17 Analysts Forecast Top Trends, Tech and Strategies as
retail resets
When the year just past has been unlike any other in recent memory, how do you forecast what lies ahead? Retail TouchPoints realized how tough this task would be, so we’re particularly grateful that so many of the industry’s leading analysts agreed to share their predictions about the trends, tech and strategies retail will be using to reset itself in 2021.
We hope this 2021 Outlook Guide provides you with a road map for what promises to be another unique year for the retail industry.
Adam Blair Editor, Retail TouchPoints
Even as store counts continue to shrink, brick-and-mortar will remain critical to omnichannel retailers’ strategies. However, their operations and the customer experiences they offer will have to adjust to consumers’ new priorities;
Four main themes recurred among our panel of contributors:
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Key technologies to watch will include order management, edge computing, IoT, livestreaming, contactless/frictionless checkout and heavily data-driven prescriptive analytics.
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Last-mile innovations (including BOPIS, curbside pickup and stores operating as micro-fulfillment centers) will continue to be first-order priorities for both consumers and retailers.
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The COVID-fueled ecommerce surge will continue even after the pandemic recedes as the flood of new customers discover the benefits of online shopping.
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Contributors
Daniel Binder, Columbus Consulting
Jerry Sheldon, IHL Group
Joshua Chernoff, EY-Parthenon
Ken Fenyo, Coresight Research
Jeff Ketner, Ketner Group Communications
Michael Brown, Kearney
Chris Walton, Omni Talk
Julien Boudet, McKinsey & Co.
Laura Davis-Taylor, inReality
Deb Gabor, Sol Marketing
Rick Maicki, Darren Morrison and Keith Jelinek, Berkeley Research Group
Sean Whitehouse, Accenture
Inna Kuznetsova, 1010data
Tyler Higgins and Bhrugu Pange, Aarete
Data-Driven Category Management Provides a Glimpse into the Future of Analytics
For most consumers, shopping and buying experiences have been forever changed by COVID-19. A year ago, most shoppers would not have predicted that their grocery, drugstore, home goods and even alcohol purchases would unrelentingly migrate online, as options from shipping and same-day delivery to click-and-collect curbside pickup and BOPIS were more or less forced into virtual ubiquity by a do-or-die pandemic imperative. Safety, speed and convenience accessing goods, whether in-store, curbside or online, has become more important than ever, as has keeping up with the ever-shifting tides of consumer demand, as, for example, office apparel is out while Home Depot shares skyrocket. In the same way that online services needed to evolve rapidly overnight, so too do the analytics that understand and predict demand and figure out on the fly what categories are needed, when and in which locations. Previously, it was the category manager’s job to look back on historical and seasonal trends that would, presumably, allow them to predict with a decent measure of accuracy what would come next in consumer demand, and to prepare for upcoming supply needs. It should come as no surprise that this is no longer the case. Retailers now need a better way to assess rapidly changing demand and manage inventory. The bright side is that we have all the tools we need: data. Using real-time, granular-level insights to drive category management decisions, retailers and brands can develop the right protocols and proactively prepare for delivering on consumer demand. Historically, these tools and their data have all lived in different places: One tool for supply chain reports, working to complement a separate tool tracking inventory management and product promotions, and then there’s always external data from third-party providers as well. In today’s environment, however, it’s no longer possible to make critical decisions in a timely and effective way across departments, within channels or categories, especially when stakeholders are operating off of data from multiple disjointed sources. But what if supply chain operators were able to monitor current inventory at the shelf level alongside their product and category management teams, and respond proactively, for example, as supplies run low? This would require harmonized data in one place, integrated with the whole supply chain. A single source of truth is essential for providing as close to real-time insights as possible, while cross-organization collaboration and communication enables even more agility. This is where the future of analytics resides.
Delivering on the demands of today’s shopper, who now constantly questions all their shopping habits, brands and preferred retailers, is nearly impossible for brands to manage on their own. The shared visibility of end-to-end supply chain analytics and co-developed strategies is the only way forward if retailers are to be flexible, and it is that flexibility that will determine their ability to respond to ever-changing consumer needs and habits. Access to this kind of data has, in the past year especially, became the dividing force between successful retailers and those struggling to keep up.
Knowing what the customer will want, however, is only half of the battle. For this new strategy to be truly successful, a much more informed, collaborative strategy needs to be developed, to not only address shifts in demand for the types of products consumers need and want, but also to consider when or where they will want them, and which avenues can deliver on demand the fastest. Granular and localized demographics, region, geography and climate data, as well as news and especially public health conditions, are necessary. Only through this understanding will retailers, from the beginning of the supply chain to the end, be able to optimize today’s results while also preparing for tomorrow’s uncertainties. If alternative sales, early warning indicators and supply chain data are integrated, as a category manager you’d know where changes in demand are occurring at large, and would be able to evaluate whether your current inventory is equipped to meet those changes with real-time stock availability and future orders. From there, managers can plan inventory adjustments; if it’s too late, those same data tools will be able to suggest suitable alternative products for customers, increasing satisfaction and loyalty. While historical data should still serve as a baseline for planning and forecasting, near real-time insights available within alternative data sources such as weather, geolocation, and transaction data become an imperative component for future survival and success, cementing a retailer’s trusted place as a customer-preferred vendor. Retailers that invest in their data infrastructure right now will have the information they need to adapt and respond to consumer demand faster than their competitors and capture customer loyalty in the long run. The consumer trust and confidence built during these — let’s all say it together now — “unprecedented times” will last long after the pandemic has been resolved.
