Welcome to the Future of Retail
Where Did Retail Go Wrong?
Ask yourself when was the last time that you went to the mall and just walked around without a fixed destination in mind?
If it has been a while, you’re not the only one. “How to Survive the Retail Apocalypse: Tips for Brand Marketers” was the title of an article which appeared in Forbes on March 19, 2018.
And while this title appears to be a little bit over the top and focused more on grabbing attention, a quick look at any business section will show that the topic of retail has been gaining attention.
With predictions of doom and gloom all around, you would be forgiven for thinking that maybe you could find a good parking spot at the mall this weekend.
While the retail slump hasn’t hit all businesses or areas in the same way, there are a couple of generally agreed upon reasons for how retail got itself into this mess.
1. The Shift to Online Shopping
The most common explanation for the death of retail is that people have shifted their shopping behavior online, especially towards Amazon.
The Atlantic estimates that half of all US households are now subscribed to Amazon Prime, and represent valuable repeat customers for the online giant.
But it is not just the traditional online categories which are doing well. The largest e-commerce category is now apparel, which was once considered the heart of retail.
Add to this that mobile buying has become easier than ever and it is no wonder that retail has been in a tailspin.
2. Overbuilding in Retail
But retail has also played a role in its own demise. Especially, in the U.S. the number of malls grew twice as fast as the population between 1970 and 2015. (Cowen and Company).
Compared to the other developed countries, this is an area where North America has definitely stood out.
However, what goes up must come down, and the Great Recession had the effect of taking the wind out of the sails of retail.
The real-estate research firm Cushman and Wakefield estimated that mall visits declined by 50% between 2010 and 2013.
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3. Consumer Preferences for Experiences
The final explanation for the shifts in retail is generally summed up as a shift in consumer preferences towards experiences.
As more people shift their consumption patterns, retail, especially apparel and services, have suffered.
The following chart shows that this trend has been going on from as early as 1990 and continues to the present day.
And while the Great Recession had an impact on overall consumer spending, there are some sectors that have shown a strong rebound.
For example, as illustrated by the Federal Reserve Board, American consumers have been loosing up the purse strings when it comes to eating out. Since 2005, sales at “food services and drinking places” represented by the black line, have grown at twice the pace of other retail spending.
2016 was the year in which Americans spent more money in restaurants and bars than at grocery stores.
– The Atlantic
Fighting Back
So, what should a retail business do? Should they just give up and call it a day?
This article will dig into the ways in which technology has assisted online businesses to gain an edge over retail.
We will then look at how some of these same technological advances can be used by retail to help them start to fight back.
Because sometimes you have to fight fire with fire.
Finally, we will wrap up, by looking at examples of available technology and how it can be implemented today.
The latest advances in technology have helped to push more consumers toward online shopping, but if used correctly they can also help retail fight back and position themselves towards a more promising future.
Online Retail’s Secret Weapon: Data
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Have you ever made the mistake of searching for something on Amazon that you weren’t really interested in buying but were just curious about?
If you did, then you quickly realized that just being curious about a product on Amazon has the effect of changing the way the company views you as a customer.
You will now see recommendations for other products that are similar or work well together with whatever you were curious about. And you can expect that you will see these recommendations for a while.
The idea behind the retail giant’s recommendation system is that the items that you have bought in the past are likely to be similar to items that you will buy in the future.
Amazon refers to this as “item-to-item collaborative filtering” and uses it heavily to customize what returning customers see when they land on the site.
But Amazon doesn’t stop there. They also use the recommendation that they have developed in combination with a little marketing magic to send out personalized recommendation emails that incorporate special offers.
And this strategy seems to have paid off. According to Sucharita Mulpuru, a Forrester analyst, Amazon’s conversion to sales of on-site recommendations could be as high as 60%. Martech Advisors estimates that 35% of Amazon’s sales are generated through their recommendation system.
The Amazon recommendation system is just one example of how online shopping has an advantage over brick and mortar retail: data.
Even when you don’t make a purchase, simply visiting a website provides key information on what products were clicked on, how long you viewed a product, which browser and operating system was used, in addition to your IP address.
And while consumers have shown a willingness to provide this information, a recent study at the University of Pennsylvania found that 90% of websites are sharing data collected with third parties.
Amazon Go: The Latest Technology Push Into Retail
But, online retailers haven’t been resting on their laurels. Companies like Amazon have continued to look for new ways that they can gather data and measure it to gain insights into their customers.
Their latest technological breakthrough is Amazon Go. It is being pitched to consumers as a way to relieve them from one of the biggest pain points during the shopping experience, the checkout.
However, it also serves as a great illustration of how an online retailer views data and measurement in a physical space.
The first and most obvious way that Amazon Go uses data is at the entrance. In order to even enter the store, Amazon requires that you have the Amazon Go app installed on your smartphone.
All you need is a valid Amazon account and a credit card and you are good to go. A recent visit by an Arstechnica reporter showed how the process works.
By using a unique QR code attached to their Amazon account, they were able to have it scanned at a turnstile and verified to allow entry. This technology gives Amazon a unique edge over traditional retail.
It allows them to have detailed information on not just the number of people visiting their store, but also key demographic information, and previous purchase history up front.
