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Perspectives

The Reboot of Retail

2019-01-10


There’s a bright future for traditional retailers that shift to an “experience” mindset, blend the physical and digital worlds and tap into emerging ecosystems.

No industry has felt the brute force of digital more than retail. And, while change and disruption is certainly not new to the sector, on this occasion, retailers have been uncharacteristically slow to react. But for retailers able to make the necessary adjustments, digitization represents a pathway to new opportunities for growth and expansion.

At the heart of retail’s ongoing transformation is a shift in focus from the point of sale to the point of experience — in other words, thinking beyond the products they sell and focusing on experiences and solutions that support and enable fundamental consumer needs, and help solve for the underlying problems that consumers want to address through their purchases.

This requires a deep understanding and sensitivity to the context and circumstances surrounding consumer motivations, including the frustrations, desires, problems and preferences that led the shopper to engage the brand in the first place.

The Age of the Experiential Retailer

To be an experiential retail­er, businesses need to reinvent the in-store experience, using technology in innovative ways to provide interactive and immer­sive experiences. Retailers are employing a combination of artificial intelligence (AI), Internet of Things (IoT), virtual reality (VR) and augmented reality (AR) to give shoppers experiences that engage, inform and entertain (see below).

Figure 1

This will require retailers to address the disparity that currently exists between online and in-store experiences. While many traditional retailers have invested heavily in enhancing their e-commerce offer­ing, they’ve under-invested in their physical stores, even though the majority of shopping still happens in brick-and-mortar locations.

Four Categories of Retail Experience

The type of experiences retailers can provide can be grouped into four primary cate­gories. Deciding on which of these experiences to prioritize and how to connect them typically evolves out of an intimate understanding of the consumer journey and an acknowledgment of the overall brand value proposition:

  • Convenient: A number of retail­ers have leveraged digital technologies, including smart sensors, computer vision, facial recognition and machine learning, to remove checkout delays, make it easier to find items in the store, reduce wait times to return items or pick up online orders, and provide fast and flexible fulfillment, including same- and next-day delivery. Such capabilities will soon become table stakes.

  • Communal: Community retail seeks to turn physical stores into destinations for gatherings of loyal consumers who orient themselves to particular causes, affinities, interest groups or cultural distinctions. Examples include charming hybrid retail cafes that encourage interaction between consumers, shopping mall fitness facilities, and idyllic retail lifestyle villages that encourage shoppers to linger.

  • Curated: The proliferation of choice that has emerged in the digital age creates an opportunity for retailers across categories to break down, guide and inform the consumer decision process. Beyond a mere passive display, product curation is about storytelling, editorializing and convey­ance. Retailers need to tell the story of the selected products, explain why they were selected or recommended and what meaning or value they provide, either individually or as a combined set.

  • Immersive: Immersive experiences relate to a broad range of consumer-centric experiences intended to surprise, delight and wow the consumer. These experiences range from immersive and interactive displays, leveraging AR and VR, to personalized content, pop-up shops and specialized amenities, all offered in a unique environment emphasizing newness and spot-on service. With further advancements in AI, AR/VR, IoT and home voice devices, retailers will be able to provide ever more sophisticated personalized offerings, feature-rich interactive applications, engaging and immer­sive environments and elevated levels of service.

Paving the Way Forward

Retailers on the vanguard of digital innovation have left behind a trail of success factors, common hurdles and lessons learned that can serve as a guiding light for those with the desire, fortitude and resilience to join or even challenge them.

Decide who you want to be.

Provisioning high-quality products, sold at a convenient location, at affordable prices, is no longer a sufficient value proposition to ensure long-term success. Being digital requires retailers to reexamine their entire way of doing business and understand where the new, often hidden, sources of value are. For some retailers, capturing new revenue streams may be about developing entirely new businesses in adjacent categories. For others, it may be about identifying and targeting new value pools or underserved consumer segments in existing sectors. Either way, retailers must evaluate their existing business models from top to bottom in order to iden­tify areas of potential advantage.

Put the consumer at the center.

To achieve true consumer centricity, retailers must first enact cultural change and master empathy — not just collect data. Set the vision and direction at the top, empower and incentivize employees to place the consumer at the heart of daily decision-making, and invest in and align people and pro­cesses to what drives the greatest value to the consumer.

It’s imperative to identify and prioritize the rollout of innovative technologies on the basis of an intimate understanding of the consumer journey and how these technologies will create experiences that matter at critical moments of truth. Retailers must also invest in collaborative consumer models that unlock the wisdom of the crowd and give consumers a sense of brand identity and empowerment. They must solicit and leverage direct consumer input and feedback throughout the testing and pilot­ing of capabilities. Moreover, they must seek to turn their loyal consumers into raving fans through carefully personalized and curated products and services.