Future Impatient: How Brick-and-Mortar Rewires for the Consumer Conditioned by Online Expectations
Tyler Higgins and Bhrugu Pange Managing Directors, Aarete
While industry analysts might be looking at 2020 as physical retail’s Year-of-the-Final-Straw, and retail reporters waited with bated breath for each new round of store closure announcements, from our vantage point the Future is shaking its head in disagreement. Yes, we’re in the midst of a brick-and-mortar transformation. And yes, the cataclysmic effect of COVID-19 shutdowns and lockdowns hastened the pre-existing, more orderly trend of store closures. With the COVID-turbocharged shift to online, the erroneous perception that this is the end of storefronts is understandable. Stores are changing, but as so many retailers have pointed out, they aren’t going away. We know there are absolute inherent advantages to having brick-and-mortar locations embedded within your supply chain. Faster delivery. Lower cost for the last mile. Positive impact on customer satisfaction. Greater fulfillment capacity. Easy management of returns. The list goes on. Yet customers have been conditioned by the convenience of ecommerce — which means the physical store must be as nimble to provide gratification to the consumer as online. Backend systems and operations will have to become efficient and super-fast to meet the demands of the impatient consumer. The larger reality is that retail has to pivot to being multi-pronged: social commerce, omnichannel and brick-and-mortar — with each prong feeding the other. For example, an influencer’s livestream is used to increase curiosity not just in the product being sold, but what else is in the store itself. So while experts are talking about livestreaming as a way of selling a product, as the channel becomes more ubiquitous in the U.S., we’d like to hear more about livestream influencers selling a visit to the store — thus using digital activity to increase physical activity. That’s just one example.
Retailers should be able to help navigate their customer to what they want while also using their stores to present them with other merchandise they are likely to buy. Direct-to-consumer brands, digital in their DNA, offer some insight into this. Pre-pandemic, DTC brands — think Warby Parker — were opening brick-and-mortar stores to strengthen their acquisition and bolster their connection to the customer in order to achieve exponential revenue growth.
If a revolution is to happen in brick-and-mortar, retailers must start thinking of their storefronts as a live wire where supply chain innovation, brand digital differentiation and customer acquisition and experience all touch to produce the spark of sales growth. Smart and data-centric retailers have learned to do this by leveraging their brick-and-mortar footprint: 2020 saw the fueling by ecommerce of curbside delivery, BOPIS and home delivery, among other massive changes. Many of these improvements wouldn’t have been possible without the physical store, and pressure to continue in this direction is only going to increase during 2021 and beyond. The implementation is challenging, but in 2021 the priority is as urgent as ever to maximize the value of brick-and-mortar locations as a mini-hub of distribution for a retailer’s local regions. This can’t be achieved without strong systems integration, clear and accurate data, and continual evaluation of the network — all pillars of success. Brick-and-mortar stores will transform from a place not just for customer foot traffic but as an integral and irreplaceable point in a complex, data-centric supply chain.
Turning Brick-and-Mortar Into a Supply Chain Centrifuge
Customer Acquisition
Customer acquisition is and always will be at the top of every retailer’s list. Retailers have more data and knowledge of their customers today than ever before. The future places the brick-and-mortar store at the front and center of their customer acquisition strategy. Retailers need to find new ways to leverage their stores to strengthen the brand and increase their customer share. Longstanding brick-and-mortar businesses are trying to bring their shoppers a seamless but exciting shopping experience where they can find what they want, but also be surprised and purchase a treasure. The treasure hunt mentality is real, but that has to be accompanied by an easy shopping experience. How does a retailer combine those two? By blending brick-and-mortar with the technologies they are deploying in their stores.
While DTC brands have benefited from the pandemic-related explosion of ecommerce, they continue to acknowledge that the most effective way for revenue and customer growth is through brick-and-mortar locations, this being the lowest-cost, most effective and efficient way to gain new customers and accelerate sales.
Digital Revolution
Finally, no piece on the future of brick-and-mortar would be complete without a section on making digital the central nervous system of the entire physical enterprise. As retailers continue to track along their digital journey, a critical component will be laying out the neural pathways that both customize the shopping experience and increase foot traffic. This new magic includes: The future store is home to all this and more, along with the achievable revenue growth that comes from great execution. Retailers now have the capability to track the movement of customers, maximize upselling opportunities, enhance merchandise mix, and strengthen brand awareness in a brick-and-mortar store. These digital solutions are aided by knowledgeable shopper advisors, allowing retailers to turn a storefront into an exciting journey of digital adventure customized to every shopper that walks in the door. We see that brick-and-mortar shops will continue to be the primary source of revenue while supporting topline growth and enhanced profitability through all sales channels. The pandemic has changed our world and put pressure on all segments of retail, but one thing is for certain: brick-and-mortar locations are needed, and the retailers that best reinvent them around supply chain optimization, digital, and customer strategies, will thrive throughout 2021 and beyond. We’re impatient for this future to begin.
Seamless, quasi-invisible payments — think Amazon Go — that allow the customer to remain focused on the shopping experience itself rather than on the endgame of queueing and paying; Ways of gamifying the visit, perhaps by using technology to suggest a suite of complementary products or even virtual endless aisle in the store itself; and of course Augmented reality and IoT devices.
Q&A: Market-Focused Omnichannel Fulfillment Will Remain a Top Priority
Sean Whitehouse, Global & North America Lead, Retail Supply Chain & Store Operations Strategy, Accenture Strategy
Retail TouchPoints (RTP): Supply chains and fulfillment became top-of-mind issues for retailers, suppliers and consumers last year. What do you see as the biggest trends in this area in 2021? Sean Whitehouse: Traditionally in the retail supply chain you had to think at a global and country level, but increases in direct channels, accelerated by COVID, have forced retailers to think all the way down to a market level when it came to supporting the customer. That has led to four big trends in the retail supply chain area:
The bottom line is that retailers will need a market-focused delivery option with orders originating from stores and/or market fulfilment centers in those markets. We’ve seen a lot of traction from retailers that have invested in these areas over the past six months to deal with this year’s peak, and that’s not going away. Essentially, retailers do not want to get caught again in a situation where they cannot deliver orders to a customer in a timely manner.
The increasing complexity of supply chain network structures, which include distribution centers and stores; Challenges in terms of inventory and its placement within these reconfigured networks; The vital importance of the last mile; and The value of partnerships — not just with third-party service providers but with other retailers and with suppliers.
