Chief Executive Officer
Few years back I was giving IoT technologies lectures and one of the topic I covered was the change coming to the retail industry, When I reached this point in the lecture I gave the following key predictions:
I remember one specific lecture where one guy from the audience strongly disagreed and wouldn't accept these, Big changes are hard to accept.With 2017 being the worst year ever for retailer (8600 shops were closed) and prediction of Credit Suisse that 25% of the malls wont survive the coming 5 years this is now a transformation in progress and expected to accelerate.
In this post I am going to cover the factors behind the change and their meaning (The way I see it), the challenges and the opportunities. Like in all change, You can choose how to view it.
If you have read some of my previous posts you know I like to start with some simplified fundamentals and then project them on the case in discussion, So lets start with some fundamentals.
Every business present a value to its customers, a value in which customers are willing the pay the extra money that leaves the business enough to operate and make money. The value proposition offered by retailers is centered around:
These core elements are what makes one retailer different from the other and you can indeed find retailers adjust these elements to create the most unique and valuable offering to their customers. In other words, each retailers offers a different mixture of values, where none can offer it all at once (City center small stores with heavy discount prices and major parking lot is not a valid strategy as it will lose money).
In stable environment competitors will either adjust into different offerings or will stable on some kind of cartel if differentiation is impossible (silent price agreement between competitors that are on the exact same market).
But retail environment is far from stable, Its under disruption. A key element of disruption is business model transformation— The stable models developed in the last decades can not be adjusted fast enough to compete with the new model, In retail world the new model is e-commerce, or online shopping.
This disruption attacks the existing business models in all of its value propositions at the same time, Leaving it no space for adjustments. In this change I divide the value factors in to two: Ones already in motion and ones that are to come.
Its worth mentioning that there is a social factor as well, not discussed here — Younger people tend to go online much faster, so even with no technology boost at all I would expect online to gain more market share as time goes by.
I would say that price, product variety and friction-less shopping are the strongest value proposition online shopping offers to date. I wonder how many of you out there are now shopping online regularly but I know for sure that in my surroundings most of the shopping is not online yet, even more up until a year or two it was pretty common for many people not to perform a single transaction online. That’s changing fast, online shopping has doubled in the the last 5 years and the trend expected to continue. The pain retailers are feeling now is with only 10% of shopping online, How 15% or 20% will look like ? We are going to find out in the coming years.
The price online is close to irresistible, Most of the stuff we buy is available online with lower prices, sometimes with 80% discount. The reason is simple, maintaining an online store is much cheaper compared to brick and mortar one.
Online variety is very strong, You can get almost anything from every location in the world and in many cases a specific product is available only online, either because of low volumes (like kick starter or indie manufacturers) or because of import gaps (no one actually brings the product to a nearby store).
As more businesses join the trend, the online shopping variety keeps growing, strengthening this value proposition by the day.
You just click and buy, No cashier or line, you can do it anytime and anywhere. No driving or parking expenses and no time wasted. Who can resist that ?
Just looking at the following stock charts gives one pretty good idea on the impact of the above.
There are many other examples but you get the point, Closing stores is usually a bad sign and its happening all over the place.
At this point its worth mentioning that many retailers are doing well, They adapt. But they will have to step on the adaptation paddle because the transformation has just kicked in and many other technologies are coming at the retailer’s door step, accelerating the process in motion.
Before talking about the future, short brief on the e-commerce weaknesses, The same weaknesses that keeps brick and mortar retailers alive.
The major disadvantages of online shopping as I see them are as follows:
The near future addresses all e-commerce weaknesses, practically guarantees the transformation acceleration.
The biggest change coming to shipment centered around self driving stuff. Self driving trucks, Self driving cars and self driving carts.
Shipping is becoming automatic, reducing barriers and gradually makes online shopping more immediate shopping nature.
This has also direct impact on the returns problem.
I see two major technologies start to play in this field, Making online overcome this challenge: 3D sensing and Virtual reality.
3D sensing is coming to every phone as industry will align with Apple (and other appliances like mirrors ) and essentially allows you to get a file of your measurements. With a click of a button and some data science (statistics on suppliers) you will know for sure the clothes or furniture fully match your figure or living room.
Once you have your measurements in 3D , Virtual reality can kick in, allowing you to feel like in physical world but with much more advantages, imagine you select a shirt and can see it on yourself in thousands colors and angles, changing the shirt is a matter of a click.
Connect these two to the existing online infrastructure, you measure, select the ones you like, post on social network and order the ones got the best feedback.
For the first time you can ask how do I look ? before actually buying.
Freshness has direct correlation to shipment and sensing technologies, Once these improves you are guaranteed to get fresh product and get it fast.
I believe this will remain e-commerce weakness in the coming years as no matter how fast shipment is done, getting pizza out of the oven or selecting the best tomatoes is the best and sometimes worth the trouble.
With crypto currencies every asset will eventually be convertible online, even if you do only cash or food stamps. As for the fear, time handles that as well — Kids today have not seen any other world, clicking and buying is in their nature.
Here are some of my guesses on how things will play out
Malls are getting the heat and its only going to get worse. So unless a mall is located on prime real-estate an adjustment is needed. I would expect less brands in the mall where each ones store get bigger (i.e. consolidation). Malls that want to survive needs to start playing the social card, this is an online weakness that is not related directly to shopping.
With malls playing the social cards you will see shared working spaces in malls, Maker’s spaces, Fun and Family facilities.
In simple words, Malls should attract visitors not just for shopping, shopping is becoming a secondary value for the visitors.
I find it hard to understand how mom and pop shops will survive in such economy. Little shops will find their uniqueness in low volume, special offers — ones that are hard to get online, Art, Personal touch (like home made cookies) and location. small retailers are now actually selling real-estate value, more then ever.
Mobile will become #1 point of sale, Retailers should allow the best mobile shopping experience, utilizing their supply chain and real estate for supper efficient pickup, Drive by if possible. order everywhere, pickup everywhere.
Augmented realty will be used in these areas to allow the connection of the online and the physical world.
Automation of the store, enabling Indoor navigation, No cashier lines (self check outs), pick up and go is the way of the future.
Today retailers have a lot of rules which they know are generating income, like putting the milk deep inside. These rules have to go, Making your customer walk all around your store surly increases the revenue on the short term but also encouraging her to replace you with a click.
Instead, Retailers should adapt analytics to identify revenue sources, Just like online websites are analyzing every millisecond without getting sales conversions down.
Retail is changing dramatically and we will all see it in the coming years, Many retailers wont survive but the ones who will are likely to make much more revenues compared to the present. Whatever happens, shopping is going to get much more fun, both online and in the physical world.
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