Retail Trends By Jeff Donaldson
Introduction
It isn’t difficult to find evidence of the challenges the retail industry, and in particular incumbent brick-and-mortar retailers, face. What may not be immediately apparent is that the forces that drive the shifting of consumer behaviors, share-shifting between purchasing channels, high customer experience expectations and profitability challenges in retail are the same across all industries. These forces can be harnessed if we map their applicability to our customers well and courageously evolve with them in mind. It’s important to accept that these forces do not represent value-destroying advancements, but positive innovation being exploited by some to create new value. The landscape of retail companies will surely change as these forces reshape retail, but the industry itself will grow with the cycles of our economies. The first step in harnessing these trends is to identify them.
Trends
For the purposes of our discussion, there are three (3) types of trends to consider:
- Economic Forces – climate change, political upheaval, population-concentration, escalating health care costs and similar macro-trends that impact companies and marketplaces – we will not consider these;
- Meta-Trends – often disruptive innovation that also powers new solutions;
- Digital Lifestyle Trends – specific capabilities powered by meta-trends that drive new consumer behavior, consumption models, business models and growth opportunities.
Meta-Trends
Our focus is upon meta-trends that impact all industries and have specific applicability to retail. Specific Digital Lifestyle Trends become an important subset consideration driven by meta-trends. The meta-trends disrupting consumer behavior and enterprise efficiency can best be characterized as technological advancement and, for this reason, it is important that retailers become as technology literate, capable and innovative as product companies. This fact may be the most important overarching trend impacting retail. The five most impactful technological advancements are as follows:
- Customer-centricity by Design & Emerging Analytics;
- Delivery of Digital Lifestyle;
- Automation via Robotic, Cognitive and Artificial Intelligence Advancements;
- Adoption of Hyperscale, Hyperconverged Business Practices and Supportive Infrastructures;
- Creation of Low-latency Organizations.
These meta-trends are fundamentally disruptive while also providing empowerment for new market entrants and incumbent companies with effective innovation capabilities. These meta-trends drive the Top 10 Trends impacting retail. Paradoxically, the trends expose their own solutions. This is largely because their impact is felt among incumbents as solutions driven by meta-trends are created by new industry entrants. The question isn’t whether or not solutions exist for incumbent brick-and-mortar retailers, but which ones will apply them most effectively to satisfy customers and create efficiencies. Here are the Top 10 Trends, driven by the five meta-trends, and a brief description of each. A document providing longer-form description is in development.
Uncommon Customer-centricity via Design and Emerging Analytics
Design (Thinking) drives the majority of technology companies that innovate to serve customers. Yet, Design is a nearly unheard of method in retail organizations. Without change, new solutions driven by customer-centricity will continue to be delivered by new entrants, entrepreneurs and technology companies entering retail not by incumbents. Progressive companies are merging insights derived via human-centered Design with those generated with advanced analytics such as automated business process discovery and learning algorithms to add depth to their understanding of consumer needs.
Lifestyle Retail Supportive of Digital Lifestyles
Retailers should be delivering a lifestyle and digitally-augmented products, not SKUs. The marketplace trend is toward digital consumption in the pursuit of a digital lifestyle. New entrant retailers consider digital add-ons for the products they sell whereas traditional retailers manage SKUs. When inventive, digital lifestyle features such as auto-replenishment, location irrelevance and autonomous shopping are delivered by traditional, incumbent retailers then we’ll know the industry has responded to change.
Automation-Assisted Store Associates
Tablet-based concierge apps represent digital assistance perhaps, but not an evolution. Anything a call center implements to help a customer should be fully-accessible to the Store Associate and as we evolve the call center it is becoming automated. The significant evolution isn’t to deliver via concierge tools information a Store Associate must navigate, but to deliver Robotic Assistance that will navigate on behalf of the Associate. Depending upon the retail concept, other types of robotic automation may be an important evolution.
Automated Decision Making Not Better Analytics
Business Intelligence via BI Search Engines, Data Lakes and Dashboards improves decision making slowly after great investment and effort, but after implementation retailers will still review a very low percentage of their data and count on humans to find meaningful relationships. Retail must evolve to exploit trends in machine learning (learning algorithms that generate models explaining data relationships), realtime streaming, cognitive automation and similar technologies aggressively and leapfrog traditional BI and Data Warehousing.
Affordable Smart Stores
Every metric used by an online retailer has to be affordably generated by a brick-and-mortar store. The trend is toward the use of traffic, conversion rate, product page views, cart abandonment, etc. to understand a consumer’s interests at depth. This data is available to new entrant online retailers for as little as $20/month via website builders. The brick-and-mortar channel can complete in this area only if it evolves equivalency otherwise disruptive analytical solutions and responsiveness to consumers will not be applicable to stores. (Note: IoT holds promise in creating equivalency though affordability is at question.)
Lean IT at Hyperscale
Building new capabilities too often means hiring, complex integration and multi-year transitions. Retailers don’t have the time for this nor do new entrants. For new entrants, however, the trend is to build new capabilities (often automated) and deploy in hyperscale data centers already established by the players retailers are competing against.
Lean Business at Hyperscale – Robotic & Cognitive Automation
Lean Business at Hyperscale requires that we discover the processes relevant to customers, discover the internal business processes that serve the customer and those that interface with internal and external suppliers – and automate them. Cutbacks in retail organizations are taking a toll on employees and degrading capabilities in retail. Retailers need higher productivity, new capabilities and augmented decision-making at significantly lower costs. The trend in technology-oriented companies and new entrants is to deliver these internal efficiencies via robotic and cognitive automation.
Organizational Evolution & Cultural Reinvention
Zappos runs as a holacracy. Amazon operates as a collection of small teams and initiatives are created bottom-up in the organization not via a fiscal planning process. The online competitors operate as customer-centric technology companies driven by Design. Innovation is employee-driven and small teams are encouraged to pursue their ideas. Growth in capability comes via automation not organization-building. The trend is toward organizational models that eliminate internal friction. Retailers must evolve their internal organizations similarly to support customer-centricity, employee-generated ideation, planning connected to customer need identification and new capabilities via automation and advanced technology literacy.
Reinvented Investment – Internal Kickstarter not tied to Fiscal Cycles
The trend is toward small employee groups driving innovation via Design and ideation. The trend is toward the allocation of seed funding to the ideas that evolve the company toward an inspirational end state aligned with revenue and earnings growth. Retailers should be more aggressive in adopting this trend.
Fast Delivery Cycles
Finally, the trends referenced above are only achievable if the ability to execute exists. The trend in product companies is the use of Design methods to drive a prototype-test first then materialize approach. This drives proof prior to investment. Also, fast execution often equates to Automated Delivery. Product company delivery cycle adoption is critical to retail execution.