The Future of Retail

What’s the next big thing in digital?  Mobile? Social? Online video?  Those are things moving fast but the trend with the most potential for significant economic impact is, in fact, retail.

The sleepy, boring business of selling things to consumers is pepping up and becoming a hotbed of innovation. Technology and consumer trends are combining to create a shopping experience entirely different from anything we’ve seen before.

As Darrel Rigby points out in his HBR article, every 50 years retail goes through a major disruption.  The rise of urban centers brought us department stores.  Automobiles created suburbs and shopping malls.  Then category killers and discount stores like Kmart and Wal-Mart challenged that status quo.  Now retail is being reinvented all over again.

The Slow Crawl of E-Commerce

At the beginning of the dot com boom, many assumed that e-commerce would become an instant success.  Eager VC’s threw money at just about any business plan that promised to end the drudgery of shopping with a few clicks of a mouse.

It didn’t work out all that well.  When the bust came, e-commerce start-ups were hit the hardest and hot companies like Pets.com and Webvan got slaughtered.  Some, like Amazon, survived and even thrived, but after 15 years online makes up a very small part of total retail sales.

This chart from a census bureau report shows that e-commerce still garners a mere 5% of the total pie.  I’ve seen estimates as high as 9%, but anyway you slice it, shopping continues to be primarily a bricks and mortar activity.

Therein lies the dilemma.  With all the huffing and puffing, e-commerce has a very small impact on total revenues. So how do you inject digital technology into the shopping experience?

A New Omnichannel World

The answer lies in what Daniel Rigby calls the “Omnichannel Organization.”  A purchase, after all, is more than a singular event, but a series of touchpoints that result in a sale. Consumers often browse online and purchase in-store or vice versa.  They also will comparison shop in-store on their smartphones.  The analog/digital distinction is a false one.

E-commerce is also flattening the path to purchase.  Recommendation sites such as Yelp and Trip adviser are becoming an important part of the shopping experience and “daily deal” sites such as Groupon, Living Social and Scoutmob encourage consumers to discover new things.

Another persistent trend is pop-up shops.  Digital technology allows the storefront to appear anytime, anywhere, as Tesco shows in this video.
 

 
So the question is no longer one of e-commerce vs. traditional commerce, but one of how digital technology can be deployed to improve the overall shopping experience.

In-Store Experience Transformed

While the online world has been transforming itself, the physical world hasn’t been exactly standing still.  The Apple Store, for one, has become a cultural phenomenon as much as a commercial one.  Here’s what Ron Johnson, who created it, says about what makes a retail success in an interview:

A store has got to be much more than a place to acquire merchandise.  It’s got to help people enrich their lives.  If a store just fulfills a specific product need, it’s not creating new types of value for the consumer.  It’s transacting.

To buck that trend you need more than just gadgets and fancy displays, it takes an enormous devotion to detail.   Ironically, digital has made the human element of retail more important, not less.  If all a store has to offer is selection and a price, than why not just buy online?

It also takes experimentation and perseverance.  Johnson and Steve Jobs worked on a prototype in a warehouse for almost a year before they got their store design right.  The Genius Bar at the Apple store was a dismal failure the first few years, but they stuck with it and it became a hit.

Most retailers today understand the need to equip their store personnel with smart phones and tablets, but what should be on them?  How should they be used?  Like any other area of innovation, the future of retail will be created through trial and error as much as anything else.

A New Retail Mindset

Long a sleepy industry that prided itself on supply chain management and efficient use of floor space, retail is becoming much more daring, as psfk shows in their report.

Macy’s, for instance, has created a backstage pass program where consumers can get tips from celebrities, while Bloomingdales has created futuristic dressing room pods that drop down from the ceiling

Scanning technology is improving rapidly and will soon be making an impact.  My Best Fit does full body scans to suggest the optimal size in various brands.  Kraft is experimenting with technology that can suggest what you might want to buy for dinner based on information gleaned from a facial scan.  Disney has a mirror that lets kids try on virtual outfits.

Do these technologies represent the future of retail?  Maybe.  Probably not.  Nevertheless, it is clear that we’ve entered a new age where experimentation has become de rigueur. Churning out transactions is giving way to creating experiences and those experiences no longer begin in-store.

The future of retail, after all, is not a storefront, but an omnichannel, where digital, virtual and physical all merge into one.

– Greg