Five Below

 “We can’t fix your drain. It’s full of tree roots and the pipe is old and almost ruptured. The right solution is to replace it with a more modern design. However, that would take a lot of time and money. Instead, we could implement a low cost, temporary solution by installing a sump to collect the rainwater and run a new pipe from the sump.”

As I listened to my plumber, I realized how my drain problem is not unlike what engineering organizations in retail companies face today. Business users want quick, low-cost solutions for their day-to-day problems. Business leaders and board members want to know how soon we can enable scalable, long term digital capabilities.

Digital Transformation in Retail

Customer expectations for digital experiences are constantly evolving. Digital transformation is about continuously reinventing business models and operations, to keep pace with this evolution by creating a connected engagement across the physical and digital worlds. Covid-19 accelerated the need for transformation. The pandemic created a competitive necessity for retail companies to rapidly change their priorities and execute, in order to deliver a seamless, personalized and humanized experience to customers, across all customer touch points.

Digital transformation requires rethinking People, Process and Technology: Do we have the right talent and skill sets? Do our current business processes and execution methodologies support our future digital goal? Are we using modern technology strategically to meet the organization’s transformation vision? This article focuses on how retail IT organizations can build an ecosystem that enables companies to transform digitally - so they can quickly respond to market trends and meet customer expectations.

The Technology Challenge

Although the latest technology wave of native cloud and microservices has started to mature, most retail companies are still constrained by a convoluted network of packaged products and an inflexible set of legacy applications. These applications are often operating on a monolithic technology stack not designed for rapid transformation. How do we take this legacy environment and evolve it into a cloud and microservices based architecture? While replacing this complex fragmented legacy ecosystem with a state-of-the-art platform is the right long-term goal, the implementation time required is years, not weeks or months. Companies need to simultaneously execute on two tracks: build a long-term modern platform while tactically delivering scrappy solutions to meet the organization’s short and midterm needs.

The Approach

Understanding the business model and objectives for digital transformation is critical to delivering a technical roadmap that allows organizations to gradually phase-out legacy applications and to phase-in a modernized set of data-driven applications. || December 2022 2 9

Unlike in some industry verticals, a single comprehensive solution that meets all retail ecosystem needs, does not exist. Successful architecture requires combining best of breed third-party products with custom applications and seamlessly connecting all these applications, near/real-time, to build an integrated ecosystem. Thus, modernization, the first step towards retail digital transformation, focuses on three areas: custom built applications that enhance digital capabilities, best of breed third-party products, and a platform of interconnected, plug-and-play frameworks that are flexible and scalable. This interconnected platform-of-things—iPOT—allows onboarding both custom-developed and third-party applications over time. Modularity is critical to allowing rapid transformation without disrupting business operations.

"Digital transformation is about continuously reinventing business models and operations to keep pace with evolving customer expectations, by creating a connected engagement across the physical and digital worlds"

Agile, a long-proven technology delivery methodology, based on iterative and incremental development and deployment, is also important in this dynamic digital environment. Delivering on a digital technical roadmap will require IT organizations, in partnership with business, to adopt agile methodologies. This will enable a test and learn culture, necessary to validate that customer expectations are being met while incrementally delivering capabilities and value over the course of a long journey.

The Investment

The capital investment will need to include the iPOT build out, development of a façade around the legacy applications so they can interact with the iPOT (until they are eventually retired) and the cost to modernize business applications.

Accurate expectations need to be set early on, that the full ROI on the iPOT comes in the long term. The initial build may require more work than patching old applications and interfaces (hence the sump pump comparison) while the full benefit is realized as we onboard applications over time.

The How

First and foremost, the iPOT’s conceptual architecture needs to be laid out. Must-haves to onboard applications need to be identified, including a move-to-cloud strategy, capacity plan, secure integration framework, data-semantic framework, anti-corruption interface layer (comprised of adapters to legacy apps to address business continuity), UI/UX framework, a data integrity and monitoring framework, and data-labs, to name a few. The implementation of these key components should be aligned with a product roadmap prioritized based on business need. By aligning each component in the technical roadmap to desired capabilities in the business roadmap, you deliver incremental business value while simultaneously building out the iPOT. The overarching goal here is to use the iPOT to realize a data fabric, infuse intelligent, data driven decisions via AI/ML automation, and enable digital capabilities like social, AR/VR assisted and voice shopping.

Building out the iPOT can be simplified by adopting a pattern-based, plug-n-play architecture and design. There are a finite set of patterns, be it integration, security, data integrity, networking, automation etc. Focusing on these patterns and making them configurable will not only address time constraints, but also reduce costs. Build the pattern once and reuse it as many times as needed.

The Operating Model

Along the digital transformation journey, it is important to continuously realize and showcase business value using agile methodologies. In addition to building teams aligned to product groups, having a dedicated team for building out the iPOT is key. While the product groups are focused on enabling business capabilities, the iPOT team in turn, can focus on enabling the product teams by building the ready-to-use pattern based frameworks.

The Five Below Story

Five Below is one of the fastest growing value retailers in the market, offering teen and tweens high-quality products with extreme value priced products between $1 - $5 and beyond. Founded in 2002 and headquartered in Philadelphia, Pennsylvania, Five Below today has 1,100+ stores in over 39 states.

With a record growth rate of more than 20percent YOY for the past four years, and a plan to open up 150+ new stores and fulfillment centers in 2021, Five Below was in need of an ecosystem to support rapid growth while accommodating ever-changing customer needs. Following the steps outlined above, we gradually built Five Below’s iPOT, as part of a distribution center cloud modernization initiative. We continued to enhance and leverage the technical capabilities of the iPOT as we replaced a burning ERP platform in less than eight months and implemented a demand forecasting solution in less than three months. Gains in time-to-market and cost were also realized with the rollout of Instacart same-day delivery and expansion of our e-commerce fulfillment to a multi-node facility, in response to a surge in online orders driven by the pandemic. Our technology footprint continues to evolve, setting the foundation for new business capabilities including Ship from Store, buy online/pickup in store, and AI/ML driven customer analytics to drive personalization and marketing.

In Conclusion

Unlike my all or nothing drainage situation, a pragmatic and step-by-step approach is needed to enable digital transformations in retail companies.

Modernizing a retail ecosystem is the first step in the journey to a digitally transformed company. It forms the foundation to meet customers where they are - online, in-store, social media - and provide a seamless engagement experience, addressing their needs with empathy and care.