How Albertsons Addressed Key Retail Challenges to Improve Customer Experience

In today's competitive market, retailers face an unprecedented number of challenges. In this uncertain environment, having a robust tech stack to support core processes is more important than ever. This need is especially pronounced in essential financial systems such as taxes. In this edited webinar transcript, Frank Vasi, tax manager at Albertsons and Vertex's Matt Thoman and Tatyana Martinez outline common sources of friction in the retail experience – from common consumer challenges, to legislative changes, to disruptions across corporate initiatives – and how customer-centric technologies such as advanced payment solutions have helped the retailer to overcome them. Maia Jenkins: Hello, everyone, and welcome to today’s webinar “How Albertsons Meets (and Exceeds) Evolving Customer Expectations,” which is presented in partnership with Vertex, and hosted by RIS. My name is Maia Jenkins, I'm an editor at RIS, and I appreciate you joining us. Today, we’re going to touch on findings from RIS's 33rd annual Retail Tech Study, before moving into a broader conversation around how these technologies are helping eliminate, or ease up, common catalysts of friction – I'm sure many of you are familiar with this in your own working contexts. As a brief overview, for this study we asked respondents for one word to describe the current state of the retail tech industry. As you can see, the responses overwhelmingly included terms such as: evolving, changing, dynamic, in flux, etc. It's clear that retailers are grappling with significant changes and immense disruption at the moment, all while trying to keep core functions and business models resilient, consistent, and up-to-speed. In this uncertain environment, retailers need to build robust systems and business models that are agile and quickly adapt to these changes. Nowhere is this more pronounced than in financial and tax processes, which is what we'll be focusing on today: How to boost resilience and agility. We’ll also outline some applications to financial processes from the report. To explore these trends, we are joined by Frank Vasi, Matt Thoman, and Tatyana Martinez. Thank you all for joining us today, may you each introduce yourselves, and share what you do at your respective companies? Frank Vasi: My name is Frank Vasi, and I work for Albertsons Inc. I am the tax manager for the e-commerce channel, handling the Vertex O configuration with our tax engine and making sure the customer has a happy experience when making a purchase online for tax purposes. Matt Thoman: My name is Matt Thoman, I'm the retail solution owner at Vertex. I primarily ensure that our tax solutions meet the needs of the retail industry. I'm also responsible for our edge computing products, which have a heavy benefit in the retail industry, as well. Tatyana Martinez: Hi, I'm Tatyana Martinez, one of the Principal Lead Consultants in the retail consulting practice at Vertex. I engage with customers after the contracts are signed, and help develop their solution with our tax engine. Jenkins: I thank you again for being here with us today. With that, I’ll hand it over to our panelists. Martinez: Thank you. There are many catalysts of friction, which we see day in and day out in our industry, including retail sales and use tax. For this webinar, we broke it out into three topics that we will dig deeply into: the consumer aspect, legislation, and corporate. For the consumer aspect, there's environmental factors that can affect it, such as the pandemic that we just had. The new generations are more savvy, liking and expecting new ways for businesses to meet their expectations. For legislation, there's constantly new changes, such as new tax laws and jurisdiction boundaries getting updated. More specifically, in the last few years, we’ve seen factors – for example specific product fees, the Colorado delivery fee, marketplace rules, physical origin, or whether you should register or not – which are causing challenges. From the corporate perspective, you as a business will have initiatives and ideas of where to go within the technology world. We'll touch more on that, and how it causes friction or decreases friction, in meeting consumer needs and legislation expectations. Let’s begin with the consumer aspect. As I mentioned, there are environmental factors and different expectations. Matt, would you like to get into the specifics? Thoman: This came directly from the RIS study. Here, we have a laundry list of technology initiatives that retailers are looking at in order to find new ways to meet customers. At the top, we have curbside pickup, in-store pickup – these are features that came out of the pandemic. However, I’d like to key in on things like in-store shipping, Wi-Fi for customers, and even shopper tracking capability. These are things that either the consumer got used to, or the retailer got used to working in an e-commerce setting during the pandemic. Now that the pandemic is over, the expectations around that experience have completely changed. In-store retail used to be the primary way customers interact with a brand. Now, they've spent so much time working in e-commerce that there is a desire to get back into the store, however, their expectations of how they interact with a brand are completely changing. They're expecting to be able to have an endless aisle of goods. If the color, flavor, style, or size of a product isn’t available in-store, they expect the retailer to be able to order