XRC Labs Chief Anthos: Retailers Must Adopt “Test and Learn” Culture

As college undergraduates, my roommate and I had what we called a “monowardrobe.”

That’s how we described the contents of the closet that lined a wall in our dorm room. We each organized our own clothing on either side, but since we both wore the same size in clothing and shoes, we “shopped” for outfits in either section.

“Sharing a closet, that metaphor … describes a peer-to-peer marketplace, an Uber kind of platform for clothing, where there is an endless supply,” says Pano Anthos, managing director of XRC Labs, a retail tech accelerator program in New York.

The use of Uber as a descriptor isn’t accidental. The retail industry need only look to the automobile ecosystem to see what’s coming next, Anthos adds. “You had rental cars way before Rent the Runway; or you could lease a car, which is something in between,” he says. “Something very similar will be developing in the next few years in retail.”

I spoke with Anthos recently to get his perspective on the challenges affecting the retail industry and how new technologies might help brick-and-mortar establishments better compete in the age of Amazon (NASDAQ: AMZN). Though shopping online and, increasingly, through our mobile devices has become commonplace for most consumers, Anthos says, many legacy retailers have yet to fully integrate tech innovations into their operations to meet that demand.

For example, he asks, why not leverage software and analytics to do a retail version of the Lexus Certified Program for leasing used cars? Or a brand could set up an Uber-style service with its clothing lines where items are used while needed but may not be purchased outright.

Anthos points to Convey, one of XRC Labs’ startups from last fall, which focuses on the secondhand market. Convey says its “resale-as-a-service” model allows shoppers to return lightly used clothing in exchange for in-store credit. “Brands who’ve traditionally sat on the sidelines while eBay rakes in resale revenue can now keep shoppers in their ecosystem, and earn an additional 40 percent in gross revenue each time an item is resold—all without worrying about additional inventory or logistics,” the startup says on the XRC Labs website. (It is perhaps not a coincidence that Steve Zerneri, Convey’s founder, was an early employee at Uber.)

The resale economy “is going to have a massive economic impact on anyone who sells stuff for a living,” Anthos says. “Build it and they will come is not going to work anymore. We work with retailers to help them implement test-and-learn cultures.”

XRC Labs was founded three years ago to promote innovation within the industry and help legacy companies manage the change. Housed at the Parsons School of Design, XRC runs 14-week programs with each class made up of 10 startups.

The companies use analytics, personalization tools like 3D printing, and facial recognition software to enable retailers to provide targeted services to customers. For example, FindMine, which uses analytics and machine learning to offer consumers a digital stylist, was part of XRC Labs’ first class three years ago.

Retail is a global industry of around $25 trillion and accounts for about 31 percent of the world’s gross domestic product. Technological innovations such as 3D printing, robotics, and artificial intelligence are threatening current practices up and down the retail food chain from manufacturing and shipping to sales and marketing.

But, so far, most retailers “look at innovation in a silo instead of something that needs to be across a company’s culture,” Anthos says.

Accelerating the use of new technologies in consumer goods companies is a growing niche. In addition to XRC Labs, New York is also home to AccelFoods, a $35 million venture fund that invests in food and beverage companies, and Retail X, a self-described “boot camp” for early stage, pre-seed startups.

Outside of New York, there is REVtech, a Dallas-based accelerator that focuses on restaurant, retail, and hospitality innovation. Austin is home to the consumer goods technology-focused SKU accelerator, and Cincinnati is home to the Brandery, which focuses on branding, marketing, and design. (Interestingly, San Francisco does not seem to be a hotbed of retail-focused accelerators, though plenty of retail tech startups go through programs like Y Combinator.)

Anthos says XRC Labs serves as a “canary in the coalmine” for the retail industry, pointing out what tech trends are no longer relevant, or investable, and what’s coming up. In addition to working with the accelerator’s startups, XRC Labs works closely with its retail sponsors—typically, those startups’ ultimate customers—hosting quarterly “state of the industry” reviews that address tech trends. XRC Labs also hosts an Innovation Lab at the National Retail Federation’s annual conference.

Anthos says that vantage point shows him that the retail industry overall has been slow to allow innovation to thrive. The ongoing travails of retailers such as Macy’s (NYSE: PG) or Sears (NASDAQ: SHLD) are well known. But even once high-flying companies like Under Armour (NYSE: UAA) can hit rocky seas, if they don’t embrace a culture that promotes constant innovation, he says.

The common denominator among these struggling businesses, Anthos says, is a corporate culture that prevents retailers from being responsive to customer needs. The Internet provides transparency about products and their features—just think of all the times you discovered something you wanted to buy but hadn’t seen in the store. Technologies like 3D printing and robotics enable more personalization, meaning customers can decide which color or embellishment they prefer on a garment instead of just accepting how it’s offered by a manufacturer, he says.

Retailers, on the other hand, “are used to telling people what to like and not like,” he says.

But Anthos adds that he is seeing that smaller retailers are more amenable to trying out new technologies in short-term pilots, quickly adopting what works and discarding the rest. The larger retailers are, in turn, keeping track of those activities, he says.

Ultimately, the retail industry as a whole must get more comfortable with a test-and-learn culture more typical of the tech industry. “Are you bonus-ing people for testing 10 things a month … for demonstrating failure as well as success?” Anthos says. “You need top-down culture change and bottom-up tech adoption.”

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