RTP: We’ve certainly been hearing about tighter integration of brick-and-mortar stores into distribution networks. What other types of complexities are you talking about? Whitehouse: When you talk about integrating stores, that’s very different than just turning on BOPIS. Network structure analysis requires looking at all supply chain assets: distribution centers of various sizes, locations and capabilities, and different types of stores, including dark stores, partial dark stores and showrooms. Additionally, how you flow your product through these more complex network structures will change, and you also need to take into account different levels of automation. Retailers are starting to look at this in a more holistic way, encompassing the network’s shape, structure and components as well as how the overall supply chain fits into all this. In terms of inventory issues, retailers will need to use more analytics-intensive inventory placement solutions for this future network that has both different distribution nodes and that uses stores in different ways. The focus should be about ensuring retailers have enough inventory in the right places to support their customer value proposition, with a potential side benefit of less overall inventory. But even if you don’t lower your overall inventory footprint, if you have it in better locations, sell-through and turnover speed will both increase. RTP: This past holiday season saw heavy strains on last mile shipping capacity. Will this still be an issue in 2021? Whitehouse: It will be vital to focus on last mile and market-based delivery. While a substantial volume of deliveries will still be done by UPS, FedEx and regional parcel providers, there will also need to be some volume delivered from a retailer’s stores and market fulfillment centers going forward. The questions retailers will be asking will be about whether they can do this with a third-party provider, a subset of their own employees and/or fellow non-competitive retailers.
Partnership is going to be important for retailers in providing this next generation of supply chain capabilities, including last mile delivery. When I talk about partnership, I mean with a large ecosystem of supplies, third-party warehouse providers, global and regional parcel carriers and non-competitive retailers. As larger retailers build out their network structures and market-based delivery capabilities, I think you will see smaller retailers “ride along” with this capacity and become a customer. These types of arrangements are starting to emerge, particularly in delivery, because the more dense you can make your delivery routes, the lower the cost. We’re in a changed situation within retail organizations. Prior to this acceleration of the direct channels, someone interested in expanding network capacity would have to provide the financial ROI of, for example, opening another distribution facility. Now there’s a perception that the business demand is there, and it will be there in the future. No one is saying cost is not a factor, but it’s much less of one. People are saying “If we don’t build the capacity, someone else will, and it might be the very large retailers we compete with.” It’s pretty clear that the market for these supply chain services is there.re.
Retailers’ 2021 Omnichannel Opportunity
Rick Maicki, Darren Morrison and Keith Jelinek - Managing Directors Berkeley Research Group
COVID-19 forced monumental change in retail in 2020. We expect 2021 to continue this new dynamic that has taken shape during the pandemic and fundamentally changed the way we work, shop and play. The shift to online shopping and alternatives to in-store shopping already were underway, and the pandemic greatly accelerated the rate of customer adoption of the omnichannel retail model (online shopping, curbside pickup, BOPIS, etc.). With all these changes, omnichannel alignment is arguably more important than ever, so what should retailers focus on to turn this “alignment imperative” into operational reality? At the onset of the pandemic, retailers had to move quickly to use existing technology and processes to drive sales however they could. Throughout 2020, retailers expanded capabilities in a “sprint mentality,” in many cases increasing costs. Now they need to develop a long-term strategy. To implement omnichannel alignment in today’s retail environment, retail executives should address several areas with laser focus:
1. Inventory Management:
2. Direct-to-Consumer (DTC) Fulfillment:
3. Role of Physical Stores
Inventory processes and tools that were in place and required the use of “brute force” to manage through the pandemic must be re-evaluated to improve agility and speed. New methods will be needed to manage product flow more closely in order to adjust to shifts in purchase methods and evolving channel mix.
While DTC purchasing will retract a bit as the pandemic wanes and consumers feel comfortable returning to physical stores, it will remain at elevated levels into the future. To adapt to fulfillment demand of different channels, retailers will need to reset distribution center capacities and evaluate alternative shipping methods and partners.
Stores expanded the breadth of their activities to include new customer-centric shopping methods and fulfillment of ecommerce, DTC orders and curbside pickup. Many retailers will need to reduce their number of stores even further, but the breadth of activities at the remaining stores will expand. Retailers should solidify operations to support enhanced customer-centric shopping options (appointment-based, virtual shopping, special hours, etc.) and develop stores’ capabilities as local fulfillment hubs to efficiently meet the customers where and how they want to purchase.
4. Marketing/Promotions:
Marketing strategies will need to be revamped to consider consumers’ desire to continue using new purchase methods, and to align retailer capabilities and costs to serve for each method. Retailers must align strategy with customer preferences to build loyalty. To do so, they should develop curated messaging with products selected for each customer, and make sure customers know they are listening — retailers want consumers to feel special.
The next 12 months will challenge retailers in new ways. Uncertainty still abounds regarding the pandemic, potential legislative action/intervention, and how consumers will feel in the new year. In an economy driven so significantly by consumer spending, concerns about unemployment and potential job losses, continued shutdowns of businesses, and our health weigh heavily on the near-term economy — especially retail. Consumers have responded to the pandemic in different ways, but most will rely on their adopted purchase methods as the new norm when it comes to personal consumption. Retailers likewise must carry their operational adjustments from 2020 into the future, shifting from capturing sales to driving efficiencies to better serve the evolving shopper and achieve the “omnichannel alignment” that will drive success in 2021. The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.
Retail Evolution Will Reward Those That Adapt and Punish the Laggards
Forecast: Fewer but More Flexible Brick-and-Mortar Stores
Daniel Binder Partner, Columbus Consulting
The future of brick-and-mortar in a post-COVID environment will see fewer stores and more attention to customers through multi-channeling that links critical touch points across online, offline, fulfilment and social media, bringing a seamless, fully harmonized, integrated and exceptional customer experience. Fewer stores does not mean less assortment or inferior merchandising. Retailers will leverage investments using data analytics and the insights they get from their deployment of CRM to curate exciting merchandise offerings that align closely to customer expectations and emerging trends. Retailers will make significantly larger investments to optimize web speed and acquisition engines that drive more online traffic to their digital assets, which will transform the customer experience online and deliver an offline experience across all of their channels. How consumers have shopped in-store will be seamlessly enabled online via technologies including 3D, augmented reality (AR) and more app development and its integration into the business model. As the customer’s behavior changes with more of their time online, retailers will need to adopt social media that influences decision-making. These investments are critically important and will drive significantly enhanced personalization.
