Back to the Future: The Evolution of Retail

Dec 19, 2017

In the lead up to NRF’s Big Show 2018, we’re exploring how technology is remaking the retail experience through a series of conversations with Intel – from the evolution of retail over the last 100 years, to how advanced technologies like the IoT are being used to create new opportunities, experiences and forms of storytelling, and the changing role of the brick and mortar store in the age of Amazon.

Retail is undergoing what many call a transformation – and many more call an “apocalypse”. And whilst Amazon provides a convenient scapegoat when previously dominant brands fall by wayside, the truth is the disconnect between retailers and their customers has been growing for many years, fuelled by customers’ increasing expectations around convenience and immediacy. Amazon represents a new wave of retailers who are capitalising on this gap, by being better placed to take advantage of technology advances like ubiquitous internet connectivity and smart devices, and reacting faster to shifts in technology and consumer behaviour.

But “legacy” retail wasn’t always seen this way. Sears may seem troubled now, but it’s easy to forget that in the early 20th century it revolutionised the retail industry in a way reminiscent of Amazon today. Indeed the experience of a Sears, Roebuck & Company customer in 1928 looks remarkably similar to that of an Amazon customer in 2018: Browse an extensive (nearly too extensive) catalogue, order using a normal form of communication (the mail), wait a few days, and either have it delivered or pick it up from a local collection point.

Their experience at the local general store has even more similarities to modern e-commerce: Speak to the proprietor on the phone (or drop a note in), and they’ll recognise them, know their past purchases, and recommend items they might like to complement the purchase – then items are delivered within a few hours via cycle courier, and they give a positive customer review to their peers. The customer even gets loyalty points for her purchases, redeemable for money off or exclusive experiences.

“For a while there was a lot of talk in industry circles that today’s customers are somehow fundamentally different, but I don’t think that’s true – customers are the same as 100 years ago,” says Joe Jensen, VP of the Retail Solution Division at Intel’s Internet of Things group. Indeed, the Gimbel Brother’s creed, displayed in all its department stores throughout the 1930’s – “We are not satisfied unless our customers are” – is the same mission statement Amazon gives today. (Just like Amazon, they were technology innovators too – the Pittsburgh store was the first in the world to have escalators.) “Retail hasn’t changed either – it was always about the right combination of the same four things,” says Jensen, “products, pricing, service and location. People will naturally gravitate to the best balance of those.”

Of those four, whilst the Mom & Pop store may have had great service through deep knowledge of their customers and products, and a convenient nearby location, selection was limited, and many goods were unaffordable to all but the affluent, or unavailable outside of major cities. This changed during the 1970s, as the middle class burgeoned and moved to the suburbs, retailers began to consolidate into national and then international powerhouses. With the rise of out-of-town shopping centres and increasingly homogenised retail offerings, retail began to lose its physical connection to the local community, customer footfall was increasing to the point that personalised service was becoming impossible, and ranges were such that only the very best employees could be a product expert.

Instead, those “Big Box” retailers focused on the levers they could control: an intensive process and assortment optimisation, creating incredibly efficient and consistent supply chains that offered the average consumer a huge selection of items at low prices. For many years, innovation in retail was driven mainly by this goal of improving the running of the store, as the extreme cost pressures introduced by Wal-Mart and other mass retailers forced the industry into an arms race of advances in logistics, stock management, and pricing. The customer experience, however, remained relatively static as a result, as headcount and time not spent running the store were seen as luxuries that could be eliminated.

Jensen, however, thinks it’s wrong to consider the two as opposed. “Look at Amazon Go. Amazon knows every customer that walks in that store, they know buying behaviours and patterns, they know exactly what products to stock at every minute of the day to cut wastage, they’re optimising staff workloads – it’s a logistics breakthrough wrapped up as a great customer experience.”

However, it wasn’t all invisible. One major customer-facing innovation started with the introduction of electronic cash registers, one of the earliest of which was trialled by McDonald’s in the mid-1970s. This, combined with increasing capabilities of electronic databases, led to the creation of the first electronic customer loyalty programmes in the 1990s.

Amazon Go

Once again of course, this wasn’t a new idea – multi-retailer loyalty stamp programmes had been around since the 1890s in America, typified by S&H Green Stamps in the US and Green Shield in the UK, and in 1957 there were more than 200 such schemes. Dubbed as a customer-friendly initiative, the real innovation for retailers was, for the first time, the large scale identification and data collection of customer activity in-store.

This was used by head office teams to optimise everything: merchandising, store layouts, pricing, promotions and more. And, for the most part, customers were happy (or oblivious) to trade their data for the promise of money-off their weekly shopping bills. The UK were pioneers in the field – from Passcard, widely considered to be the first loyalty card, to Homebase’s Spend and Save card in 1992, the first by a major chain, through to Tesco’s Clubcard and the pioneering data science work done by their agency partners DunnHumby, enabled in part by a strong commitment to data-driven retail from Tesco’s senior management.

But in the late 90s, seemingly unstoppable retailers faced their first real disruptor: the rise of the consumer internet. Over the next 15 years, pure-play online retailers attacked traditional retailers on four fronts:

  1. They could offer a larger selection than even the largest Big Box store, with an effectively endless aisle
  2. A lack of infrastructure and staffing overheads meant they could offer even lower prices, even when factoring in shipping costs
  3. As internet connectivity became pervasive, they could reach a much wider market, and were easy to discover thanks to improvements in search engines
  4. They had access to a treasure trove of customer data and analytics that even the most advanced physical retailer could only dream of – and unlike loyalty cards, which only engage with the end point of the shopper journey, they had a reliable way of identifying customers throughout their whole shopping process

However, it wasn’t just retail competition that the internet brought. “Customer expectations tend to rise with any good experience they have, inside or outside of retail,” says Jensen. “No one has ever liked waiting in line, but now technology is reducing friction everywhere in customer’s lives – it’s natural they expect retailers to keep up.” It’s worth remembering too, that whilst today ecommerce leads the way in many customer experience technologies like personalisation, dynamic merchandising, product availability, and content-driven commerce, that’s only because starting off at such a major customer experience disadvantage forced them to innovate, as Jensen points out: “People said no one would ever buy clothes they couldn’t touch or try on; now the largest fashion retailer in the US is Amazon.”

Do legacy retailers find themselves in the same handicapped position now? Luckily, the same technologies that first threatened their dominance also offer a tantalising chance to have it all: the service and convenience of a luxury local boutique, combined with the assortment and price of a suburban Big Box, supported with a comprehensive online offering. In the next article in this series, we’ll explore exactly what those exciting new technologies are. Click here to read it.

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