This post is part of our new Retail Influencer series where we interview the world's leading retail experts to get their take on the state of the industry, the top trends to watch for, and what the future holds.
The following is an interview we recently had with Deborah Weinswig, Founder and CEO, Coresight Research (formerly Fung Global Retail & Technology), a retail think tank.
1. How has the retail industry evolved in the past 5 years?
DW: There’s much more choice, spending has fragmented and legacy, generalist players are struggling. Meantime, demand for apparel remains soft.
2. What are the top retail technology trends you're seeing?
DW: Artificial Intelligence (AI) is probably the biggest retail technology trend. That’s why retailers that want to remain competitive cannot ignore the benefits of AI applications to their operations, in particular, the technology’s ability to provide a personalized and straightforward shopping experience and to scale up the use of customer data.
With consumers bombarded with an unprecedented amount of information, the ability to deliver highly personalized content for each customer could be crucial to staying ahead of the competition, while the possibility of anticipating demand and estimating when items will be returned should translate into more efficient business operations.
AI enables computers to make autonomous decisions. It is a step forward in automation that is changing the retail industry. In retail, AI is used to analyze customer data, adapt how companies interact with shoppers and predict consumer demand in order to better manage inventory.
For example, AI can decide for the retailer what items to show to shoppers and how to display and present them, and it can recreate the interaction that the shopper experiences with store associates at brick-and-mortar stores by guiding and advising the customer.
Ultimately, AI enables retailers to drive sales and anticipate demand, gain a better understanding of consumer behavior and offer highly accurate, individualized promotions.
For more, please see our report.
Secondly, Augmented Reality (AR) and Virtual Reality (VR) are beginning to be used to enhance the experience.
While the retail industry is still at a very early stage in the adoption of reality technology, companies have started to introduce the technology to enrich the shopping journey with a tool that can inform shoppers’ decision-making process—for example, by virtually replicating what it is like to use the product or service once purchased. Going forward, reality technology could disrupt retail by changing the way consumers shop.
The Reality Technology Market Is Expected to Continue to Expand. There will be an estimated half a billion VR headsets globally by 2020, according to research firm Strategy Analytics, and the global VR market is expected to record an impressive 531% growth in the three-year period to 2020 to reach US$40.4 billion, according to research company SuperData Research. Given these figures, it is easy to imagine that retailers that will develop content for reality technologies will greatly benefit from this fast paced expansion.
Retail is one of the industries that looks most likely to be disrupted by reality technology, and companies using the technology will increase their competitive advantage and the share of their existing market, according to Goldman Sachs Global Investment Research. The bank forecasts that the value of the VR retail software market globally will reach US$500 million in 2020 and US$1.6 billion in 2025.
For more, please see our report.
3. How will AI change the retail industry?
DW: AI has a number of uses in retail, including Personalization–for example, of emails and homepages; Communication–with chatbots; and inventory management/price optimization–which can maximize full-price sales and minimize out of stocks.
Here are more details on the three main applications of AI in retail:
- Personalization: AI enables retailers to provide a personalized approach to each customer through a customization of shopping recommendations, e-commerce and m-commerce portals layout and promotions.
- Customer service: AI is used to operate chatbots that mimic the client’s interaction with a sales associate or a customer-care assistant. The technology is able to detect the tone of the user’s messages and understand the best way of responding to the client’s need.
- Inventory management: Retailers can predict what customers are likely to buy in the near future, thanks to data analytics powered by AI. This enables retailers to maximize the probability of having the right items in stock as customers order them, which results in faster fulfillments and leaner inventory operations.
AI is already widely used in retail, but the technology tends to have a low profile. In a survey of UK retailers published in 2017 by specialist publication Retail Week and retail tech firm Qubit, some 38% of respondents were already applying AI to their business operations, and 48% were already using machine learning.
Half of the retailers questioned for the Retail Week/Qubit survey use the analytic and predictive ability of AI to drive sales and anticipate demand, while 46% use the technology to gain a better understanding of consumer behavior and to offer highly accurate individualized promotions, as shown below.
For more, please see our report.
4. How will blockchain change the retail industry?
DW: Demand for transparency in production is increasing in the retail industry. Before reaching the end consumer, consumer goods have already traveled through a vast network of suppliers, producers, logistics providers, distributors and retailers, but in many cases, the processes in between are not visible to all participants.
Industry players still suffer from low visibility when it comes to supply-chain management, in addition to facing the challenges in verifying the authenticity of products or raw materials. A lack of traceability, insecure transaction records and incompatible databases across different parties are the key pain points in the industry. Blockchain offers an accurate and immutable database that allows users to trace and verify the origins of products, attributes and ownership. Hence, the technology can increase visibility in supply-chain management as well as strengthen the security of databases.
When blockchain technology is applied to supply-chain management, it addresses the traceability issues by enhancing the transparency and solving the problem of trust. Transaction records on a blockchain are immutable and can be traced back to their origins with certainty. In a supply-chain context, using blockchain technology offers traceability to track physical value in the supply chain. Enterprises that use blockchain technology to log the steps in the production and sourcing of products gain visibility across the entire supply-chain ecosystem, enabling agility and improving planning capabilities.
Blockchain technology can also be used for logistics. For example, Walmart recently filed a patent for a drone delivery tracking system that integrates blockchain technology. In this case, the blockchain would hold certain information such as the location, supply chain transition, authentication of the courier and customer, and temperature of the container and product. In simple terms, Walmart aims to leverage blockchain technology to enhance the security of unmanned drone delivery, as well as the supporting authentication system.