The physical store will remain valued by the customer, and it will continue to project its brand authentically by showing all the elements of its image. While fewer stores mean there will also be fewer points of sale, the role of the store will change: becoming more flexible to address regional fulfilment and offering multiple services such as private shopping, concierge service, livestreaming and the introduction of virtual appointments.
BOPIS will play a larger role in store operations. Brick-and-mortar stores will deploy pop-up locations capable of delivering specific seasonal experiences and a very specific merchandise focus. This will enable a more agile and flexible physical model and address specific customer demands and specialized product offerings. We will see a transformation of store operations. Inside the store, associates will take on a more multi-disciplinary role, leading customer engagement and at the same time handling the specifics of packaging and shipping of product. SMS texts will power communication across stores and fulfillment to customers, and store associates will play a key role in the growing rollout of this technology. Finally, stores will win on the basis of hygiene, which will become a large part of the brick-and-mortar value proposition. COVID has certainly changed buying behaviors. The post-COVID environment requires a retailer to map out its offerings through the eyes of the customer. The roles of digital media and ecommerce will grow and be a larger part of the retail framework and the customer experience. So while the physical store will remain important, its role and way of working will change. It will still continue to authenticate the brand and give the customer a place to further discover, experience services and heighten its personalized connection with its customer.
2021 Technologies to Watch: Livestreaming, Frictionless Checkout and Prescriptive Analytics
Ken Fenyo - President, Research & Advisory, Coresight Research
In an otherwise challenging year for retailers, retail technology boomed in 2020. COVID-19 compressed years of innovation into months as retailers rapidly rolled out solutions to sell online, more safely operate their stores and better manage overwhelmed supply chains. We expect the trend to continue in 2021 as retailers aggressively seek out emerging technologies to drive their businesses forward. Here are the top technologies we expect to make the jump from emerging to mainstream in 2021:
Identifying the technologies to watch is far easier than figuring out how to take advantage of them. To compete in a post-COVID world, retailers in 2021 also need to figure out where to innovate, which vendors offer the best fit, and how to pilot and scale new technologies.
In 2021 we expect to see a strong growth in micro-fulfillment centers from startups such as Takeoff Technologies and Fabric. These centers, small enough to fit in the back of a store or a nearby dark store, combine robotics and analytics to automate manual picking processes, allowing retailers to better leverage their store bases for ecommerce fulfillment. Although grocers such as Albertsons and Walmart have been early adopters, retailers in other retail sectors, such as Nordstrom, also are deploying the technology.
Automated fulfillment:
According to a Coresight Research survey, more than half of grocery retailers said they lost 5%-10% of sales due to out of stocks and other store operations issues. More than one-quarter said they lost 10%-15% of sales. To address these problems, retailers are using computer vision and AI to provide real-time shelf visibility. Emerging technologies include shelf-edge cameras (from startups including Trax and Focal Systems), in-store robots (Simbe Robotics) and in-store drones (Pensa Systems).
Real-time shelf monitoring:
Amazon shook up the retail world when it launched its first Amazon Go store in 2018. These stores leverage computer vision and sensors to allow consumers to “just walk out” of the store when they are done shopping. Retailers such as Giant Eagle and Circle K in the U.S. and Carrefour in Europe have been piloting frictionless checkout solutions from AiFi, Grabango, Standard Cognition and other startups. In 2021 we expect to see the beginning of broader rollouts of the technology, not only in new stores but also as part of retrofits.
Frictionless checkout:
We expect livestreaming to take off this year as retailers look to make ecommerce more experiential. Livestreaming allows social media influencers to promote products through real-time, online video programming (think a digital version of QVC). These immersive shows provide a richer platform for brands to tell their story, particularly with younger shoppers. Livestreaming ecommerce is already a $65 billion+ business in China, and we predict it has the potential to become a $25 billion business in the U.S. within the next two to three years.
Livestreaming:
We also expect to see continued focus on last mile innovation. To streamline BOPIS orders, for example, retailers are increasingly deploying automated pickup centers from startups such as Position Imaging and Cleveron. Retailers such as Amazon, Kroger, Walmart and CVS are also experimenting with new technologies for home delivery, including autonomous vehicles (Nuro), robots (Starship Technologies), remote-controlled carts (Tortoise), and drones (Flytrex).
Last mile:
Retailers are shifting from predictive to prescriptive analytics to shorten the time from insight to action. Relying on AI techniques, prescriptive analytics integrates structured and unstructured data, compares actual performance to expected behavior in real time, and identifies the discrepancies along with the necessary corrective actions. We expect retailers will increasingly deploy prescriptive analytics across the business, including customer satisfaction and replenishment (Zebra) and returns (Newmine).
Prescriptive analytics:
Q&A: ‘Ecommerce at This Level is Here to Stay’
Joshua Chernoff Managing Director, EY-Parthenon
Chernoff: Our latest EY data from the Future Consumer Index shows that 64% of U.S. consumers say they will do their shopping mostly or only online this year, and 29% will shop equally in stores and online. Those are radically different numbers than in the past. Additionally, 46% of consumers are shopping more online for products that they previously had bought in stores.
