This article is a summary of GDR CEO Kate Ancketill’s trends keynote at the NRF Big Show 2018, and is the final part of a series in which we explored how technology is remaking the retail experience, in conversation with Intel.
Part 3: Retail Remade
In August 1976, the Randall Park Mall opened in a suburb of Cleveland, Ohio. With 200 stores, the two million square foot complex was the largest shopping centre in the world, with opening night “such a success that there was hardly any room to walk” despite its cavernous size. Yet, by the mid-1990s, the mall was floundering: anchor tenants JCPenney and Dillards left and were never replaced, and by 2002, half the mall was vacant. In 2009, the site was abandoned, left to crumble until in 2017, Amazon announced plans to acquire the site, and demolish the mall to make way for a new distribution centre.
The story of Randall Park is, by and large, the story of the American retail machine over the last 40 years. But Amazon is not the only problem: retailers are burdened with too many stores in the wrong places and overleveraged with private equity debt, and unable to respond to changes in consumer income and behaviour. Crucially, the American retail machine was built and finely tuned to meet the needs of a stable, homogeneous, prosperous middle class. However, over the past 20 years:
- The world has seen the centre of consumer gravity begin to shift east, with the emergence of a vast new Chinese middle class and the decline of their western counterparts.
- Both the US and EU have experienced a significant period of job polarisation, where middle-skill jobs decrease as low- and high-skill jobs expand, fuelled first by offshoring and now by automation.
- The share of US adults living in middle-income homes has fallen from 61% in 1971 to 50% in 2017. Furthermore, both the luxury and discount categories have developed from niche players into significant segments in their own right, sapping consumer dollars from the middle tier – Dollar General will have more locations than McDonald’s in 2018.
In other words: the machine is broken. “Legacy retailers will have to adapt,” says Shailesh Chaudhry, Director of Business Strategy for Retail at Intel. “Control is with consumers now, and if they don’t adapt, they will not survive.”
But it’s not the retail apocalypse – just time for a new approach. One that accommodates all of the exciting new tools that retailers now have at their disposal, understands and caters to a consumer base hungry for new ways to shop, and leverages all the best assets legacy retailers have built up over the years. “It’s clear that physical stores aren’t going anywhere, as evidenced by Amazon acquiring Whole Foods,” thinks Chaudhry. “The future is going to be the seamless convergence of online and physical which is finally starting to happen, now we have the right capabilities and technologies. And the first step is understand how to effectively leverage all the tools, information and data retailers already have.”
We believe that the retailers best positioned for success in the future are the ones that adopt a more expansive definition of what retail actually is, and we can see the signs of this change happening right now:
- IKEA Place and other augmented reality apps go beyond ecommerce to bring physical retail directly into customers’ homes.
- With Moby, Mio and other automated solutions able to summon a store directly to you, physical retail no longer means a fixed physical location.
- With KFC K-Pro and the Tao Café, Alibaba are letting customers pay with just their faces – proving that physical retail can emulate the seamlessness of online shopping.
- Eataly World, a 25 acre “culinary theme park” created by the Italian food marketplace, demonstrates the maturity of the experiential retail model.
Perhaps the best example typifying this new, expansive definition of retail is Hema Market, Jack Ma’s “supermarket of the future”. Here customers shop, engage and consume on their own terms. Many options are available, from ordering food to cook at home, to buying it in-store for Hema’s chefs to cook and deliver within 30 minutes. And whilst it is still offered, conventional grocery shopping doesn’t even warrant a mention in Hema’s press materials.
For retailers looking to embrace this new approach, the way forward is to adopt “Platform Thinking”. Unlike the “platforms” that retailers may have been sold in the past, this isn’t about buying a new piece of technology. Platform Thinking is having a completely different mindset regarding what a retailer should be, by adopting radical modularity that both sweats assets and delights consumers. “Legacy isn’t just technology – it’s people, change management, structures and processes”, says Chaudhry, “and this means developing a set of core capabilities and assets, and then using them to offer more services without having to reinvest.”
The traditional retail model consisted of a limited number of assets – store formats, technologies, brand activities, products and so on – that were inflexible, but perfectly optimised to supply middle market demand as it was. As that target has fragmented and new tools have become available, retailers must have the courage to fragment their proposition in response, by breaking their business down into its constituent parts; adding, removing and reconfiguring as necessary. Chaudhry thinks retailers need to fundamentally examine these components: “If it doesn’t serve many purposes, it may be worth removing and looking for things that do”.
