The retail sector has taken a big hit from the Internet, and Amazon in particular. Out at Nassau Park on Route 1, the big box Sam’s Club has closed. In the heart of Princeton’s downtown, a spate of stores announced closings in the last month, including Jane Consignment and Lisa Jones. But customers are not ready for brick-and-mortar stores to vanish. Internet-based commerce, although it is moving toward greater service, has yet to reproduce what local stores are best at: knowledgeable, in-person salespeople, a chance to see and touch products, and immediate availability.
The cofounders of the two-year-old Radius8, a start-up based at 707 State Road, Sandeep Bhanote, Brendan Phelan, Chi Park, and Evan Shaw, have made software that gives stores a way to capitalize on these strengths. As CEO Bhanote says, “how do we use the physical to help the digital and the digital to help the physical, beyond inventory availability?”
The driving idea behind Radius8, Bhanote says, was to “leverage physical stores in a way which could make discovery of what customers want to buy more contextually relevant.” When a shopper visits a website of a retail store served by the Radius8 software, the shopping experience could begin before the shopper even gets to the store.
A shopper walking down Nassau Street in 10-degree weather could pick up her cell phone to search for a store where she could get warm and do a little shopping. The website might be displaying coats, scarves, and mittens — if that company has signed on with Radius8.
This is quite different from the top-down marketing decisions made by the people in corporate offices. “If you go to anntaylor.com,” Bhanote says, offering an example, “what you are going to see and what they want you to see is what corporate says they want you to buy.” What will come up on your phone will reflect the ad campaign decided by corporate for the first week in January, with no relationship to local weather or your personal viewing characteristics.
Radius8 focuses for now on chain stores, though the company envisions expanding its role to serve mom and pop shops as well. To make sure the websites of local stores are displaying content that speaks to their local customers, rather than playing to a national cohort, Radius8’s software uses in-store inventory and sales data, and weather data, as well as information on what potential customers are looking at on their phones and where they are.
Phelan, vice president of strategy, explains that the software gives customers “a proactive visibility into the store as a customer. It automatically changes the website to represent the local store, the store nearest you.”
Suppose a clothing store in town has a red sweater that has been overlooked by customers. The norm for retailers would be to wait until the end of the season and mark down items they have been unable to sell. The software would automatically see the high level of the store’s red sweater inventory and the low sell rate, and, says Phelan, “the website would automatically promote that item, just in that market.”
A store can also use Radius8 to bring customers through the door. It might offer a special discount to people close by, for example, anyone at the mall or on Nassau Street. On a cold day it might attract people to the store by displaying coats on its website and try to “sell a few more coats at full price rather than a discount,” Phelan says.
A chain’s website is focused nationally. The problem “is that it is not doing anything for the store,” Phelan says. “We are solving the problem that it’s very difficult for customers to engage with their local store through the corporate website.” The software displays what is actually in the local store and what is relevant to you based on your location. If you select a store near your office, the software customizes the website for that store.
By focusing on what is in stock at a specific store customers avoid the frustrating situation of, say, viewing online the perfect black dress for a party, only to find that it is not available to try on at their local store. Of course, customers also can still access the company’s primary website, which accesses all items in its database.
Phelan emphasizes the power of the brick-and-mortar shopping experience. In the best retail stores, sales associates interact with customers, learning what they like, finding items that might work for them, and offering opinions on how well the item suits the person — experiences a person will not have online.
“A store is an advantage to retailers — if you get more people to have those experiences, you will be more profitable and successful,” Phelan says. Of course you can ship five pairs of shoes to yourself and return what you don’t want, he says, “but it’s not like going into a store and finding the perfect item,” he says, and avoiding the hassle of making returns.
The real value in that store experience is the one-to-one relationship, the chance to touch and feel beautiful merchandise. “A lot of retailers are doing that but not in a way that is in touch with consumers,” he says.
So the question, Phelan says, is “how do you translate that to a millennial or customer on the phone before they make the trip? How do you get the customer into the store? The guy in Brooks Brothers has great suits, but you’re not going to make that trip if the experience isn’t relevant to you online.”
Phelan maintains that the local store is essential for any effective competition against the bane of the retail industry, Amazon. Current retail trends, Phelan says, can be summarized in terms of Amazon. “They are the innovators,” Phelan says. “Regarding the rest of retail, analysts are asking, ‘What is your Amazon strategy?’” (See article above for a summary of the many tactics being deployed in downtown Princeton.)