Retail TouchPoints (RTP): For fairly obvious reasons, 2020 saw a huge spike in ecommerce. How much of the shift to online will remain in a post-COVID environment? Joshua Chernoff: Many retail management teams also are thinking about this, because the enforced shift of consumers to direct-to-home channels required big shifts in operations and capital allocations that these retailers were not anticipating. Ecommerce had been growing for at least 10 years at scale, but it was steady-state, incremental growth. Suddenly in 2020 we saw 2X, 3X, 4X increases in ecommerce at the same time that store revenues were dropping. The internal effect of this was that a lot of decisions that had been delayed, or weren’t high priority, all got pushed to the top. The people running ecommerce at major multichannel retailers were suddenly front and center and getting what they had asked for for years. We’re not forecasting any ecommerce decline for at least three years, although growth rates will fall back to the 10% to 15% per year that they had been. But basically, ecommerce at this enhanced level is here to stay. RTP: Which retail verticals will be most affected? Chernoff: Grocery is one of the sectors that’s most interesting, not least because it represents 35% to 40% of all U.S. retail sales volume. Grocery had been very underpenetrated in ecommerce for a variety of reasons, including its economics and last mile logistics challenges. However, what happened with COVID is that a lot of people on the sidelines tried online grocery shopping and found that it was better and more convenient than they expected. With all that trial that took place in 2020, a lot of consumers will stay in the mix, so now the fourth grocery trip of the month will likely be an ecommerce trip. With that added volume, grocers have more incentive to make online purchases more efficient, for example by using automated fulfillment centers rather than picking from stores. They will be looking at building their own last mile infrastructures rather than outsourcing to food delivery services. These big infrastructure and technology investments will almost “lock in” that extra ecommerce, because grocers making these investments will market it in order to make it profitable. RTP: What about beyond the grocery sector?
Now, when shoppers do visit stores, their priority is having a great experience. That means retailers that had benefited from being somewhat convenient, but only offering an average experience, will suffer. The effect of people realizing that online shopping is better and broader than they had historically thought is that they are more judgmental and demanding when they do take the time to go to the store. Additionally, the whole notion of convenience is changing. The ability of getting smaller items delivered quickly to your home essentially didn’t exist five years ago. Now it does, because online retailers invested to make a broad assortment of products available in an hour, or two hours, or one day, with very little surcharge. The net result is that consumers now think of convenience a little differently, so stores that relied on the notion of being convenient can no longer simply define convenience by physically being on every corner and every Main Street.
Q&A: Retail Technologies to Watch: Order Management, Edge Computing and IoT
Jerry Sheldon VP of Technology, IHL Group
Retail TouchPoints (RTP): COVID exposed many issues with retail supply chains and operations. Which technologies should retailers focus on to better position themselves against future shocks? Jerry Sheldon: Retailers will certainly need to beef up their inventory management and order management systems. COVID was a once-in-a-lifetime event that mucked up everything in the supply chain, and it showed that very few retailers had systems in place to go in and take a true look at their inventory positions all the way back to their suppliers. If you tried to replace an appliance during the last six months, you not only couldn’t get it, but the retailer couldn’t even tell you when it would be in — there was a constant drift and uncertainty in promise dates. Additionally, those retailers that had modern, up-to-date order management systems were so much better equipped to manage the transitions taking place in the customer journey. Other retailers had inventory stuck in their stores that they couldn’t use to fulfill orders because their systems didn’t support that. Even companies that successfully pivoted a lot of their orders to BOPIS, curbside pickup and shipping from other stores haven’t really optimized those processes. You can tell by looking at their financial results: they may have had huge revenue jumps, and in a perfect world margins also should improve as revenues do. Even at major retailers, though, you saw these huge increases in revenues but only very modest increases in margin. So even though things like click-and-collect were operational, there was margin loss because the backend systems weren’t optimized, so these retailers took it on the chin. This is a byproduct of the fact that we had two to five years’ worth of change compressed into four to six months. Normally change on this scale needs quite a bit of time to do properly. RTP: You’ve traditionally been very bullish on the store’s importance to retail as a whole. Do you still feel that way? Sheldon: There’s definitely still a place for the store; in fact, the store is getting a lot more complex in what it has to do. Certainly we’ll see some shrinkage in verticals like department stores, because their model doesn’t meld with how people shop now. And we’re likely to see reductions in store counts in specialty apparel as more of those sales move online.
While ecommerce tries to mimic a lot of the store experience, there also are still so many things you can’t do online with products like mattresses and furniture. Then there are stores that are intended as an experience. Take Restoration Hardware’s store in New York City — it’s off the charts. The store itself is an architectural masterpiece; it has five floors and a rooftop restaurant overlooking lower Manhattan. Their stock price has increased 2X during the pandemic. Just consider that for a moment. RTP: Speaking of the store, which technologies will be important there? Sheldon: With all the information that’s collected there — all the video content and information about consumers — there’s a lag time between collection and use. That’s why I think we’ll see a big bump in edge computing, because the “pipe” is only so big, even with cloud-based systems. Also I believe we’ll see a significant bump in IoT, and 5G will help drive that. There’ll be a lot more use of RFID because of the inventory visibility issues, so we’ll see more operational implementations in both the store and the supply chain. Certainly mobile POS and technology that supports curbside pickup, self-checkout and contactless payments will continue to grow — really anything that reduces the things you have to touch. People will continue to be freaked out by touching things, even post-vaccination.
But in general, stores are going to be required to do so much more than they had before. They’ll be “fit and finish” centers; places to receive high-end customer service and have questions answered; and they’ll need to operate as fulfillment centers.
Putting In-Store Behavioral Data Into Play: A Case for Automation
Laura Davis-Taylor Chief Strategy Officer, inReality
How many times have we as an industry repeated this statement? We all know it’s true but making it real has historically been hard, as we need people to follow through on it — time-starved, stressed out and now pandemic-challenged people. Now, thanks to the kryptonite effects of the COVID crisis on retail tech investments, we have the potential to change this more quickly than ever dreamed possible. As we move into the next decade, survival is at play. Customers no longer have to go to stores, and everyone is questioning if the ecom adoption curve will stick. The rules aren’t the rules anymore and we don’t know what post-COVID in-store behaviors will be. We are literally starting at ground zero, all while customer expectations have reached new heights. According to a recent Salesforce study, 62% of Baby Boomers and 58% of Gen Z’ers still prefer buying from a physical store. However, 76% feel it’s easier than ever to take their business elsewhere to find an experience that matches their expectations. They’re also 9.5X more likely to view AI as a revolutionary way to innovate the store for the better. Especially called out was IoT, voice activated personal assistants and even blockchain, all of which have two things in common: (1) They generate data; and (2) Their value skyrockets when the data is used to magically meet their expectations. Which gets us back to the “it’s what you do with it” bit.