it and show up on their doorstep in two days – just like they would online. In-store Wi-Fi. If there is a mobile app that customers are used to interacting with, it's now common that they're going to be in-store looking at the products on the shelf, while they're on the mobile app at the same time. This entire interaction has completely changed as a result of the digitization of the industry. Regarding point-of-sale and technologies retailers are looking at: This is a very specific engagement – the way that retailers engage with their customers – in that the checkout is a component in a sales tax environment where a lot of things can go wrong. This is something that Vertex spends a lot of time talking about because this is where tax calculation comes in. You have to be able to calculate tax during that checkout process. This is our world. This is where not having the right tax solution, or not having the tax solution in use in the right way, can create friction during the checkout experience. Even though cart abandonment rates are faster online, they are still very fast in-store. We're going to dig into these technology initiatives, the POS upgrades, and how tax can impact these. Then, we’ll share what to do to make sure you're not creating friction as you upgrade technology. Frank, I’ll hand it off to talk about the technology landscape at Albertsons. Vasi: Albertsons e-commerce is brand new – less than 10 years old, when e-commerce really started to blow up. A lot of the problem is, many retailers’ POS systems were built in the 1970s and 80s, on old technology, like COBOL and not SQL or Python code. The challenge is that we want to make sure customers get the same tax answer when they check out online as when they check out at the store. Oftentimes, because the POS is older technology, it doesn't have the ability to tax service fee and tax freight correctly, or make the tax calculation. However, the checkout platform on e-commerce can make those complex calculations. Many retailers now have to spend resources upgrading the POS system – and, quite frankly, the people who built the POS systems are now old and retired, or long gone. That's the challenge for retailers, because when upgrading or replacing POS systems, it's hard to know why somebody built something in 1970. Martinez: That's what we hear from a lot of retailers, at least in my industry, “is why did they do that?” The retailers don't have the budget to do this, but now they have to. Behaviors will continue to evolve as the world keeps moving – constantly. There's going to be more consumer expectations and different laws that are more complicated. It produces a lot of challenges for the business. However, there are trends that, as a business, you want to evolve – doing more with mobile apps, artificial technology – to enhance the customer experience because for most retailers that's the bread and butter. The second topic that causes friction is legislation. There's constant law changes. Sometimes, I think there's a group of people sitting in government offices like, "I'm bored, what new law can I come up with to make more challenges for retailers?" Especially in the U.S. with the complicated taxing on products. We'll dive deep into the different law changes that have been happening and causing this. Thoman: Legislative changes always happen rapidly. There are thousands of taxing jurisdictions with 40,000 tax laws that are impactful in the retail industry, and 46 of them are the state tax rate. If you do the math, that's a lot of taxes that are coming at the county and local level, which are oftentimes very targeted at specific industries, or specific products. Everyone at Vertex that has spent enough time here has their favorite examples of crazy things that local jurisdictions will do to target special products, and the weird impacts it has. One that comes to mind is: there are counties that have special taxes on baked goods. I don't sell baked goods or own a bakery, so why does that impact me? Well, the wafers in the Kit-Kat at the checkout aisle qualify the Kit-Kat as a baked good. Now, you need to apply that special tax to that product. When a technology organization thinks about the things that you want to do, the products that you want to offer, the technology that you want to implement, one of the most important things we talk about is making sure the tax department is engaged and knows about these things. It's impossible for someone who isn’t plugged into the tax world to account for all the changes because these laws are a moving target. It's impossible to account for everything – and it's impossible for a tax department to account for everything – without technology like a tax engine in place. That's where Vertex comes in. It is just as important for the tax department to understand where the business is going and what it’s trying to accomplish from a technology perspective, so that they can be prepared. To dig into some of those numbers, I'm handing it over to Tatyana. Martinez: As Matt pointed out, there are many different legislation targets. For example, of the 45,000+ zip codes in the U.S., each one has a different tax law – usually 10,000s of rates and rules that apply to different products. You mentioned bakery goods. What is considered bakery goods? Each different locality has its own interpretation of what a bakery good is, what is considered food for home consumption, and what is considered for immediate consumption? There are different aspects that affect that. Here, we’ve detailed some recent changes