Radius8’s strategy is to give users an opportunity to see a local store’s unique offerings on the web and then to make a visit. “The store is a huge opportunity to compete with Amazon. Amazon doesn’t have a store where you can try on stuff and interact with associates,” Phelan says.
Radius8 convinces chains that they need its software by telling them: “The sky is falling, and we have your anti-Amazon antidote. We are the ADT, Amazon Defense Team.” Bhanote tells them, “You have all these stores, and they all have this rich data — how do you use that information to turn it into an advantage for you?”
Not all stores are created equal, Bhanote says. They don’t have the same level of inventory, and people buy differently in the stores. Trends for the same chain store are different on Nassau Street in Princeton than in Florida or Los Angeles. “One critical element that distinguishes them is the market around the store and what are the most popular items people are interested in buying,” Phelan says.
“The magic of our software is that we can create those experiences in every market and every store,” Phelan says. Even in a chain with thousands of stores, “every store gets a unique experience for the consumer that is local to that store.”
Although the data that Radius8 uses might be available to individual stores trying to customize their online presence, its software organizes that process “on the scale of the world or on the scale of the United States,” Phelan says. “Dynamically across a chain we are able to deliver these experiences without all the hard work: where people are, the trends around a store, and what people are doing. It is a corporate approach to solving a problem that gives a local, customizable experience for every business based on their location,” he says.
Radius8 is trying to convey some of the characteristics of a mom and pop store to people shopping on their phones or computers. A local Princeton merchant, Phelan says, “would buy certain products relevant to the Princeton populace and weather because that is what sells well in that market.”
This contrasts to a corporate image, which is the same across all stores. Referring to one of Radius8’s customers, Phelan says, “If I’m shopping at Guess, there is a Guess corporate image that every store has, so what we’re doing is bringing the local nuances back to the discussion — what Guess stuff is relevant to New York versus Miami.”
But it can be a delicate balance because a corporation wants to be able to maintain its brand image. The CEO of a big retailer doesn’t want a store associate to make those website-customizing decisions on the fly “because suddenly the brand image gets confused — it wouldn’t be a consistent brand experience,” Phelan says. Radius8, he says, “takes the corporate vision and then adds the local trends to it. It is still the corporate blueprint but a localized version of it.”
To coordinate the online experience of millions of users so that each one is getting a unique experience based on the local market is no easy feat. Radius8’s developers work with “millions of records a day across tons of different retailers,” Phelan says, and by basing everything in the cloud, they hope to process these records with no delays and no problems. Bhanote adds that the data gathered is anonymous.
So far Radius8 does not have any direct competitors, but, Bhanote says, “we’re all competing for the same dollars. Retail has only a certain pot allocated to spend money on something: on us, on construction of a new store, on investment in a new line of product, on marketing — we’re all competing for those dollars.”
“The retail industry is in transformation,” he adds, pointing to many startups that think they have solutions to a variety of problems: how do I make my website faster; how do I save a couple of pennies shipping am item I’m selling? What might a customer want to buy next based on her three previous purchases?”
Bhanote says that whereas in its first two years Radius8 has focused on big retailers —two of its customers are Guess and men’s fashion design store John Varvatos — the technology could in the future translate to mom-and-pop stores, which currently may have no online tools beyond a Facebook page.
“Their bread and butter is predicated on somebody walking past their stores,” he says. In the meantime, local stores could use Facebook ads, for example, to target people within the store’s catchment area about a sale.
“If a greater number of people know about something in a store close to them, the chance is they will come in and buy,” Bhanote says.
Bhanote grew up in Queens, where his parents immigrated from India in the late 1960s. His father opened a convenience store in Astoria and went on to become one of largest distributors of Samsonite Luggage. His mom was a homemaker and worked in the business. “It was all hands on deck,” he says. When he was about 12, his family moved from Jackson Heights to Perth Amboy, where he met his future Radius8 partner, Chi Park. They lost touch for a number of years, but reconnected after Park graduated from New Jersey Institute of Technology.
Bhanote describes himself as “a self-taught coder” who during college “monetized my computer skills on Wall Street.” He never finished his computer science degree at Pace University in New York. He started his first company, Global Bay, with “a cool technology,” based on “the idea of taking mobile devices and being able to store data on them.” Back when a handheld computer had two to three megabytes of storage, the problem was how companies could give their field workers devices to access information without having reliable connectivity. At the time wireless networks were both very slow and very expensive. “We were able to optimize how the device could store relevant pieces of information for when you needed to access it,” Bhanote says.