Retail is now about understanding that customers have a much wider set of needs, and having the resources, freedom and agility to meet them by any means necessary: telling stories, having shared values, providing services, experiences and relationships, or making transactions. Chaudhry says: “Retail isn’t a purely transactional process – it’s emotional, it’s leisure, and it depends on interactions. And whilst traditional retailers are trying new formats, what’s also exciting is new entrants – with no legacy issues, a technology-first approach, and management comprised of digital natives, they can really deliver on the experience.”
The benefit of Platform Thinking is that it provides many ways forward for retailers who adopt it, such as:
Platform thinkers break down their traditional customer journeys, and experiment with moving elements of the journey into new times or places which may be unexpected. The shoe store Runner Camp in Shanghai has no physical purchases: all fulfilment is via online ordering, instead using the space that would normally be taken up by a stock room for a running track that enables customers to extensively try out prospective purchases, and a gym that rewards loyal customers. Whilst these stores shift transactions away from where they once were, General Motors’ Marketplace app for in-car purchases from a range of partners like Starbucks and Dunkin’ Donuts, and Lufthansa x REWE’s in-flight grocery shopping, both use the same principle to create retail in entirely new contexts, cleverly anticipating consumer demand to create a shortcut to fulfilling their needs directly.
Platform Thinking means having the confidence to move into activities normally considered beyond traditional retail or brand competencies, backed by an array of assets that can be used to deliver them successfully. Magic Wallpaper, a digitally interactive wallpaper from DIY retailer Castorama which can be scanned to unlock bedtime stories, makes them a media company with space in thousands of homes. Deliveroo Editions, “dark kitchens” for popular restaurants on their service, has seen the logistics company move into the restaurant trade. And Buzzfeed’s Tasty One Top, an IoT hotplate in partnership with GE, extends its large library of recipe videos into the real world, simplifying the process for novice cooks by controlling timing and temperature automatically. Rather than attempt to do everything in-house, these brands have made an honest appraisal of their strengths and collaborated with a partner where appropriate to fill in the gaps in their platform’s capabilities and respond to untapped customer needs.
A deeper context
By understanding the deeper significance of a given product, service, or retail experience in the customer’s life, platform thinkers can transform their proposition. Cotopaxi uses a 24-hour adventure race to sell their customers a socially-conscious, active lifestyle – not just a backpack. Toyota’s Drive to Go car club concept recognises that renting a car is a means to an end, focusing on the day trips customers could have with the car rather than specs, and bundling items like picnic chairs, cooler boxes and binoculars with the rental. And at IKEA’s Dining Club popup, guests prepare their own food for up to 20 people, acting as both an extended product trial and a celebration of the social experiences that homeware provides, and a clever nod to the DIY assembly customers expect from IKEA.
By opening up their platform to consumers to involve them in the creating, making and supplying of the retail experience, and even the brand itself, platform thinkers forge deep connections with those customers and make it harder for competitors to untangle them. Volition is a makeup brand that crowdsources all of its product development from a community of make-up fanatics. B8ta, a channel-savvy tech store, lets customers view competitors’ prices and is the only place to try out many new products from crowdfunding websites in real life. And Lip Lab lets customers mix their own unique shade of lipstick during a 30 minute process, and invites them to sign off their creation by leaving a kiss on the wall. These new retailers, who have built their entire proposition around participation, can provide valuable lessons for legacy retailers looking to retrofit these concepts into their own platforms.
For retailers looking to avoid becoming the next Randall Park Mall, the way forward is clear. As we’ve learnt over the course of this series, the underlying customer desires that drive what a great customer experience looks like haven’t changed; instead, both the understanding of how to meet those needs and the tools available to do so have become significantly more sophisticated.
“Whenever we talk about the future of retail, we go back to the past. Certain principles have always held true, but they need to be reinvented,” says Chaudhry. “Instead of trying to blindly copy pure plays, retailers should look at the basic principles they have been successful at – then understand how new technologies can support those principles rather than using the old tools.” By conceiving of retail differently, embracing the market fragmentation that characterises modern retail, and responding using the structure provided by Platform Thinking, retailers large and small are poised to thrive, not just survive, in 2018 and beyond.