything I am looking for is about 50-50. Empty shelves, products no longer available due to lack of choice, quality products exchanged for the lower quality one (possibly due to price G«Ű you canG«÷t get the better Toro mowers there), dirty shelves, dirty products on the dirty shelves, damaged products on the dirty shelves. I found the grade-8 bolts, but went somewhere else for the washers since they only had two.

Home Depot is only three miles from my house, so I put up with this, but I also go other places for the things I need. DonG«÷t bother with LoweG«÷s, their stuff is terrible, especially their lumber.

So my question is: How will analysis of data, down to the transaction level, make my experience better? I think that the CEOs of these companies need to go shopping.

How has your in-store experience been lately?

Take care, and watch out for those changing prices."
User Rank: Apprentice
11/2/2012 | 4:59:57 PM
re: Should Sears CTO Be Building A Tech Startup?
K-Mart is a complete garbage store. It only succeeds in markets where it's the only "big box" retailer. As far as I'm concerned Target is the model for big box retailing done right. The store lay-outs, the colors, the lighting, the aisle widths, the product selection and mix, the intensive (REALLY intensive) merchandising the store associates do is tremendous. The right merchandising is subtle but it transforms the store experience and keeps the aisles orderly and clean. At Wal-Mart, K-Mart etc. the only reason associates go into the aisles is to re-stock or put go-backs on the shelves. Wal-Mart, K-Mart, Sears... they're just really, really bad in comparison. Wal-Mart studies Target for a very good reason. They've figured it out. Everyone else is trailing and trailing badly in overall appeal, design, layout, and merchandising. Wal-Mart is succeeding by brute force, scale, and the sheer power they have to drive prices down (i.e., cheap Chinese junk), but they're not even close to winning as an overall merchandiser.
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