Global Bay’s first retail customer was Coach. “We thought their problem — how to store inventory data on a device without a consistent, perpetual Internet connection — was obscure, but apparently the rest of the retail industry had the same need,” Bhanote says. Corporate would send the handheld devices an estimate of what they thought was in inventory, and Global Bay’s software would send back to corporate what the actual inventory numbers were. The company was founded in 2007, and it was sold to Verifone in 2011.
Bhanote maintains that running Global Bay “was better than an MBA.” He developed hands-on experience with all aspects of the business. First, he says, “you have to sell the idea to your employees so they feel like it is a good thing to come to work every day.” And of course the same applies to potential customers who you want to buy your product. And finally, “you need to convince investors it is a good idea to put money into. You’re constantly trying to figure out how to appease” the employees, customers, and investors “and at the same run a business, make payroll, stay competitive, and make sure your idea isn’t easy to copy,” Bhanote says. “You’re constantly juggling; I don’t know what school could compare to this.”
Phelan was born in Syracuse and moved to Rhinebeck at age 8. His mother teaches business and marketing at a Ulster County Community College, and his father is superintendent of the Rhinebeck public school district. As a youngster, Phelan was into science and numbers and music. He plays guitar, a little piano, saxophone, trombone, and tuba, and was in musical theater in high school.
He graduated from Muhlenberg College with a bachelor’s degree in chemistry and a minor in economics. Unlike Bhanote, Phelan continued on the academic route to earn a PhD in material science and chemistry at Princeton, where he was inspired by a class in high-tech entrepreneurship with Chris Keunne, founder of Rosemark Capital, the venture capital firm at 90 Nassau Street. Phelan and Bhanote met in at Tiger Labs, Radius8’s first home. At the time Phelan was a partner in a pro bono consulting firm.
With Bhanote being a second-time entrepreneur who had built a company and sold it, Radius8 was able to raise money based on the credibility he and some of the other founders had. But, Bhanote adds, “at the end of the day, getting out there and getting in front of people is the name of the game in tech startups.” Radius8’s investors include Tiger Labs, Newark Venture Partners, Commerce Ventures in San Francisco, and EIP Ventures in New York City.
Bhanote is thankful that “we’ve been very lucky to have amazing people work with us on this company.” That’s critical because currently the company has only 11 employees, but, he says, “at this stage we have to do the work of 40 people.” In fact, a primary reason the company chose to set up in Princeton, he says, is “the access to talent.”
Two of Radius’s cofounders, Chi Park and Evan Shaw, and many of the other employees, worked for Bhanote in his first entrepreneurial venture.
So why are many retailers are struggling — having to close stores and getting a poor response from Wall Street — but some are not? Phelan’s answer is simple: “We see retailers doing well who are heavily invested in the in-store experience and investing in customer service.”
When you walk into a J.C. Penney’s or a Sears and see sections without inventory, Phelan suggests that they probably have not invested in the customer experience for 20 years and are not innovating. “You have big guys struggling, so the whole market appears to be struggling,” Phelan says. “But there are retailers who have invested in innovation and are doing well.”
Some brick-and-mortar stores, for example, are focusing on the customer experience in an innovative way. Zumiez, a teen retailer, has hundreds of stores across the United States and Canada, focusing on the skate and snowboarding industries. “They are doing a great job of creating a sense of community around their stores. They are not just a place to shop; they are a place to hang out,” Phelan says. The teens might stay for a couple hours, sitting on couches or using the store’s video game consoles. Zumiez also hires teens who are into skating and snowboarding as sales clerks so that they can connect strongly with the store’s customers.
Another positive trend is that some online retail ventures have begun to understand the value of bricks and mortar. Phelan points, for example, to two new retailers that started online and then opened stores: Warby Parker, which sells eyeglasses, and Bonobos, a men’s clothing retailer that had 20 retail stores in 2016 and 100 in 2017. These stores, he says, are themselves distinctive in the experience they offer their customers.
Stores like Warby Parker and Bonobos point to the potential for a mutually beneficial relationship between store and website.
Bricks and mortar stores are expensive — having to juggle leases, salaries, and inventory costs. They need to be innovative and think more about the right way to drive success in order to succeed. Radius8, Phelan says, is helping retailers to “use their stores smartly” and “not just hope for people to wander in.”
“People who come in and interact with associates,” he adds, “buy a lot more.”
Radius8, 707 State Road, Suite 105, Princeton 08540. 609-375-8851. www.radius8.com.