• Christoph Burkhardt

Stores aren’t going anywhere: what AI empowered customers really want

#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.