#Stores and #shopping centers are not going anywhere but they will dramatically change their faces due to #AI. Brick and mortar retail is not dead, it is being #reborn.
Shopping online is faster, more convenient, offers more variety and options and does not come with annoying sales people who try to sell stuff. Brick and mortar stores face a new generation of customers, AI empowered and tech savvy, with diverse needs and high expectations. Whether we look at a small brand store or an entire shopping center, for retail to survive it will have to offer a completely new experience in order to serve a more and more channel-agnostic generation of customers. Those stores that manage to adapt will offer something so special that no e-commerce platform will be able to compete.
You can buy everything online. From groceries (Amazon Fresh) to fashion (Stitchfix), from cars (Carvana) to glasses (Warby Parker). Everything you could possibly want is just a few clicks away. Naturally, we have to expect a retail apocalypse as stores are closing, malls are increasingly empty, and nobody seems to go and carry groceries home anymore. That is the common narrative of the retail apocalypse.
And here are some facts that might surprise you:
Shopping centers aren’t dying.
Worldwide, the number of shopping centers is growing not slowing. Mainly in Asia there is huge demand for retail space and store concepts offline. (AT Kearney)
Going to the store is still the retail choice number one
E-commerce only accounts for about 16% of total retail sales in the US today and this number is projected to hit just short of one third of all retail by 2030. This means: two thirds of all sales in retail will not happen online for quite some time. (AT Kearney)
Millennials really enjoy shopping in stores
Just not any store. Among all generations in the US millennials have the most positive view of retail spaces today with 57% saying they feel the stores are more inviting. 40% of Gen X agree. Also, and even more surprisingly, 56% of millennials would welcome more personal in-store interaction while older generations find it annoying. (Source)
But wait, there is this too:
Malls are empty. 2018 has seen the highest vacancy rates among US malls ever. Traditional brick and mortar stores are closing all over the place.
Younger shoppers have high expectations of fluidity. The younger the customer the more channel-agnostic they are which means they do not care which way they are buying from you. They want seamless transitions between online and offline, between messengers, email, chatbots on websites and in-store conversations.
E-commerce is killing local businesses and their stores. Amazon killed local bookstores, thousands of them. Now, they target your groceries and will eliminate smaller grocery chains. So will their counterparts in China.
Obviously, we are not seeing the end of brick and mortar stores or shopping centers anytime soon but we need to understand that we are witnessing the emergence of completely different shopping expectations. This shift requires businesses to think about what it means to face AI empowered customers who are used to increasing levels of convenience.
About twenty years ago Amazon’s Jeff Bezos made a prediction about brick and mortar stores that in his mind would only survive if they offered immediate convenience or some form of entertainment value. As it turns out he was correct. Customers care about location, speed, the variety of products and cognitive ease of selecting between them. It is thus not very surprising that particularly grocery stores have made it a goal to eliminate the check-out process or at least make it a lot faster.
The store of the future will never see people waiting in line.
In San Francisco, Amazon recently opened several small grocery stores called Amazon Go. In these stores you scan a code with your smartphone when you walk in. Next, you grab everything you want and need, put it in your bag and walk out. There is no more payment process since you are being tracked by hundreds of sensors and cameras that charge your Amazon account automatically when you walk out. I have personally tried it several times and can confirm that it is an absolutely frictionless experience. Of course, Amazon is not the only retailer trying to eliminate payment processing. Particularly China is way ahead. There you can pay with your face, your messaging service or your Alibaba account.
The store of the future will never be out of stock.
Bold statement, I know. But given the ever-increasing quality of data garnered in stores and the now endless opportunities to watch, restock and predict product needs will make it virtually impossible (or at least very unlikely) for stores to run out of a certain product. To make this work several technologies are already out there. One we just talked about is the ceiling stacked with cameras and sensors to observe everything at all times. Walmart is testing this in what they call the Walmart Intelligent Retail Lab. As expected the cameras detect products and their availability which leads to a much more efficient restocking process in real time, but the really interesting part is the consequence of this application. It is not the sales associate that is being replaced by this process, it is the manager. His task is completely taken over by the algorithm while it is still too complicated to restock with robots or even more so to talk to customers on the floor.
The store of the future’s primary goal is not to sell stuff.
While until today stores are being measured as to whether, how often and how much they get customers to buy products in the near future this indicator of success will have to shift to a more complex measurement. The purpose of retail space will no longer be to present and sell but for customers to experience and talk about. If you look at online to offline brands and their showroom concepts you will find that not only do they not encourage you to buy something in the store they actually do not care whether you buy online or offline. In many cases the process of buying in store is very similar to buying online as sales representatives use the same interfaces to get the desired product. Often, they will also ask you for an email address or phone number in order to identify and track you.
