Even before the Covid-19 crisis, retail had been transformed by the impact of digital.
It has changed the way that we shop, altered the economics of stores and forced a rethink of their role. It has upended the definition of convenience and shifted the very basis on which many retailers compete.
Some players have not been able to keep up with the pace of change and this has contributed to their demise.
The sudden impact of the pandemic has accelerated these changes, but this so-called ‘transformation’ has been going on relentlessly for the last 20 years. The need to innovate is still as pressing as ever.
So what is the next wave of digital that will transform retail?
It is tempting to focus on further changes to the front-end of retail businesses and the way that they interact with customers.
“Bold experiments are a critical part of the innovation process and they should not be dismissed too quickly”
Automated checkout, the role of augmented reality and virtual reality (AR and VR) in the customer experience, interactive mirrors in stores, robots and drones taking over last-mile fulfilment.
These futuristic technologies capture the imagination and grab the headlines. In many cases, they are far from mainstream, but bold experiments are a critical part of the innovation process and they should not be dismissed too quickly.
Earlier this month, US travel retail specialist Hudson announced plans to use Amazon’s Just Walk Out technology across selected stores. And US supermarket group Kroger is trialling smart shopping carts equipped with scanners and screens.
AR/VR is being deployed widely in fashion and home furnishings where innovators can be found across the spectrum, from digital natives such as Wayfair or Warby Parker to incumbent players such as Ikea or Sephora.
These technologies offer particular advantages during the pandemic, facilitating social distancing in stores or enabling complex purchase decisions at home.
I would argue that the next wave will be even more transformative as digital goes beyond the front-end and reinvents the inside of retail businesses.
Scale retail is the result of thousands and thousands of day-to-day decisions; what to buy, how much stock to order, which stores to distribute it to, which customers to target, when to change prices, how much to markdown, how many colleagues to have in the store.
In many cases, these decisions are still made with basic tools and with heavy reliance on ‘rules of thumb’, history and instinct.
There is tremendous scope for retailers to leverage data and analytics to make these decisions quicker, more accurately, at lower cost and probably with less human intervention.
We make this sound complicated by putting it under the banner of artificial intelligence or robotic process automation, but the applications are both widespread and practical, and the impact is real.
Demand forecasting based on last year’s volume, with some manual adjustments for growth and this month’s promotion plan, shifts to a detailed model fed by live trading data, competitor actions and even weather forecasts.
”This next wave applies just as much to physical retail as it does to ecommerce. However, the digital natives are investing at a scale and pace that even the largest incumbents are struggling to match”
Weekly price benchmarking and manual price changes shift to live price scraping and automated changes to price in real time based on pre-defined rule sets.
Amazon is already changing prices of selected items during the day based on algorithms covering competitor pricing, demand patterns and shopper behaviour.
Apply the same logic to each of the high-volume repeatable decisions made in a retail business every day and you have the next wave of disruptive transformation.
This next wave applies just as much to physical retail as it does to ecommerce. However, it is closer to the DNA of the digital natives and they are investing at a scale and pace that even the largest incumbents are struggling to match.
Practically, retailers should start with the following questions: What are the critical day-to-day decisions where a data-driven approach will add the most value? Do you have experiments up and running to test and learn? Have you really faced into the investment required to keep up with the leading innovators? How much should you build yourself versus working with an ecosystem of partners who can bring new tools and capabilities?
It may seem daunting, but Covid-19 has reminded us of UK retail’s extraordinary ability to innovate and adapt. The reinvention needs to continue – and the next wave will be on the inside.
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