“It’s not the data, it’s what you do with it.”
The old retail guard tends to move via experience and gut versus data and proof, even if it doesn’t scale. Data is seen as an enemy, as it may prove their gut and power position insufficient. This gets flipped on its head, however, when that data is bolstered by AI to make smart decisions backed up by proof.
Sometimes the win is with store operations, sometimes marketing, merchandising or another group. But it’s magic for everyone when sensors and software can watch and learn what’s happening in real time, then reactively, strategically serve up messages or trigger actions that create cost savings, better conversion, retention and shopper insights. Now that 5G penetration and edge computing have gone mainstream, this dream data scenario is more feasible than ever. Here are a few examples, all of which create great shopper experiences and measurable business impact for the retailer:
In Scott Galloway’s new book, Post Corona: From Crisis to Opportunity, he states the case that the virus propelled almost every business and personal path 10 years further down the road that it was already on. For innovative retailers, the crisis catapulted them ahead. For those merely pondering future possibilities, they are further behind than ever. By getting smarter about how they use data by turning it into real-time action, they can leapfrog the learning curve and get on track for an IoT-enabled future.
Endcaps that track shopper traffic, demographics and behavior, then serve up the content best matched for interest and conversion; Software that sits on top of security cameras to anonymously track shopper paths and dwell and, based on both learned and assumed behaviors, trigger things like sending over help, opening a checkout lane or notifying on a restocking need; Sensors that track traffic in bathrooms or other high-traffic zones, then send in the cleaning crew based on volume and necessity versus set hourly schedules; Smart shelves that use optical sensors and AI to track inventory, planogram compliance and shopper data, and that trigger dynamic pricing and product info based on people, pickups and other external factors; and New store formats tested and optimized for staff, operational, product and marketing efficiencies using real-time shopper tracking correlated to time of day, retail location, marketing events, and weather.
Michael Brown Partner and Retail Lead, Americas, Kearney
Well before the collective reckoning that was the COVID-19 pandemic, retailers were looking for ways to reinvent their physical spaces and experiences. Shoppers, once enthralled by the traditional store format, were no longer excited by those same layouts and offerings. Ecommerce was growing, and retailers were reaching for ways to incorporate technology and online convenience into their physical locations. While this need for fundamental reinvention didn’t change when the pandemic hit, online and brick-and-mortar integration accelerated exponentially. We believe that physical stores will continue to play a critical role in the shopping journey, but the optimal end-state is far from being realized by too many retailers. Brick-and-mortar will still be a critical part of the mix, but the role of the physical store is going to evolve dramatically. We see three paths forward for the traditional store, each addressing a core issue challenging retailers today:
Experience is King: Post-COVID Retailers Need to Integrate Physical, Online and Fulfillment in New Store Formats
We’ve recently seen a number of announcements for exciting reinvented store formats. Craft supplier Michaels is turning stores into “inspiration hubs” with testing areas and classes. They have also added more space for curbside, delivery and BOPIS for remote shoppers, as well as new signage, design and updated shop-and-scan checkouts for in-store customers. Men’s Wearhouse has been testing technology-forward concept stores aimed at streamlining and reinvigorating the clothes selection process. Key to its upgrade are interactive screens that take shoppers through offerings based on fit, style and so on, letting them add items to a “virtual fitting room” that staff will then compile. In another example, Nike has leaned into the concept of the flagship store as a billboard, with a main location serving as the “hub” for smaller “spokes.” The sports giant recently opened its third “House of Innovation” store in Paris, with a personalized, digitized and optimized end-to-end shopping experience based around sustainable technology and social consciousness missions such as serving women (with bra fittings) and getting kids active (with in-store activities). Smaller retailers also can try out this concept by making a store into a “showroom” — stocking it with only samples, focusing on brand interaction rather than shipping, opening and shelving tons of merchandise only to then re-package it for delivery, curbside or BOPIS. Of course, reimagining the store isn’t cheap, and retailers will need time to work out the specifics, including implementing cost-cutting measures such as automation and alternative labor models. The store will continue to evolve. We expect to see retailers testing out new concepts in the coming year as they figure out how to meet and exceed customer expectations better, cheaper and faster — even as they seek to make it more fun for the shopper.
BOPIS, curbside and online shopping with in-store returns are efficient ways for retailers to fulfill online orders. A greenfield approach to developing an integrated store and fulfillment center network — comprised of flagship stores, small-format stores, showrooms, micro-fulfillment centers, regional fulfillment centers and ship-from-vendor options — creates the most efficient environment for getting products into customers’ hands.
Problem three is the high cost of fulfillment related to online shopping and returns.
The acceleration of online shopping has not mitigated the high costs of online-only customer acquisition. Or put another way, customer acquisition is an expensive proposition for pure plays and direct-to-consumer retailers (DTCs). Even before the pandemic, online-only pure plays ventured into physical store territory for this very reason — the need for street presence — and Bonobos, Warby Parker and Everlane exemplified this by opening physical stores. It was clear that physical stores had a purpose: the billboard. In the opposite case, closing a store, retailers know that they lose significant online business in that market due to reduced awareness of the brand. Put simply, physical stores are a great way to get eyes on, and excitement for, your products or brand.
Problem two is the ever-present need to capture the consumer’s attention.
Whether retailers need more or fewer stores varies across sectors and maturity — but the one thing they all need are better stores. Customers can have their convenience through BOPIS and curbside pickup, but they need to know that if they don’t go inside, they’ll be missing out. Stores need to be visual, engaging and inspiring, engendering an interest that lasts well beyond the visit itself. These visits need to be connected to online browsing and personalized marketing, creating a seamless omnichannel experience.
Problem one is customer engagement.
RETail Tech’s Wild Ride: What Comes Next?