Even stores that collect detailed information on their customers, have mainly been validating this information during the checkout process, with customer loyalty cards or cross-referencing payment information.
Amazon now has all of this information when you walk in the door and it opens up the possibility of creating truly, customized shopping experiences for the customer.
But Amazon Go doesn’t stop there. Instead it continues to monitor customers through a network of cameras that watches your every move from the moment that you walk in to the moment you simply walk out.
It’s this camera system that makes Amazon Go possible by tracking every time a product is picked up off the shelf and moved throughout the store.
But these cameras also allow Amazon to collect detailed information on your every move; how long are you looking at a product, where do you go first in the store, etc.
Customer tracking has been popular for a while now, but now Amazon is able to connect tracking with a specific individual.
However, the biggest takeaway from Amazon’s foray into retail is that it is using technology not just to get more information on their customers but also to help their customers. In this case, by using technology they are able to eliminate the checkout lines.
However, as the YouGov / Statista poll shows, there is still some reticence to fully embrace the Amazon Go system. Nevertheless, it also shows that retail customers aren’t opposed to technology but they also need to feel as though they are getting something out of the deal.
It’s also a great example of thinking outside the box in coming up with a system that puts the customer first and helps to serve as a possible roadmap for the integration of technology into retail.
Shopping in Your Pajamas
We’ve all been there, ordering something that you don’t really need online in our pajamas.
Sometimes the weather is horrible and you just don’t feel like leaving the house or other times you just don’t want to deal with the crowds at the mall or the stores are closed.
Whatever the reason, online retail is definitely convenient. All it takes is a couple of clicks and in a day or two a package will arrive at your door. Simple, convenient, and tough for retail to compete against.
Research by Invesp shows that overall global retail sales have been growing and are estimated to reach 8.8% of total retail spending in 2018 compared to 7.4% in 2016.
And while Americans love to think of themselves as being on the cutting edge of new technology in the case of online retail sales there are several other countries which are leading the way.
The United Kingdom has the highest retail e-commerce sales as a percentage of total retail sales at 15.6%. They are followed by China (13.8%), Norway (11.5%), Finland (10.8%), and South Korea (10.5%). The United States in comparison comes in at 7.7%.
But regardless of the individual percentage of sales in a country, the general global trend is that online sales have continued to increase.
When consumers are asked why they shop online, 80% of consumers agree with the statement:
“I love the convenience of online shopping”
Consumers also view online shopping as a win-win that saves them both time and money. These consumer perceptions are what brick and mortar retail is up against when trying to compete with online shopping.
Similar to the push by Amazon to continually innovate, other online retailers are focused on improving on the customer experience in terms of convenience.
The latest push by brands, such as, Amazon Prime Wardrobe, Warby Parker, ThirdLove, and Trunk Club is the try before you buy concept.
The idea is to offer the customer all of the convenience of online shopping with the flexibility of in-person shopping.
The companies ship multiple items (sometimes selected by stylists) to the customer and allow them try them out at home.
If there are items that the customer doesn’t like they simply have to return them for free. They are only charged for the items that they keep.
The try before you buy concept isn’t limited to clothing, although it is currently the most popular category.
Warby Parker is an example of a eyewear company employing the concept. They ship the customer up to five pairs of eyeglass frames to test out for five days, for free.
They also offer a free, online quiz to help determine which style works best for each individual.
If you like any of the frames sent to you, just purchase them online and Warby Parker will send you a new pair.
Once your five day trial period is up, you can just attach the prepaid return label to the box and place it in the mail. It takes the convenience of shop- ping in your pajamas to another level.
Adding Convenience to the Retail Shopping Experience
Just because online retailers have made convenience a key differentiator doesn’t mean that retail shouldn’t continue to innovate.
Uniqlo is a Japanese-clothing company, with over 1,920 stores worldwide, as of August 31, 2017. They have developed several strategies to make the shopping experience as convenient as possible for their customers.
One unique offering is that most stores will provide free alterations on any pair of pants priced over $20. This includes in-store measurement and possible same day pick-up. Additionally, if you don’t want to carry around everything that you have purchased, several stores in major metropolitan areas offer same day delivery to an address of your choice within a given service area.
Notice how these options aren’t necessarily high-tech, but rather they are focused on providing value to the consumer. But that doesn’t mean that there aren’t some really innovative, technology-based ideas out there.
In 2011, Tesco, the supermarket chain, launched their virtual supermarket in South Korean subway stations. Tesco offered subway riders who were waiting for their train a chance to virtually browse through the same merchandise offered in their stores.
To make a purchase, customers simply scan a QR code of the items they are want and click the send button. Their selected items will then be delivered shortly before they arrive home in the evening.
And the good news for Tesco was an increase of 130% in their online sales and a 76% increase in registrations on their site.
So whether you are looking for a high-tech or a low-tech solution, the key for retailers is to find ways to improve the shopping experience of their consumers by finding ways to make it convenient for their customers to shop in their stores.
You’ve read a modified version of an article originally written by Carolyn Allebrodt for viewneo. This article has been published as white paper in 2018.
The article is based on a series of videos which have previously been released on our Youtube channel can be seen here:
