If you’d walked into a retail boardroom two or three years ago, you might have found the mood gloomy, to say the least. The tone then would have been heavily influenced by headlines like “Consumers Want to Spend, Just Not in Your Store” (May 16 — Bloomberg) or “Sears chairman says every retailer is screwed” (Feb 16 — Business Insider).
But the tales of retail’s death may have been exaggerated. In fact, today, retail spending is up. Kiplinger reports that retail sales will grow 5.1% in 2018, which surpasses its 4.2% clip in 2017 and in-store retail sales are anticipated to grow by 3.5%, the fastest rate since 2011. This is good news for retailers and investors both. Spider’s Retail ETF (XRT), with its largest positions including brick and mortar retail stalwarts like Kroger, American Eagle, and Nordstroms, has returned 18.5% this year (vs S&P 500 returns of 7.5%).
What’s happening? While the strong economy and increasing consumer confidence are playing key roles, so is competition.
As Michael Corkery for The New York Times wrote earlier this week in a story about the return of retail, “Amazon’s blistering success has prodded the incumbents to try to reinvent themselves” leading some “old-school retailers (to experience) some of their best sales growth in years.”
One of the ways retailers are driving this growth is through smarter use of data with companies like Custora, a retail analytics company that we’re welcoming to our portfolio today.
Custora’s software fundamentally helps retailers make sense of their customer data and market to new and existing shoppers more effectively. We’re incredibly excited to not only back this team but to once again be working closely with Tom Ebling. Tom’s the former CEO of both Demandware and Profitlogic, two GC-backed retail tech companies. And, he’s an executive-in-residence (XIR) with us here at GC and a current board member at Custora.
What’s New in Retail Marketing
For decades, retail marketers have focused on customer acquisition campaigns. Whatever drove the most store traffic was considered a success. Retailers enlisted companies like Acxiom and Epsilon to build out scaled data warehouses. Teams of SQL analysts often invested months running queries against those warehouses, compiling insights that marketing teams could use to inform product launches and large-scale campaigns.
Today’s retail marketers can’t afford to wait months for insights. Their strategies need to be dynamic and they have to integrate historical sales insights with customer interaction data from across the web, social, and mobile. Custora is sharply oriented to retail-specific use cases and workflows to help retailers flip that script. Their solution gives powerful data science capabilities to non-technical marketing users and allows them to push out curated campaign segments across multiple engagement channels.
Custora was conceived by founders Corey and Jon while studying advanced Bayesian probability models at Wharton in 2011. They thought about retail marketing and realized that highly trained data models could be accurate predictors of significant events like customer lapses and new product affinities. Their initial ideas have now become foundational to a secular shift taking place in retail: understanding customer lifetime value.
Custora is helping retailers think about marketing in the context of customer relationships instead of customer acquisition. Custora’s algorithms identify the key moments for retailers to engage existing customers and the most effective techniques to do so. Corey and Jon call this “Customer-Obsessed Commerce,” which is a new paradigm for retail and has been critical in the industry’s recent resurgence.
As tech investors at General Catalyst, we’ve partnered with companies across the entire retail tech stack, including those like Demandware (acquired by Salesforce) and BigCommerce that power e-commerce platforms and others like NewStore and Index (acquired by Stripe) that have focused on innovating on the in-store experience.
We believe the next wave of innovation in commerce will come through emerging technologies like those that Corey, Jon and the team at Custora are working on and are proud to be the lead investors in their Series B round.
With Custora, we are very excited about the next chapter in retail and the new life it portends!
— Dan Giovacchini & Team GC