Originally published in the Ivey Business Journal
It may seem counterintuitive—amid numerous store closings and B-mall demises—to consider the physical store of the future. After all, according to some estimates, the United States alone has a billion square feet of obsolete retail space.
However, while future-facing retail outlets appear to be shrinking and becoming more specific with curating their inventory, I believe, paradoxically, that in their reduced-footprint format, these outlets will be capable of accommodating mass customization.
Consider these seemingly disparate retail trends: Since 2010, Walmart and Target have been shrinking their store sizes from 100,000 square-foot big box locations to highly compressed, carefully curated, 10,000-square-foot urban boutiques. At the same time, Amazon, the undisputed lord of the Internet, is getting physical, as evidenced in its recent purchase of Whole Foods on the heels of the December 2016 launch of its highly touted but tiny 1,800-square-foot Amazon Go brick-and-mortar store in Seattle.
As automation replaces checkout services at Amazon Go, robotics replaces reception services at hospitality businesses such as Yotel, which also operates on a premise of limiting physical space, offering 170-square-foot pod-like sleeping “cabins” reminiscent of The Jetsons.
Linking these examples of shrinking space are data, consumer demand, convenience, and technology. Together, they point to the store of the future.
Everything in retail begins by looking at what the customer wants, and what customers want is convenience. There are several technologies already in place that make it increasingly convenient for customers to shop—technologies that are even stretching the boundaries and customers’ expectation of convenience. With radio-frequency identification (RFID) technology, shoppers can put items in their baskets, place their baskets before an RFID scanner to scan the contents and charge their account, and leave. It’s seamless checkout: no waiting in lines, no checkout personnel needed. This technology, already in use at Amazon Go, is ready and waiting to be used elsewhere.
When beacon technology—the ability for retailers to send offers and otherwise interact with customers in-store through their phones—was introduced four years ago, it seemed a sure way of increasing customer convenience. It’s a technology-enabled, personal in-store assistant. Interestingly, it still hasn’t taken off. Why? Because most retailers have not tied beaconing back to what they know about their customers and to the data from the point of sale (POS). Instead of narrowcasting to individual customers, retailers are using beaconing in a less sophisticated broadcast mode. But there will come a time when retailers will realize the full potential of beaconing to communicate in a customized way with each individual shopper, leading to relevance and a better in-store experience.
No discussion of the store of the future would be complete without touching on what physical stores can learn from digital commerce. The first rule of digital commerce is the more personal you can make the selections, the better they will be received, and the more easily shoppers will adapt to the new format. In short, shoppers will like the experience. Internet retailers already do selective sorting, placing items they believe will most interest the shopper at the top of the list.
If a retailer knows a shopper’s specific preferences, why not make it more convenient for the shopper to find and purchase them? As retailers in physical stores determine how best to use data analytics and technology, they’ll adopt the same kinds of strategies. For example, I’m someone who likes to buy Milwaukee tools; when I go into Home Depot, I don’t want to see DeWalt tools. A physical store with a virtual setting tapping into data analytics could show me first what I want to see.
The components that comprise the store of the future in the short term are, I believe, largely already here; retailers simply require some time to integrate and learn how to use them. Technologies that make it more convenient to shop—beaconing, RFID, seamless checkout, multichannel distribution with in-store pickup, and so on—are quickly becoming part of shoppers’ DNA.
In the long term, as shoppers evolve and the personal and emotional aspects of buying change, I can envision advanced technologies such as artificial intelligence (AI) and virtual reality informing the store of the future and increasingly personalizing the shopping experience.
Today’s consumers are still very emotionally charged when they buy something, and the more a product raises an emotion, the higher the likelihood that the consumer will want to see it physically. (Clothing is an obvious example.) To maintain emotional pull, retailers must maintain the heightened shopping experience that draws more than 90 per cent of people to the store; however, the emotional attraction can be created with technology rather than real products. If the retailer can replace shoppers’ emotional response to items with responses to technology—say, through a 3-D image or other advanced imaging—and the consumer becomes accustomed to that type of experience, retailers will be able to shrink stores and use predictive analytics to stock products, perhaps for a given region.
That’s the store of the future.
So much of this future hinges on data. Even now, there’s not much that retailers cannot do in the digital world; the main challenge lies in capturing the right consumer data. This analytics capability is key to being able to deliver the store of the future—deep knowledge about each customer in a specific area. Any retailer with an online presence needs to capture, maintain, and analyze data about its customers’ buying behaviours. In the digital commerce space today, there are several players—Amazon being the prime example—whose power is in their analytics: their ability to analyze mountains of data and decode, to a level of prediction, what the consumer is going to want in the future. This is what will enable hyper-personalization in the store of the future.
Eventually, a shopper will be able to go into a dressing room and virtually try on clothing without actually having to change. The Gap is one retailer that has already begun building this idea into its vision of the future. The next step for the retailer is to offer only the clothing that the shopper typically likes. Knowing who its shoppers are and what they have purchased in the past will enable a retailer to make these recommendations, much like a personal shopping assistant—AI with uncanny intuition.
A retailer could offer a virtual shelf that, through the power of data analytics, would stock the products the retailer thinks a particular customer will want to see. If a retailer knows enough about its customer, it has the ability to create a virtual aisle specifically for that customer—an offering that, to date, has only appeared on National Car Rental’s mobile app. In a physical store setting, a shopper would go into the store, head down her virtual aisle, and be shown, through predictive analytics, what the shopper might be interested in purchasing, or want, or desire. Retailers are still a long way from this hyper-personalization, but it is in the realm of possibility.
This is shrinking stores to mass customization. In stores of the future, the availability of mass-manufactured products may mean replacing some of today’s physical properties with technology. The ability to have a virtual aisle or shelf to match a unique set of desires will allow stores to physically shrink even while offering a more relevant and possibly broader selection to each customer.
In essence, this is moving toward retailers of the future selling to mass audiences, but one customer at a time. We are already seeing hints of this happening with custom items that, to a certain degree, customers can design themselves. A dozen or more retailers already offer bespoke shoes manufactured to the customer’s specifications. Eventually products may be made in time, on demand—produced because the data predicted it.
We’ve seen technology turning retail on its head. Retailers became expert at merchandising over the last century, filling their stores with what they believed their customers would want. Now, given shrinking physical spaces and the absolute need to be laser focused on what’s relevant to the consumer, merchants must increasingly prioritize what merchandise they show the customer. Technology and data are moving retailers toward inverse curation: merchandise is not chosen by the retailer but by customers and how they react to certain stimuli.
In both the near and long terms, the store of the future is predicated on data and a highly integrated digital commerce capability. All the touchpoints—everything the customer will engage in—have to be captured and measured: mobile, e-commerce, kiosk, and POS terminal must all be linked for the retailer to form a predictive picture of shoppers: What do they like to buy? When do they buy? What products do they lean toward?
Once retailers begin to understand their customers’ shopping behaviours, they have the basis for creating the next technology that will engage those customers. Those retailers that know how to unleash the most effective use of data will have the most unlimited, yet relevant aisles. The store of the future will be an experience bound only by the limits of the imagination. I believe we have the individual capabilities needed to realize this vision, but to make it all happen, the individual parts need to be integrated.
Founder and Chief Executive Officer
ObjectWave is a full-service provider of digital commerce solutions. He can be reached at [email protected].