For more, please see our report.
5. What's the future of retail?
DW: We expect to see further fragmentation of spending to new types of retailers, alternatives to conventional retail, and non-retail categories. We also expect store-based retail to cluster around four functions: convenience, collection, discount, destination. Here are more details:
Convenience. Stores that cater to time-pressed shoppers looking for immediate purchases will be among the most resilient physical formats. Online delivery options will get faster, and more e-commerce operators will offer same-day, two hour and one-hour delivery, but shoppers will still encounter barriers to buying online when they need products fast. Consumers outside dense urban areas are already much less likely to be served by rapid delivery services, and such services still tend to carry significant charges, which makes them unviable for lower-value purchases and for frugal shoppers.
The demand for convenience will be most evident in grocery retailing: shoppers will always want to be able to replenish the basics in their cupboards and choose dinner for tonight on short notice. But shoppers also often find themselves needing unexpected gifts and replacement items, and these needs, along with treats bought on impulse, will drive demand for last-minute, store-based purchases across much of nonfood retail.
Consumers’ desire for convenience implies sustained demand for local shopping centers that are home to grocery retailers and other retailers of everyday goods and lower-cost products, including dollar stores and mass merchandisers.
Collection. Brick-and-mortar retailers continue to report strong—and, in many cases, strengthening—demand for in-store collection of online orders. In the US, consumer uptake of in-store collection is already substantial, and it continues to grow apace. A JDA consumer survey published in July 2017 found that 50% of US consumers had used buy-online, collect-in-store services in the past 12 months, up from 46% in 2016 and 35% in 2015. Kohl’s and other retailers are reporting uplifts in the proportion of online orders that shoppers are choosing to collect in-store. Macy’s has noted the benefit of incremental in-store purchases by shoppers coming in to collect online orders. And in August 2017, JCPenney noted that its in-store pickup service was driving 600,000 visits to its stores each week. Anticipating sustained growth in demand for collection, US retailers are building capacity. For example, grocery retailers are currently racing to roll out pickup points as collection, rather than delivery, is becoming the default option in the nascent US online grocery market.
Discount. Dollar stores/pound shops, off-price retailers, grocery discounters, warehouse clubs and other low-price stores such as Primark continue to operate largely or solely offline. Even if more of these types of stores launch e-commerce operations in the coming years, we expect that their sales will still be disproportionately store-based due to customer demographics, customer resistance to delivery charges and the challenges of replicating their retail experiences on the Internet.
We’ve noted a polarization in consumer demand: even while shoppers are demanding immediacy and convenience in the form of ultrafast delivery and other omnichannel services, they are flocking to value-positioned stores—such as off-price, grocery discount, and dollar stores, as well as warehouse clubs—that seemingly offer the antithesis of convenience. These types of stores typically offer no, or only limited, e-commerce options, more basic in-store environments and more limited customer service.
Retailers that are expanding, such as Dollar General and T.J.Maxx, are apparently anticipating no letup in demand for “inconvenient” discount shopping formats. And while some of this discount hunting activity may move online eventually, the added costs of e-commerce—notably picking and delivery—are a strong mitigating force against the wholesale migration of discount shopping to the Internet.
Destination. As e-commerce continues to capture more and more functional shopping, leisure shopping remains one of the most obvious areas of opportunity for physical stores. Accordingly, many long-standing retailers and shopping center owners are now talking about investing in better experiences that cater to consumers looking for an antidote to the more pedestrian experience of online shopping.
Real estate owners are adding restaurants, food halls, entertainment venues and fitness centers to their shopping centers in order to establish them as destinations for leisure visitors. In some cases, mall owners are filling anchor spaces vacated by department stores with these kinds of services and offerings.
Similarly, retailers are innovating to drive traffic by filling stores with experiential offerings and services that help build shops into destinations. Restoration Hardware, for example, has added restaurants in selected stores and Sephora now offers beauty services in some stores. Macy’s even launched a temporary Samsung digital experience center in its Herald Square flagship for the 2017 holiday shopping season
For more, please see our report.
About Deborah Weinswig
Deborah Weinswig is an award-winning global retail analyst and a specialist in retail innovation and technology. As Founder and CEO of Coresight Research (formerly Fung Global Retail & Technology), she is responsible for building the team’s research capabilities and providing insights into the disruptive technologies reshaping today’s global retail landscape. She was ranked a top Retail Influencer by Vend for 2017. She most recently served as Head of the Global Staples & Consumer Discretionary Team at Citi Research where she consistently ranked among the top analysts. She sits on the Advisory Board of several accelerators including Alchemist, The Cage (Lane Crawford), ERA, Grand Central Tech, Plug & Play, and TrueStart. She is involved in early-stage investing through the Hong Kong Business Angel Network (HKBAN) and Golden Seeds. She is also an advisor to companies such as Eventable, Fashwire, NanoPay, RetailNext and Rubin Singer. Deborah sits on the advisory boards of philanthropic organizations including Dignity U Wear and StreetSoccer USA. She is an executive board member on The Terry Lundgren Center for Retailing, advisory board member of the World Retail Congress and was recently named to the Board of Directors of Kiabi. Lastly, she is an e-commerce expert for the International Council of Shopping Centers Research Task Force.