Think omnipresence, not omnichannel.

Omnichannel assumes that consumers actually care about the channels they use. In reality, consumers are channel agnostic and care only about experiences, brands and solutions, as well as shopping with ease and simplicity. Secondly, omnichannel rests on the assump­tion that clear distinctions exist between the channels through which consumers choose to engage. However, as much as we commonly talk about brick-and-mortar retail and e-commerce as if they are two distinct concepts, this is a distinction without a difference. In the new order of things, there is no such thing as pure e-commerce; today, it’s all just commerce. Online drives offline, offline drives online, and most consumers are active in multiple channels within the context of a single shopping journey.

Retailers must evaluate and respond to the more complex, multi­ple journeys and life events that lead consumers to engage their brand. They must think beyond the channels themselves to understanding the key moments they have as a retailer to capture consumers’ attention and connect with them.

Make AI and advanced analytics core operational competencies.

The use of AI in retail can generate several benefits. First, it helps retailers make smarter decisions, with more accurate and real-time forecasting. Reliable and accurate forecasts help improve supply management, define impactful thematic promotions, and optimize assortment and pricing. Second, AI can make operations more efficient, thanks to a combination of robotic and intelligent process opti­mization that enhances productivity and reduces manual labor costs. AI will enable retailers to increase their overall number of customers and the average amount those customers spend by creat­ing personalized and convenient shopping experiences.

In the next few years, we’re likely to see a major shift in focus among retailers as they transition toward a more insight-driven business environ­ment. will need to systematically harvest structured and unstructured data across multiple, eclectic sources and develop and apply advanced, predictive algorithms that turn these AI-driven insights into foresights and recommended actions. It starts with having a top-down, enterprise-wide analytics strategy and operating model designed to harness the power of analytics.

Capitalize on the combined strength of physical and digital assets.

Retail CIOs need to explore which consumer processes and value propositions are best suited to humans, machines or a combination of the two.

By redistributing work between humans and machines, retailers can enable humans to focus on consumer engagement and growth. After all, in the world of digital business, growth will depend on human inge­nuity, interactivity and engagement, not to mention the human traits of empathy and emotional intelligence. However, as the modern retailer struggles to keep up with accelerating demands for personalization, convenience and speed, the effective application of these human skills will require additional time and a focused effort. To do this, retailers will need to leverage machines, including auto­mation and machine-human collaboration, to remove the burden of superfluous, non-consumer-facing tasks from the shoulders of the store associate.

With many non-consumer-facing tasks soon to be automated, store associates will need to be retrained to deliver personalized, added-value services and experiences. The store associate of the future will have a renewed focus on selling to and serving the customer, providing a customer experience rather than just processing payments.

Invest in integrated and adaptive digital platforms to transform business models and better serve connected consumers.

Among the most profound industry shifts is the transition from retail as a place that sells products to serving as the hub of a connected ecosystem that integrates and optimizes physical and digital assets, data, content, partners, suppliers and more – something we call “Adaptive Spaces.” At the heart of this ecosystem will be an adaptive, digital platform that enables the delivery of personalized experiences and solutions at scale across a broad array of audiences and physical and digital touchpoints. The purpose of the platform will be to keep con­sumers within the retailer’s ecosystem and target them with multiple propositions to maximize brand engagement, solve for underlying needs and desires, and drive consumer loyalty and lifetime value. (See below how Adaptive Spaces could transform the travel and hospitality industry.)

No More Rooms, Only Adaptive Spaces™

A unified digital platform stitches together all the devices and channels that serve the consumer across the end-to-end value chain, effectively consolidating and integrating online and offline experiences. The data captured across these devices and channels can be quickly integrated and ana­lyzed to enable real-time, personalized interactions at the point of decision. Well-connected algorithms built into these platforms will reveal customer relationships from discovery to persuasion, and finally to transaction. On the flip side, the harmonious integration of retail processes and systems allows the retailer to manage the middle office and back office with greater efficiency, agility, speed and scale.

The Future Is Now

For retailers that are able to embrace the new retail paradigm, bust through age-old habits and conventions and reimagine the very essence of brand value, the future will present a plethora of new, exciting opportunities. Success will require speed, fortitude, a culture of rapid change and a mindset of inspired execution.

For more information, read the full report, “Retail’s Next Frontier,” or visit the Retail section of our website or contact us.

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The Reboot of Retail