that we were able to find as examples. Frank, can you share, more specifically, from the Albertsons perspective? Vasi: One of the legislation changes that has greatly impacted us was the Colorado Retail Delivery Fee. Colorado passed legislation that states the need to charge a 27 cent delivery fee for any e-commerce order, and it has to be displayed as “Retail Delivery Fee” during checkout. Well, that's a new category, which now impacts the checkout department. The e-commerce team needed to prioritize a project to add “Retail Delivery Fee” to the checkout screen during the ordering process. They had other priorities going on, but there was a hard date to get this done by January 1st, 2023. This meant they had to constantly move and reprioritize corporate projects to balance this legislation change. These hard deadlines can't be changed, so finding the right balance between corporate and legislation can be challenging for a retailer to do. Thoman: If this sounds overwhelming, remember, this is what Vertex does every day, this is our bread and butter – it is manageable. We focus on getting rules into the tax engine so that tax professionals at client organizations can adopt those rules, put them into place, and keep their teams compliant. One of the ways we keep a forward-look on this is by having a Chief Tax Office that studies what's going on in the market and in the tax world, ahead of time. States are looking at new ways to tax digital goods, digital commerce, and then include digital exhaust intelligence. How can they tax data? Some of this is about applying, or making sure the tax regime is accounting for the change in consumer behavior. But some of it is looking for new sources of revenue, and regulating through taxation, rather than through creating strict laws. Tax on social media users is where I can see the desire to regulate what's going on a bit. The next one is Economic Nexus requirements. Approximately 20 states have rethought what is considered the Economic Nexus. For those that are not familiar, the Economic Nexus is who is responsible to be a taxpayer in a location. The transaction test says, if someone has done X-amount of transactions in the state, then they’re a taxpayer and required to pay taxes. Those transaction minimums were small and had an outsized risk on small internet sellers. A lot of states are now rethinking that, and going back to a more standard revenue test. This means that, a retailer, that could change whether or not you're required to pay taxes in a state that you don't do a ton of business in, but you do some. That's a moving target right now, and we are keeping an eye on this as an organization. Thirdly, there's a lot of work left to be done regarding online marketplaces. Most states now have a law that defines a marketplace facilitator vs. a marketplace seller, what qualifies as an online marketplace, and what are the responsibilities for the marketplace provider, but there are still questions that need to be answered. To start, every single state law around marketplace facilitators is a bit different. Some of them aren’t 100% clear on the responsibilities that exist for the marketplace operator, and for the marketplace seller. Record keeping, audit exposure, and liability protection are big deals in the tax world, and if a seller is selling products on a marketplace in this state, you could potentially be audited, even though the operator is the one who's paying the tax on those products. As a marketplace operator, an IT professional there might want to make sure its sellers are well-protected. As a process of customer satisfaction, IT should send them more data than they are right now, so that they can stay compliant. As a marketplace seller, you may have exposure and liability, where the marketplace isn’t sending that data, and you need to get that data. If they can't send it to you, you may need to think about moving business to a different marketplace. There are impacts around the operator and the seller for those business channels, if changes happen with regard to the marketplace facilitator. These are just a couple of key highlights. Martinez: Last, but definitely not least, we're going to talk about corporate initiatives. Every company has their own vision and strategies, whether it's mergers and acquisitions, or the technology they choose and the processes they follow. That can either cause more friction meeting the consumer and legislative needs, or less – we'll dig deep into it. Corporate initiatives. One study saw that 68% of 730 financial decision makers consider frictionless commerce, but whether or not they can actually implement it is another challenge they face. Fifty-one percent rely on native tools in ERP. However, with the new legislations and consumer expectations, that may need to change because when they were developed, some of the native tools were not designed to be capable of what ERP systems need to do today – that functionality wasn’t needed at that point in time. It's surprising that 41% still rely on manual processes and spreadsheets in this day and age, but they do. This is seen in the retail industry a lot. Thoman: Those last two points are astonishing, given, specifically because of digitization and online, the number of products that retailers are carrying has increased exponentially, and they all have unique tax implications. Going back to the point-of-sale conversation and different point-of-sale initiatives, a lot of retailers are looking at ways they can implement more than one of these. It may not be