Jeff Ketner CEO, Ketner Group Communications
As retailers analyze results from the most unpredictable holiday shopping season in decades, consider what holiday shopping was like 30 years ago. There was no Cyber Monday. Most consumers had never heard of Black Friday. The biggest shopping day of the year was Christmas Eve, and Sears was still a powerhouse. In retail technology, the POS reigned supreme. Ecommerce? Never heard of it. The internet hadn’t yet entered the mainstream, and Amazon wouldn’t appear on the scene until 1994. However, retail was on the verge of radical changes that would completely upend the industry, driven by technology and changing consumer expectations. Retail today seems light years ahead of where it was 30 years ago, when Ketner Group opened for business as a tech-focused PR and marketing firm. We’ve spent most of that time focused on retail technology, and it’s given us a front-row seat to wave after wave of retail disruption in the world’s most fascinating industry. We’ve been fortunate to work with many of the technology companies that are shaping the future of retail, and the pace of change is only getting faster.
In the words of Peter Diamandis, “the future is faster than you think.” And much of retail’s rapid evolution depends on technology, which is why retailers worldwide spent $244 billion on IT in 2020, according to IHL Group.
I don’t have a crystal ball to predict how retail will evolve in the next 30 years. But it’s guaranteed to be a wild, fast-paced ride, and here are a few of the trends that are shaping the industry in 2021 and beyond: Don’t touch that credit card: Consumer adoption of contactless payments has been steadily increasing, but COVID-19 has supercharged adoption. Mastercard saw a 40% jump in contactless payments in just the first few months of the pandemic, and we expect those numbers to grow. Stay in the car, avoid the store: Shoppers who embraced curbside pickup (count me as a convert) aren’t turning back: 40% of online grocery shoppers will continue to purchase online, according to research from Mercatus and Incisiv. To woo shoppers into the store, grocers and other retailers must offer experiences they can’t get anywhere else. Dark stores get the green light: With the exponential increase in online shopping, dark stores have saved the day for many retailers, allowing them to quickly convert stores to distribution centers for online orders. We expect to see more dark stores appear as consumers increasingly turn to online-only shopping. More ecommerce = more returns: Online sales broke one quarterly record after another in 2020, which means that returns skyrocketed as well. While an easy, well-built returns process builds consumer loyalty, as Thomas Robertson of the Wharton School points out, retailers will increasingly look for technology that will help reduce the rate of returns, such as accurate sizing technology or systems that flag serial returners. No cashier? No problem: Amazon was the first to roll out cashierless stores, and a number of technology companies are now pushing them into the mainstream. They’re perfect for fast, efficient convenience shopping, and they minimize contact, a big plus in a virus-aware world. Supply chains get a digital makeover: Retailers have long focused on reducing cost and improving supply chain efficiency. The pandemic turned that model upside down, as fashion retailers in particular couldn’t pivot quickly enough to stave off disaster. Digitalizing the supply chain from end to end can give them the speed they need to pivot quickly. Where did that cotton come from?: Supply chain traceability, from a specific cotton field to the consumer, is now critical for fashion retailers with the U.S. Customs and Border Protection’s ban on cotton and cotton products from Xinjiang Production and Construction Corps (XPCC). The move is intended to eliminate forced labor in the apparel supply chain, but there’s a catch: retailers must now prove their garments weren’t produced by forced labor, or they can’t be sold in the U.S. Supply chain traceability is the answer. The trends mentioned above are just the tip of the iceberg for retail technology. And just as it always has, retail tech will continually adapt to market changes—even when it happens nearly overnight, as was the case with COVID-19. While the industry was hard hit, retail has always been resilient and able to pivot in new directions, sometimes in fits and starts, but always fueled by new concepts and new technologies. What will retail look like in 30 years? It’s impossible to predict, but it will certainly make for a fascinating ride. We’re looking forward to the journey.
How to Accelerate Ecommerce Growth in 2021
Julien Boudet - Senior Partner, McKinsey & Company
Since the start of the pandemic, most companies completed at least a partial shift to digital in response to overwhelming customer demand. But to make that shift sustainable, they now need to carefully examine technology, physical infrastructure, talent recruitment and deployment, and other systems — and this needs to happen at speed. We’ve found that three elements are particularly important in this: a test-and-learn culture, operations that support rapid reaction and a customer-first commitment.
Successful digital innovators treat customer satisfaction as a primary business goal: investing heavily in analyzing and mitigating any customer friction points and embracing a zero-defects mentality.
Testing and Learning
A prerequisite of successful testing and learning is an acceptance of failure as the cost of uncovering new knowledge. McKinsey research shows that respondents at successful organizations are more than twice as likely as their peers elsewhere to strongly agree that employees are rewarded for taking an appropriate level of risk. Digital natives have this mindset as part of their DNA and support it in three ways:
Truly digital players have fully integrated ecommerce and digital sales with the rest of the value chain. This allows them to quickly react to new customer demand, adapt existing offerings, introduce new products and services and deliver them to customers fast. Doing this well starts with being able to spot opportunities quickly. That requires good data and a commitment to using it. Nearly half of the best-performing companies in a recent McKinsey survey collect and analyze customer data at least weekly, compared with just 16% on average. Companies then need to have the operational flexibility to move quickly to go after those opportunities. Agility in operations and supply chain has a cumulative strategic advantage. By the time a competitor shows up with a me-too product, the first mover will have rolled out scores of improved versions and already established a solid go-to-market approach.
Rapid-Reaction Operations
One reason that focusing on the customer accelerates a business’ pace is that it helps to provide clarity and focus about what’s needed and cuts down on doing things that don’t add value.
Action Focused on Delighting Customers
The best companies intimately understand their customers’ experience, focus on the details of what their customers really want and layer in data to fill out the picture. To drive this focus, they use data and analytics to synchronize the ecommerce experience with physical stores, social media, inside sales, customer care and other customer-facing channels, making it seamless for the customer to shift among them. Any effort to quickly scale ecommerce requires significant resources. While critical, we still believe that a learning mindset that values speed over perfection, embraces failure as much as success, and empowers team members is even more critical. Without that mindset, all the resources in the world will not result in a truly digital organization.
