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The future of retail and the new customer era

1st Feb 2018
Ugly Dog Media
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For years, the face of retail has been a combination of massive superstores, suburban shopping malls and identical store formats. This formulaic approach may have appealed to shoppers in the 1980s and 1990s, but the lack of innovation and resistance to change on the part of retailers has delivered a stagnant reality.

There is no apocalypse – but there is a long-awaited and much-needed shift away from the cookie-cutter approach that dominated the last few decades, and a growing interest in new innovative techniques aimed at better serving, and better understanding the retail customer.

While notable big-box retailers and chains are crashing and burning, other retailers are growing, and fast. Those that are succeeding are stepping away from the standard playbook. They are using technology, automation and artificial intelligence – not simply to save money and replace employees, but rather, to give those employees more tools to better serve the customer. Some of the biggest trends in retail over the next few years will include:

Bridging the gap between online and offline

Retail's future acknowledges that the online channel is equivalent to, and equally important to, the physical storefront. Expansion, rather than being purely focused on new store openings, will balance that with a larger investment in online infrastructure.

A balance between online and offline in retail is absolutely essential, especially with the growing trend towards "showrooming," where consumers go to the store to look at a product or try it on, and then buy it online. Or, alternately, when consumers use their smartphones to comparison shop and find the best deal before buying at the store.

Striking that balance is Stadium Goods, a premium sneaker and streetwear marketplace with two locations in Manhattan. The high-end real estate of those storefronts represents only part of the retailer's strategy, which has a heavy online component – which includes not only a full-featured online store, but also a comprehensive online marketing campaign that includes videos of popular rap stars shopping in the store.

Virtual reality and augmented reality bring the true shopper experience online

Virtual and augmented reality has already started to make inroads into retail, with innovations like Sephora's virtual makeup app, or Ikea's app that lets you see how pieces of furniture look inside your home. "It makes for an incredibly enjoyable experience when used properly," said Michael Witty, Director, Retail/CPG Digital Practice at ISG, a global technology research and advisory firm. "But if it becomes the only way to interact in the store, it loses the personalization if someone just hands you a pair of goggles, or sits you in front of a smart mirror and there is no one to help with the discussion. I think it's going to get a lot of traction, but it needs to be married to a personal interaction from an associate."

In the coming years, virtual and augmented reality will become more commonplace, both online and in-store. Rather than a purely self-service technology though, retailers will embrace it as an opportunity to educate their associates, and use the tools as a supplement to the customer engagement process.

Retail channel conflict is a reality

The sales chain is becoming more complex and taking on shades of grey. Some CPG manufacturers are moving from the B2B model – selling to distributors or retailers – to a mixed model that includes B2C, or selling directly to consumers, which may set up a conflict, at least in the eyes of those retailers who don't want to see sales being lost to the manufacturer. "It's a reality," said Corey Torrence, Managing Director at Blue Ridge Partners. "It's even more complex than that, with a CPG manufacturer selling through Macy's or Walmart, then selling direct to the consumer, and they're also selling through Amazon and specialty native digital companies. Yes, there's channel conflict, and consumers end up going to 16 different sites to find out if they're getting the best deal."

That conflict is being dealt with in innovative ways. "Retailers are starting to use the co-op dollars provided by manufacturers in a more productive way," said Torrence. "It's not just for shelf space any more. Now, they're investing in co-branded digital programs that allow the co-op dollars to be a much more valuable investment for both parties. There are numerous examples of innovative ideas coming to market at an accelerating pace."

Technology and automation leads to personalized customer experience

A wave of announcements of innovations such as the Amazon Go cashierless model, Kroger's Scan, Bag, Go pilot, and back-end technologies aimed at simplifying the supply chain and warehouse operations have some people worried about massive layoffs, and a prospect of a store completely run by robots. Such worries are unfounded. Technologies such as these will be used more often, but not just for the mere sake of automation and cost-savings – the real payoff is in helping the retailer better understand and serve customers, and helping retail associates do their jobs better.

Smaller formats and niche retailing grows in influence

The retail darlings of the past – Sears, J.C. Penney, Toys R Us and other retailers which dominated shopping malls of years gone by – are closing in record numbers – but it's not because of the Internet, it's not because of Amazon, and it's not because of stagnant wages. It's because they haven't adapted, and because they are stuck in a store format and expansion model that is as old as popped collars and big hair.

According to Witty, "The feel is the same wherever you go. If you go back and look at what happened twenty years ago, there was a huge buildup of retail, and lots of malls built in suburbia and lots of strip malls in rural areas. There was an oversaturation in the market given today's demographics and where today's spendable income is. There are two kind of pressures, overcapacity in cookie-cutter malls and less foot traffic, and closings of those stores that can't differentiate themselves and provide a real experience or the customers – they are caught in the shutdowns."

There is retail growth to be had, but it's a different type of retailer that will capture that growth. Smaller-format stores like Dollar General are seeing tremendous growth with an expected 900 new openings in 2018, along with discounters like TJMaxx.

And while consumers have grown weary of shopping malls and retail stores which all look the same, they are eagerly embracing niche formats like one-of-a-kind pop-up stores. Steve Brooks, a global consultant who specializes in helping retail pop-up entrepreneurs achieve success, appeared on a recent episode of TDAmeritrade Network's Morning Trade Live show, suggesting that "consumers have gotten really bored with shopping. You go into a shopping mall and you see the same shops. Everything looks the same. Pop-ups really inject some enthusiasm and some entertainment into the shopping experience."

Retail will never be the same again – it will be better than it has ever been. A new era of automation, virtual reality and technology will make retail customer-friendly on a scalable basis, and faced with new expectations from a younger demographic of shopper, retailers are being forced to re-think old formats and get creative. There will be some casualties – but those retailers willing to think outside the box will be stronger than ever.

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