a standard point-of-sale, but also self-checkout terminals, NFC, or mobile. If you're at the forefront of grab-and-go or cashless checkout – more power to you – that seems to be a few years off, but people are actively trying to create technology around that. In a few years that could be a common customer experience. All of these technologies are separate pieces of software that do the same checkout. They all need the tax rates. If you're doing something like building out a tax table inside of a native solution, now you have to build that now 5-6 times instead of once. If you're in spreadsheets, you have to figure out how to get that spreadsheet data down 5-6 times. That's to say nothing of the fact of how many rules there are that you might need to manage, and the number of products you need to manage them through, as well. This is why tax engines exist. More than the tax engines, Vertex talks about omnichannel delivery and the importance that a tax engine can plug into every single one of the business channels and checkout components to deliver the same content. To remove the friction from the checkout process in the world of tax, that's what needs to happen, it needs to be consistent across all business channels with that tax calculation. One of the other big problems is the increase in product size. Product data is critical to this conversation. Item master data management is embedded down in the middle of the list, but category management and product management in general, are things retailers are thinking about. The quality of that data can significantly drive tax. Going back to the example of the Kit-Kat. If you don't know that a candy bar has wafers in it – which you might only be able to find from the ingredients list – then the tax department isn't going to be able to assign it to the right tax category, won’t get the right tax outcome, or drive the right tax rate, if the data isn’t good. That becomes a critical component of this. Frank, do you have some thoughts on the technology? Vasi: One of the most important things for a retailer and the tax department, is to make an agreement on category because we sell so many products, each product is in its own category. For example, jute percent matters. If something is 80% jute, then it's non-taxable in the state of Washington, but taxable in the state of Texas. If you work with categories to make a category for 100% jute, 80% jute, and 50% jute, then you can assign categories to Vertex products classes – it would make everything much easier. Then, the other effort is that it’s a lot of work to maintain those categories. How do you work with the categories to come into an agreement and balance? Category is important for any retailer to ensure proper category is set up, and the data is being maintained and audited correctly. Martinez: We mentioned the consumer, legislation, and corporate aspects that could cause friction, and the ways that you can remove them. On the consumer aspect, there are many different expectations now – customers are more savvy, their wants and needs have increased, especially in the last few years. Most companies are moving to meet customers’ expectations, but some are facing challenges, such as technical challenges. As Frank pointed out, Albertsons has a different POS system, versus a more up-to-date e-commerce system. On the legislation side, there's constantly new legislation evolving. The marketplace is a big one because it affects not just the U.S., but globally. There are many different rules that affect the marketplace, whether it's a seller's responsibility to pay, report, collect, or the operator's responsibility. So there are many different challenges, including technology, that are involved to be able to remove that friction. Of course, corporate scalability and agility are very important. It’s known that these laws are coming and there are all of these consumer needs that retailers want to meet, but is it scalable for a company to meet those expectations? What can companies do, and what can't they do? Thoman: There are technologies that are predicted to drive growth over the next three years. Optimizing the e-commerce experience, which can, in no small part, have a lot to do with merging e-commerce and brick-and-mortar experiences, making them cohesive, and advancing payment solutions. There's a lot of technology out there. Most retailers are looking at new payment solutions, and plugging something into systems that might benefit the customer – whether it's RFID, contactless checkout, or something along the lines of grab-and-go – these are all being explored. That's part of enhancing the customer experience, but so much of enhancing the customer experience is also understanding customers, gathering data, and understanding their behavior to meet those needs. When we talk about removing the friction from tax, there are four things most frequently talked about: 1. Multiple channels. Customers are interacting with multiple channels, so be consistent in taxability across those channels. That doesn't necessarily mean that the tax outcome is identical because if you're shipping from one location to a different location, that changes the tax outcome. It should change the tax outcome vs. checking out in-store and taking the product home. Ensuring it's consistent if a product is ordered and shipped to your house online vs. being in-store ordering a product and shipping it to your house. That taxability should be consistent if it gets the same data. 2. Capturing quality data, particularly about