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Microsoft CEO Satya Nadella: Here's what will define the future of retail

Brian Sozzi
Editor-at-Large

Data. Data. Data.

One of the many benefits of being Microsoft CEO Satya Nadella is knowing full well that Corporate America is sitting on more data than ever before. Sure, knowing Bill Gates’ personal email address has to be pretty cool. But access to an unparalleled amount of data — and all the rich learnings enabled from it — is quite cool as well.

Sit down for 15 minutes with Nadella for an interview — as yours truly did on Sunday — and those unique data-driven insights quickly become apparent.

In truth, some major companies are utilizing that data — collected and analyzed by various Microsoft software (and others in tech, of course) — to unleash previously unforeseen profits and empower front-line workers in new impactful ways for consumers.

Countless other well-known companies are out to lunch either because they lack the internal brainpower (and desire to build that brainpower) or financial resources to harness tech’s greatest powers. Or, they have the money but are spending it in the wrong places that don’t drive the biggest bank for the buck.

I have seen it time and time again.

Classify the retail sector as being partially out to lunch on tech, sprinkled in with a few success stories. Far too often, retailers hitch their names to press releases highlighting some flashy new tech product launch but never truly are hard at work internally to laying the plumbing to support the tech applications of the future. Further, retail executives are notoriously stuck in the old ways of doing things because they may have worked OK 10 years ago in a world absent today’s massive computing power.

That mindset is no longer acceptable for companies, notably retailers, in this day and age.

Microsoft is no stranger to being a retailer. It uses its stores as one part consumer facing and the other a learning lab. (Photo by Roberto Machado Noa/LightRocket via Getty Images)

In Nadella’s mind, those that unequivocally embrace technology and its many advantages will be the winners in the next decade of retail. He is dead right. Nadella particularly believes retailers must do a better job leveraging the data they are collecting on consumers, rather than dumping tons of money into search advertising on places such as Google and Facebook with mixed success.

“Retail — and retailers — have the most precious asset, which is commercial intent data. What they do with it is going to define retail and their own prospects,” Nadella told Yahoo Finance in an exclusive interview at the National Retail Federation’s NRF 2020 conference. “Today I think what they have been caught up in some sense is sometimes letting others benefit from their data. Any retailer that is spending more on online advertising with the classic aggregators is essentially leaking value.”

Stop spending on online advertising

Nadella thinks retailers would be better served building their own AI teams that could predict consumer behavior or solve last mile delivery challenges than allocating more funds to search functions. Good examples of retailers doing just that, according to Nadella, include Starbucks (Nadella is on Starbucks’ board and is quick to offer up praise), Walmart and Home Depot.

To single out Starbucks, the coffee titan isn’t necessarily out there blasting the internet with offers for free cold brew. Instead, it has spent big-time to build predictive analytics into its mobile app (the app will now know what you want before you even know). Starbucks has gone as far as adding tech to its store coffee machines to analyze performance and anticipate future needs of a single store.

That’s value creating.

It’s no small surprise that each retailer mentioned — viewed on Wall Street as tech leaders — have seen their stock prices outperform most in retail over the past decade.

Indeed Nadella may be onto something here, even if he has a vested interest in promoting the powers of tech sitting atop tech software giant Microsoft. Because let’s face it, retail continues to be a train wreck despite all the money being spent to reach shopping crazy consumers on platforms such as Google and Facebook.

Clearly something is wrong.

Consider this: spending on digital ads in the U.S. by retailers increased by about 19% to $28.3 billion in 2019, according to eMarketer. Yet, 9,302 retail stores closed in 2019, a 59% surge from 2018, per data from Coresight Research. It marked a record number of closings in a given year.

UBS estimates another 75,000 retail stores will close by 2026.

Yes, in part the thinning of the herd in retail reflects the country being over-stored in the age of online shopping. But a large component, to Nadella’s point, is probably due to retailers not spending wisely on tech or embracing its usefulness.

“I would really like the 2020s to be defined differently [for retail],” said Nadella,

Ditto here.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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