The future of retail
The first step into describing the Future of Retail, entails the definition of the trends, the vectors which are responsible for the evolution from the current status quo. The vectors which we believe are important, include: the Blurrification of lifestyles, the emergence of purchase algorithms, the in-store technology and the new experience game brands must address.
Context: blurrification of lifestyles and the Future of Retail
In a recent white paper I co-authored, we introduced the notion of the Blur: a digital-empowered social trend, whereby the dichotomy of lifestyles is blurring and the traditional border between play and work is overlapping. The Blur is important because is changing the name of the game, and the modus operandi of brands and retailers. During the research for the white paper we interviewed 23 business experts and thought leaders, and collected evidence on how this social trend – which originated 15 years ago as technological convergence – is already changing the way we operate in retail sales. One example above all comes from hyper-luxury boutiques, where items whose purchase price is in the range of 100,000 dollars and above, rely on a personal relationship between the sales stuff and the wealthy customer. Already today most of the communication between the two is conducted through social media – WhatsApp, Facebook Messenger, WeChat, depending on the location and the preference of the customer – around the clock, beyond boutique opening hours. Even the goods delivery might happen outside office hours, during weekends, beyond the physical limitation of the store, which is finally a retail showcase and a goods warehouse. While already in the beginning of the XX century, luxury artisans would attend elites with personalized service; nowadays this new premium retail trend is not as niche, and not as isolated.
This is will be truer in the future, as Digital natives become the leading demographic for retailers, and with digital nomads emerging as large components of consumption. With most of the brands’ first impressions being formed on-line, and a travelling lifestyle, and being used to instant gratification, these consumers will need strong reasons to pay a visit to a physical store. Being already not-as-convenient as on-line sales, and with the soaring costs of real estate, physical stores will be seldom competitive from a price point of view, and they will need to redefine completely their business model.
The problem with the emergence of technology in-store
Beyond digitalization, there is a number of technology trends which are hitting physical and digital stores. The issue is that are – until now – impersonal, based on rational features and fostering a narrow viewpoint. Technology is not wrong, it’s used wrongly. Think about big data: any business case about big data and retail – physical or digital – aims at showcasing how it improves conversion: in a nutshell there is only one point of view: the retailer’s. Why isn’t technology developed into improving the shopper experience of the consumers? There is a total lack of shopper insights, especially in assuming that consumers want to think while shopping and they don’t want to feel, sense. Despite the fact that one big driver behind the recent fashion ecommerce development, was the improvement of the return policy: longer and easier return policy allow the consumers to really decide what to buy once they can fill the garment on their skin, and when they can see themselves in the mirror, sensing whether or not the garment is right for them.
Brands beware of purchasing algorithms
The future of retail will probably be dominated by AI based virtual assistants and purchasing algorithms, which will help making our life easier, and deliver the most convenient of the possible convenience. This is a tech trend, which actually has origins in consumer behavior. In their book on new luxury consumers and trading-up, Silverstein and Fiske introduce the notion of mass consumers trading up in the categories they cared most about. That insight has a dark side: consumers will happily trade –down, be convenience focused, on the categories they really don’t care about. So effective algorithms that can take control of those categories for the consumers, by providing them time and cost efficient undifferentiated solutions, will be a major hit for consumers. Because all of us have categories we need to show, we don’t really care about. This will have huge impact on the trade promotion mechanism of multi-brand retailers. Many of these promotions are built to lure consumers in purchasing, hoping to recruit them and make them loyal customers. Those promotional activities will become the massive focus of algorithms, and will they will serve a short term purpose, they will not necessarily create long term, loyal and happy customers.
Brands will have to work on their relevance to ensure that either the algorithm won’t trade them down, or the consumers will care enough about the brand to keep it in their own repertoire.
Digitalization is stepping up the experience battleground for brands
The case of smart watches is really an interesting one. Because as the technology producers outside the traditional industry provide side, the smart watches brands face a challenge on their distinctiveness, as product features become indistinct. Watch producers have basically two options for the operating systems and two options for the processors. The digitalization is changing the battleground by elevating the importance of the brand and the brand driven experiences. Watch brands and retailers will have to start developing brand experiences to ensure their brand and not the competitors with the same specs stays in the shopper repertoire. By developing of course digital application exclusively for their own brands, but also ensuring that the physical retail becomes an experience beyond the mere purchase transaction. And retailers will need to find a model to ensure they can live off a physical brand-driven experience in store, and an eventual purchase act on-line.
The future of retail: possible scenarios
Given the trends that we have taken in considerations, there are three possible developments for retail:
- Fully digital: an on-line based channel, with no physical store legacy. Even though this is highly unlikely as a scenario, it is plausible for categories of products whose infrequency of purchase and specialization, make physical retail uneconomical. The market for spare parts and/or consumable for appliances is already moving on-line, with many retail brands offering the products only on their on-line channel, but not in the physical stores. With physical stores disappearing, brands will develop pop-up events to showcase their products and their brand experiences, hoping to cut the clutter and impress prospective consumers.
- Hybrid: a mix channel of physical and digital store. This is already where travel retail is moving towards: on-line purchase with delivery at departure/ arrival, in-store purchase with delivery at home, limited edition, tasting and education. Duty free stores are also used to deal with the ambiguity of consumers, who might be travelling for business or leisure. This models, where retailers create and extract value from brand evangelization and not necessarily only from traffic conversion, is probably the best likely scenario for many retailers with strong physical presence.
- Traditional retail: including almost exclusively sales off-line based on strong relationship created in the physical store, where brands become alive and thrive. This scenario is probably likely for the premium return to artisan tailor-made craft. The one of a kind, tailor-made, custom design product.
- develop physical platform for brand experiences, brand showcase and evangelization beyond sales;
- innovate by tapping into the already happening hybridization of retail, with purchase with home-delivery or online purchase with in-store pick-up;
While brands should look into building pop-up showcase/ brand experience stores. While we expect to be the norm, it’s also going to be pivotal for emerging brands that cannot afford yet renting prime retail or commoditized by algorithms.
 Silverstein, M.J., Fiske, N. and Butman, J., 2008. Trading Up: why consumers want new luxury goods–and how companies create them. Penguin.
 Albeit this is purely theoretical, because too often price promotions are enforced by retailers on the dime of producers/ distributors to make their life easier and improve their bottom line