Today’s consumer is demanding, technology is moving at lightening speed and new business models are popping up everywhere. For retail, this means business as usual will get you nowhere.
A recent report by the World Economic Forum and Accenture outlines the ways in which traditional retail will be upended by 2026 as consumers become more empowered, new business models steal market share and technology offers more streamlined processes.
The report underscores the speed at which everything we’ve become accustomed to in stores—and even online—is changing. It’s an exciting time but one that will require organizations to keep pace or be left behind.
To be on the forefront, “Shaping the Future of Retail for Consumer Industries” outlines four ways in which retailers need to embracing the next wave of commerce.
1. Connect with empowered consumers
Consumers today have more options than ever—more than 1 billion, according to the report. And they’re being wooed from every direction, including traditional competitors as well as new upstarts that literally didn’t exist yesterday. The only way to keep up is to evolve. “As choice increases, loyalty becomes more fragile, and the consumer becomes more empowered,” the report stated. “Across every retail department measured, there were over 114,000 new products introduced to the market through the first three quarters of 2016.”
Not only do consumers have more say in what they purchase, they’re more involved in the entire value chain. Consumers now have the ability to drive R&D through crowdfunding sites that allow consumers to support the types of product and services in which they’re most interested, as well as buying and product development when they lend their voices to crowdsourcing inquiries from their favorite brands.
One way retailers can differentiate themselves is to build business models around high-engagement products, those that require decision making and product interaction. The report lauds men’s wear retailer Bonobos for its use of physical locations, not as stores, but as showrooms, which give shoppers the opportunity to receive help from stylists, thereby increasing online sales and lowering return rates.
2. Embrace technology
Innovations like digital traceability, robotics, 3-D printing and augmented reality top the World Economic Forum’s list of technologies forward-thinking companies need to investigate now. The Internet of Things, drones, robotics and AI, in particular, are anticipated to increase efficiencies and impact labor.
Before a company dives into a hot new technology, however, the authors say it must take stock of which offer the best and biggest benefits, and determine how close it is to being ready for implementation. Some innovations like robotics are two to five years out from being fully developed, the report said, while others like 3-D printing won’t achieve their peak for another six to 10 years.
French supermarket chain Carrefour is noted for having employed a system that outfits each shopping cart with a tablet, which both provides information to shoppers like promotions and gathers data from them such as their purchasing habits and behaviors. Carrefour has reported a 600 percent increase in app users, as a result.
Similarly, Rebecca Minkoff saw a six to sevenfold increase in sales in its smart stores, which are equipped with digital fitting rooms and connected glass shopping walls.
3. Adapt physical stores
Value is migrating rather than adding in the retail space.
E-commerce is expected to grow from an average of 10 percent of sales today to more than 40 percent in 2026, though the growth will not be equal across every product category.
As a result, expect the number and size of stores to dwindle and the number of malls to whittle down by 15 percent. “With approximately 1,050 shopping malls around the country, the United States is particularly over-indexed with retail square footage among digitally advanced nations,” report states. “In fact, it has five times more square feet of retail space per person than any other country.”
Even with the growth in e-commerce, brick-and-mortar stores will still represent the largest revenue stream for most businesses. But to capitalize on physical stores, companies must be able to adapt the space from one for transactions to one centered around discovery, engagement, experience and interaction.
“This will be done through leveraging technology for differentiated customer experiences, developing new technology-enabled frontline engagement with shoppers and new collaborations to repurpose the stores and hubs for social interaction,” the report says.
Here, innovation will be key again. Retailers are to find a way to get in on the sharing economy, which is the basis for the Rent the Runway apparel rental model; personalization as it’s utilized by subscription-based companies like StitchFix; on-demand options that allow for automatic replenishment; and the services economy that’s the basis for businesses like GlamSquad, which sends a makeup artist to you on demand.
Overall, the report says there’s $2.95 trillion of potential value up for grabs between now and 2026 from these emerging models and e-commerce.
4. Build future capabilities
The industry is moving rapidly, and it will take three key capabilities to succeed.
A. Recognize that companies can no longer operate in a silo. The report says the winners will be those that look outside the industry for strategic partnerships. B. Find solutions for last-mile delivery, which today amounts to approximately 25 percent of the total delivery cost. C. Look to innovations like macro-aggregators and containerization to make e-commerce seamless and sustainable.
Challenges along the way
While the steps for adapting to the coming retail landscape are clear, the World Economic Forum also acknowledges the inherent challenges in changing established, entrenched practices and mindsets.
For example, it’s not easy—or inexpensive—to swap out current systems and legacy technology in favor of the latest innovation. Further, hiring or training employees for the new processes is also a challenge. But before any of that can happen, companies must analyze their corporate structures and cultures to determine how they could inhibit progress.
In addition to internal effects, the report points to the external impact these retail changes will have on society as a whole. The report calls on local governments and businesses to work together to develop a plan to reimagine spaces as in-store shopping habits migrate to e-commerce. With more efficient technologies, job loss is also inevitable. In this case, it will be up to retailers and policymakers to develop a plan for re-educating workers for the new workforce. For instance, in-store associates must possess a perceptive nature, deep product knowledge, technological savvy and a passion for the brand. And finally, the environment can’t be forgotten in this race toward the future. It will be up to public-private partnerships to develop eco-aware practices to ensure sustainability.