Retail Sector Embracing Technology-led Transformation

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By Dominique Bonte | 1Q 2018 | IN-5027

The brick and mortar retail sector is grappling with ways to reduce costs throughout the supply chain, while still enticing customers in a world increasingly migrating toward e-commerce. Get ready for the great retail value chain reversal.

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NRF Highlights

NEWS


The recently held NRF retail technology conference and exhibition was a good barometer of technology trends and the state of transformational thinking across the retail ecosystem and supply chain. Attendance was up from previous years to more than 36,000. Key buzzwords included social network influencers, engagement, digital merchandising, virtual fashion models and virtualized mannequins, AI and voice chat bots, NFC, seamless check outs, customization, digital signage and shelf labels, mixed realty merging real and virtual models via AR and VR, blending digital and physical, unified commerce and omnichannel, in-store experience and assistance, item and identity tracking and visibility, fulfillment and delivery, and machine-to-machine selling.

To enable the above requirements, technology continues to evolve from legacy barcode and RFID, which are still relevant and evolving, to beacons, which are starting to lose some of their momentum in favor of machine vision used for both tracking shopping behavior and Amazon Go-like checkout experiences. However, these fast technology replacement waves are raising concerns about the cost-effective and timely management of ever shorter technology life cycles.

NRF made it very clear that the retail sector is now attracting interest from a large number of key technology suppliers, including SAP, Amazon, PTC, Intel, Verizon, Nokia, AT&T, Cisco, Red Hat, and Microsoft, many of which having entered the retail market recently are looking for the next business development opportunity.

Brick and Mortar Retail Emulating e-Commerce Paradigms as a Survival Strategy

IMPACT


At its most fundamental level, brick and mortar (B&M) retail is embracing technology to offer a seamless and transparent shopping experience in terms of perfect information and knowledge, visibility, and real-time support with the goal of competing with much faster growing online sales models. At the same time, technology is deployed to reduce employee and inventory management costs, off-setting the real estate footprint cost competitive disadvantage with e-commerce. Other incentives include reducing lost sales.

However, it seems that the B&M ecosystem is somewhat split between incrementally improving existing shopping experiences and physical store practices on one hand, and virtualizing the very nature of the physical shopping paradigm on the other hand. It is not so much about combining physical and online models, but about blurring the very boundaries between both: digitizing the physical store versus seamlessly embedding online experiences in the physical world through VR and on-demand delivery and mobile shops. It really is about mixed reality, embedding virtual experiences into the real world and/or embedding the physical world into the online environment.

Physical retail is coming late to the tech table, and is one of the last verticals to embrace technology to transform century-old practices. However, the big question still looming large is whether there still is a long-term future for B&M stores. Competing with the scale, efficiencies, and brand power of e-commerce giants like Amazon certainly seems like a daunting challenge, especially when considering future near-real-time drone- and robotic based delivery modes.

Omnichannel might not make any sense, as it is simply too expensive to maintain physical stores in the same vein as keeping the driver in an autonomous car does not make sense in an ultra-low-cost smart mobility-as-a-service environment of the future.With selling, marketing, and influencing moving online, offering the promise of near-perfect knowledge about purchasing behavior, it seems futile to expect that digitizing B&M will come even close to this.The B&M rep will go the way of the driver: away!

If B&M survives, it will be in a very different form, maybe transitioning into a large number of distributed or even mobile shops as opposed to centralized shopping malls, with the very nature of physical shops changing to automated experience and/or fulfillment centers, with payment and inventory happening automatically in the absence of any human operators or reps.

Toward the End Game of Retail Value Chain Reversal: From Push to Pull

COMMENTARY


While much of the debate within retail is currently dominated by the opposition between or the integration of B&M and online, a much bigger and more fundamental transformation is appearing on the horizon, one that will redefine not only the sales dimension, but the entire value chain from design to manufacturing, logistics, distribution, and fulfillment; this is the retail value chain reversal.

What is now starting to become increasingly clear is the inefficient way the needs of customers are being met through existing practices and value chains, in what essentially is a push model approach, whereby a limited number of standard products are designed by brands based on extensive market research, manufactured in large centralized production facilities, moved through legacy logistics and distribution centers, marketed through aggressive above-the-line advertising, stocked on shelves, and hard sold through largely still physical retail channels.

This entire process will be turned upside down, driven by both advanced technology and a social revolution, into a pull model, whereby the consumer will be the central focus and starting point. The networked consumer of the future will design his or her own products, largely within collective social network influencer circles. These personalized products will then be manufactured on-demand and delivered in real time.

This constitutes something like an Uber sector transformation, a paradigm shift from helping consumers discover existing products to enabling them to design them, individually or collectively. It is a move from vast choices and perfect knowledge about all available products to unlimited choices through personalized designs. It is moving away from trying to guess consumer tastes and preferences through extensive consumer surveys toward letting consumers say directly what they want and giving it to them instantaneously. It is a move from a static to a dynamic retail experience.

Clearly, this will require that multiple industries adopt new technologies and practices. Brands and retailers will need to allow consumers to design products through VR, manufacturers will need to adopt decentralized 3D printing infrastructure, and the logistics industry will need to adopt robotic warehousing and delivery. Shelves and warehouses will merge into behind-the-scenes robotic fulfilment centers.

While this retail value chain reversal will be limited to designer products, its impact will be ultra-disruptive. The paradigm can be taken even further: from collective design to collective ownership within sharing and “as-a-service” economy modes of living.

When everything is said and done, it is all about cost dynamics. If anything, technology allows shaving off the very large overhead costs associated with current inefficient manufacturing, logistics, and retail channel practices across a very complex value chain, giving value back to the customers and better serving their needs.

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