Embed learning: A culture of learning has to extend to every corner of an organization, but it starts with leadership. At top-performing companies, senior leaders continuously scan for new tools and practices that can accelerate performance, taking the time to learn a new solution at least monthly, compared with quarterly at slower-moving companies. They also take steps to spread knowledge. Reward experimentation, even when it fails: A cornerstone of digital culture is the ability to continuously improve and innovate. Teams are empowered to test, learn and improve without the need for a cumbersome approval process, allowing them to test new go-to-market approaches, improve the ecommerce platform or even get new products to market first. Build learning skills: The best companies approach learning with the same focus and discipline as they do ecommerce. As top-performing companies set goals for new growth strategies or sales channels, they create a deliberate program to anticipate the needed skills and capabilities and a strategy for developing them.
Q&A: 'Fulfillment is Now a Pretty Significant First-Order Criteria’
Chris Walton CEO, Omni Talk and Third Haus
Retail TouchPoints (RTP): 2020 was a year when many of the things we take for granted about shopping suddenly became big challenges. What was the biggest impact you saw? Chris Walton: What’s been most interesting to me is seeing the validation of the word “omnichannel” — that “omnichannel retailing” is something that really matters. For retailers themselves, 2020 was about doing anything they could to muscle through and set up the capabilities consumers were demanding — in this case BOPIS, curbside pickup, and in general just having ecommerce capabilities ramped up. That’s fine in the short term, but what it really brought to light, particularly in the areas of order management and the entire fulfillment experience, was a key question: Are these systems up to the grade they need to be? RTP: What kinds of impacts will this shift have on technology investment patterns? Walton: Historically, criteria for selecting an order management system was about its ability to get a product from Point A to Point B with consistency, reliability and a low cost to serve. Now, fulfillment has become a pretty significant first-order criteria. Shoppers are asking, Do I need this delivered same-day? And how much am I willing to pay for that? It’s moved so far up in the shopper funnel that retailers’ systems need to adjust and accommodate that. Amazon has set the stakes to the extent that “When can I get it?” has almost become a merchandisable condition. Another effect is that front-end customer-facing systems will need to change their designs. The retailers that did well in 2020, Target, Walmart, Best Buy, etc. have already done that — customers can see all their shipping options right up front. Additionally, retailers need to have backend systems that understand where their inventory is at all times, and in real time. The “big guys” have built their own home-grown systems to accomplish that, but I believe we’ll see a flood of investment activity in this area. Those that were successful from the get-go during COVID were those that had made these types of investments over the last two to three years. Now, for retailers with $1 billion and up in sales, it will be a necessity. And for any retailer, order management and fulfillment is now a first-order condition of success. RTP: Virtually the whole industry is rethinking the role and purpose of the brick-and-mortar store. How do you see the store’s future? Computer vision will play key roles in these changes. One element will be monitoring inventory and pricing at the shelf. Another is in ensuring better accuracy for all a retailer’s fulfillment options, and streamlining the workload for employees or third-party pickers. So we could see more cameras installed in the store’s ceiling, or at the shelf, or affixed to a robot.
Walton: Retail is moving to a place where the store isn’t so much a channel as a tool by which you address your market, in the same way that a website would be. The move toward micro-fulfillment in stores fits squarely in that bucket, but that will require more picking, packing and shipping efficiency there. That in turn will mean changing the architecture of the store — either having a single spot in the store for these activities, or deploying other types of automation to get economies of scale.
New Year, New Chance to Make Sure Your Retail Brand Doesn’t Suck
Deb Gabor CEO, Sol Marketing
I know it’s been a while, but remember 2020? You know, the year you didn’t bother closing the Amazon tab? It was the same year you Googled “toilet paper alternatives” for the first time. Ringing a bell? I don’t mind being the 10 millionth person to say it: 2020 was weird. There’s no going back to the way things were, including our retail habits. We’ve been fundamentally changed by the pandemic, and brands have had a hell of a time keeping pace. The biggest lesson for retail brands after this insane year is that there is a massive need to humanize marketing. Many brands learned this the hard way. Early on, before the paradigm really started to get shifty, some retailers forgot to switch off their automated marketing. My favorite email faux pas was from a furniture wholesaler extolling the virtues of being inside with impeccable timing: “A staycation is better than a vacation.” Another advertised “Free restaurant or small retail store business plans.” Here’s a plan: don’t open a restaurant during a global pandemic, okay? The final straw was the 50 TV commercials that all started with the tinkly piano, and then healthcare workers with mask indentations on their faces, people standing on the balcony cheering, and a calm, measured voice reminding me how much I love fast food or shoes or soda. And repeat. And repeat. They all looked alike because brands had no idea what to say. They failed to connect with the emotional realities of their consumers. This was compounded with the Black Lives Matter movement and nationwide protests, and the twitchy period leading up to the election. Companies that had been coasting on inoffensive marketing were suddenly confronted with consumers who needed leadership and reliable information from brands with a set of matching values and beliefs.
2020 was the year that consumers demanded more of the brands they patronized. Where does this brand stand on COVID-19? Do they take care of their employees? Where do they stand on race and inclusion? Are they paying lip service, or are they making systemic changes to ensure they’re delivering on the promises they make with their marketing?
Brands that ran afoul of consumers were castigated. Look at Shake Shack, which received a $10 million Paycheck Protection Program (PPP) loan and then returned it after heavy criticism. The immediate backlash was headline-grabbing — shame on these big businesses, stealing from the little guy! But the secondary effects were more subtle, as thousands of businesses started thinking twice about loans to save themselves out of fear that they would thrust their brand into even more controversy. And now we’re in 2021. There’s never been a harder time to be a brand. The expectations have changed. Brands are now required to show their gooey insides, and hyperaware consumers are tuned into every action they take. The only solution for brands is to do the hard work of branding. Every retailer needs to examine the core of their brand and reimagine it for the post-pandemic world. Brands must disaster-proof themselves by aiming themselves at their Ideal Customer — the singular customer that is most highly predictive of their success — and aligning on a set of core values and beliefs that make consumers feel proud to patronize them. 2021 brands will be indispensable if they carve out a unique role in their customers’ lives that reaches beyond convenience or functional benefits. They must make their customers the heroes in their own stories. Otherwise, they’re just advertising a staycation during the most tumultuous period in living history.