products. Making sure that data can inform the tax engine and link into the tax content to get the proper tax outcomes based on that quality data. 3. Enabling the tax department to make informed decisions. If the organization is not utilizing a tax engine, make sure they have the tools in place. The big deal with enabling the tax department is when there are strategic and corporate objectives, and new technology is being implemented, to ensure that the tax department is aware of it with enough time to do their job in advance. Responding to these initiatives, from a tax perspective, can oftentimes be complicated and take time, which equates to money. If you get audited, and an auditor finds that you have not been taxing things properly, that is going to get a lot more expensive than potentially delaying a project by two minutes. Getting the tax department engaged early on in that process is critical to enabling them to protect you, and keeping the organization compliant. 4. Moving tax calculation to the point of need. It’d be remiss if I didn't mention edge computing. The point-of-sale software is supposed to be resistant to internet outages and bandwidth disruption when in-store. The retailer wants to keep transacting business, and keep checkout lines moving. Having a tax solution that can be close to the point-of-need that can be embedded in your point-of-sale system, instead of a store to web call, is critical to keeping the friction out of that process. Martinez: Where do you want to go to reduce the friction? We talked about expansion – if you're able to do it to meet the customer and consumer needs – explore new channels, such as marketplaces, delivery services, social media is a new big one, mergers and acquisitions, the way you work the supply channel – the Vertex system can help with those challenges. Jenkins: Thank you, everyone. Thank you to our speakers for sharing interesting insights on how technology is evolving in this space. It seems like a lot of the catalysts are moving targets, making it all the more important to stay responsive, agile, etc. What are some key best practices to follow for any retailer looking to start this process of the implementation of these technologies? Martinez: That goes back to Matt's point of always involving the tax department. One of the other challenges that might happen, especially in the direct tax, is that sales and use tax departments are very lean, which could be another challenge. They should be involved early enough, so they can go ahead and apply a resource that can be active in that project and know what's going on, what technology is coming, and what challenges they're going to face as they're implementing. Jenkins: Frank, looking back, what is one thing you wish you knew beginning the work on this initiative? Vasi: I wish I knew how much it was going to grow and change, so I could prepare for that. One day the goal is Y, then somebody passes legislation and now the goal becomes C. Knowing that ahead of time would've been helpful to stay ahead of it. Jenkins: How do you see these technologies continuing to evolve? As we've seen, it seems like these things are constantly changing in terms of legislation, the consumer, evolving expectations, and corporate areas of friction. Where do you see these technologies going in the future? Vasi: From an Albertsons point of view, we're seeing more in our RPA and more in our ability to flatten data. For Albertsons, it's important that we get a picture of the label, but now there's technology where we're able to flatten that data and store it in a SQL database, so we're able to query all and search for that. We can flatten that data. Thoman: Something that’s important to key in on is the Technology Study that RIS put out, which covered a lot of these interesting new features. One thing we are seeing is the advent of composable architecture. That means the big, monolithic systems that cover all the things end-to-end are going away. That's a good thing because retailers often say that if they want to offer a specific feature, they need to re-platform, which will take five years. That's not the case anymore. They can implement a composable technology stack, which allows them to have ERP on the back-end that is API-accessible to the e-commerce front-end, or POS system. Then, maybe the POS system doesn't have the specific feature they want to implement, they’re able to use a piece of third-party checkout software that can be embedded in the POS system, and be up and running in four months. This means the rate at which retailers are able to adopt new features and new technology into the processes, is accelerating. That’s very interesting. If you're a tax department, that could cause a bit of panic because getting the tax right takes time, and there’s this acceleration. Ultimately, it's a good thing, because there’s more features for consumers, and it enables retailers to keep up with the speed of technology, adopt the latest and greatest, and provide an excellent customer experience for customers. Jenkins: That word composable is interesting. At NRF in January, we asked people what the one word of the future would be, and composable came up time and time again. That really is, looking ahead, going to be such an important trend and topic to focus on. Matt, you summed it up nicely, so we can leave it there. Thank you again to our attendees today, and to our sponsor, Vertex. I hope we all gleaned some insight here today, I know I certainly did. I wish you all a great rest of your day. Thank you very much.