Which brings us to the most significant shift in retail for the coming decade:
Stores will be packed with technologies that make it possible to identify, track, monitor, test and observe customers. Examples where this is in place already are Walmart’s Intelligent Retail Lab which or Amazon Go as mentioned earlier. But also, interesting cases such as b8ta or the Target Open House both aiming to observe potential customers interact with new products and learning about their questions and obstacles.
Walmart has also patented a heart rate monitor that is embedded in the shopping carts that customers push through the store. The technology is capable of telling between a stressed out and an excited customer and informs store attendants who to talk to and how. (Source)
Walgreens and some others replace the glass doors of refrigerators in store with screens that also have cameras able to track iris movement of customers providing information on interests, preferences and age of customers. (Source)
All of this has one purpose: to provide the most frictionless, personalized and authentic experience for the individual shopper. We talked a lot about friction and efficiency, getting rid of payment processes and all that. Let’s now look at the other components:
Just for me: personalized, fully customized, individual experience
E-commerce has been analyzing data trails that customers leave online from the beginning. We now see more and more attempts to track data about customers in stores and retail spaces in a similar way. From ubiquitous cameras and sensors to heart rate monitors, iris tracking and Augmented Reality features. We see attempts to identify customers with their contact information to build databases about their long-term shopping habits as well as their individual preferences in order to provide them with a custom experience when they walk into the store. The commercials and ads we see today while we walk through a shopping center are mostly generic and cater to large audiences. In the near future we will see ads and banners adjust to the individual preferences of whoever is standing in front of them.
The first digital price tags are being implemented and allow for a customization of information about products. Imagine picking up a piece of chicken at your local grocery store while the screen below it starts showing you the exact information about where the chicken came from, who farmed it and how it lived. For the person next to you picking up the same chicken the display might show the best low carb recipes with chicken. How would they know what you would like to see?
One, the other products in your basket or shopping cart reveal a lot more details about you than you would assume. If all your other products are locally farmed and organic chances are you care about where your chicken is from. If you have protein bars and a fitness magazine in your cart it is more likely you want to know about healthy recipes.
And two, if a store manages to identify you with face recognition software it will be possible to pull up all the shopping carts and baskets you have ever purchased. The opportunities to individualize your shopping experience based on your history are endless.
Since prediction is possible it will be deployed. And because it will be everywhere customers will get used to being predictable. They will get used to being greeted with their names, they will expect to be remembered and they will demand high levels of relevance in what is being presented to them.
Help me grow: authentic, educational brand purpose
What you sell is just the beginning. There is incredibly valuable unused knowledge in most product brands. Grocery stores will become health advisors. Shopping centers will be hubs for entertainment, education, healthcare and personal growth. And each individual contributor to the experience will serve a highly curated, knowledge enhancing and personal experience that could not be offered online.
Brands need to ask themselves what the ultimate purpose is they are serving. If you make sunglasses are you trying to help people to look sharp? If so your brand is not just in the sunglass business, you are in the advisory and discovery business and that is what people will come to you for. They do not want to buy glasses, they will want to look sharp. If you are in the air purifier business people come to you because they are concerned about the air they are breathing. You are in the healthcare, fitness, lifestyle or cleaning business then. Free yoga lessons have never hurt any business. And in either way customers will want to learn from you, they value your advice, they trust your expertise. In the US, 49% of millennials would like to see seminars and expert talks in retail spaces.
Let me share this: social media ready, Instagram-worthy space and design
Great experiences are worth sharing. New shopping center concepts like Platform LA offer visually prepared spaces for people to curate their experiences by sharing them on different social media channels. If a shopping center does not get Instagram posts it is probably because it does not offer a sharable experience. If it does not offer the experience than it will not survive. Thus, curability will become a pretty important indicator of a shopping center or store’s success. While only 12% of consumers today think that engaging with a brand on social media has any significance in how they feel or think about the brand the reality is that sharing experiences online will become more relevant as the sources of influence over brands get democratized. Brands have never been fully in charge of their brand image but today and definitely tomorrow customers will take brand reputation in their own hands. Influencers will grow more organically and require brands to be more authentic.
Stores and shopping centers are not going anywhere but they will dramatically change their faces. Brick and mortar retail is not dead, it is being reborn. With a data and AI powered, highly personalized, convenient, educational, share worthy in-store experience physical retail spaces will add incredible value to what customers expect online already.
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