Retail is about being a great merchant and having a differentiated product and experience. To win, you must move your retail strategy closer to your product, or closer to the customer. Preferably both.
The right strategy relies on deep expertise in technology to unlock the power of your merchants while using data to power the algorithms necessary to achieve efficient scale. The future is becoming a platform-enabled retailer.
The Department Store RenaissanceExotic products, a rooftop garden, reading and writing rooms, reception areas for foreign visitors, and customer service at its best; this was the first Selfridges store in 1909. Carefully designed to become a destination, where those in the know visited to socialize, source style, and be inspired. These brands knew their customers and did whatever was necessary to satisfy their desires.
Department stores boomed in the 70’s and have survived in nearly the same format ever since. While some continue to thrive, the internet, shopping centers and specialty brands have weakened the department store’s control over distribution. In this new world, many department stores were left floundering.
But branded goods, product authenticity, variety, immediate in-store availability, and flexible returns are still key reasons for customers to shop at department stores. Building on these core principles will help keep customers flow through the door.
Department store operators must have the best customer data and algorithms for connecting customers to brands that will provide inspiration and create desire. They must have the best intelligence to deliver this inspiration online, in store, and out in the community. Their ability to work with large datasets and communicate desirable products to customers must be unrivaled.
Beyond this, they must provide real value to retail brands by becoming the most efficient same day distribution point, enabling brands to fulfill their customers’ desires with immediacy and efficiency.
Without these two elements in place their space is no longer valuable, and given the under-investment in product discovery, customer experience and localized supply chains to date, there is work to do.
How will this work?The modern department store will be an expert in connecting to the customer through any platform - seamlessly managing sizing, outfit construction, price and desirability.
This fundamentally differs from today’s search-focused environment - where customers know what they want, and Google, Facebook and Amazon are all too happy to capture the transaction. The department store of the future will be deeply connected with their brands, defining trends, curating products, and creating the market for desire amongst their customers.
Brands will be happy to distribute their inventory through the department stores' highly-automated micro-warehouses, or stores as we used to call them - now responsible for getting any product into a consumer's hands almost immediately.
More than just fulfillment and discovery, the department store will enable smaller brands to access inventory sophistication they’d never dream of achieving alone. Using blockchain, these brands will be connected to stores, warehouses, and suppliers as well as learning algorithms, to predict the lowest cost replenishment for all parties involved.
None of this works without getting closer to the customer's purchasing decision, and reducing friction in the experience. Brands, such as Massimo Dutti, who are testing new ways of creating desire using augmented reality to mimic product curation of a physical store in an online environment - aren’t wasting their time. The data gained from these experiments is a competitive advantage in knowing when, where and how to invest in developing algorithms and new interactions.
The Future of FoodSince the 1950s, there have been many incremental improvements in grocery stores, but the fundamentals are the same. Grocers derive profits through simplification, scale, and controlling access to shelf space - where suppliers go through a battle royale in paying supermarkets to be discovered by the consumer with each trip down the aisle.
Consumers needs are changing, they are demanding a wider variety of food experiences. Whether pre-made, organic, gourmet, more convenient formats or from local suppliers, these complexities gobble margins and are tough to scale. Just ask a restaurant owner.
For the first time in our lives we are now in a position as consumers where we can start to utilize sensors to track food freshness, provenance and the chain of custody through the supply chain. This level of transparency adds more complexity, placing pressure on the current paradigm of static pricing.
San Francisco startup Innit has already brought the connected kitchen concept to life at Pirch Store in SoHo NYC, so such an open platform may become a reality soon. Grocers need to look at their business as a platform, and build interfaces that allow them to be a part of this new ecosystem.
Above: Innit’s Connected Kitchen Live demo at Pirch Soho, NYC. June 2016
These emerging appliances reduce the effort required in making meals at home with available produce, delivering high-quality food and a frictionless shopping experience. This is the start of an ecosystem that will highlight how little connection today’s grocers have with the home and the consumers within it.
In the United States, 2015 was the first year in which more money was spent on food services outside of the home than through grocery chains. This shows a fundamental shift in how people make their food decisions. Food is no longer primarily the domain of the supermarket.
The supermarkets of the past have won through scaling simplicity, controlling distribution, and relying on controlling information from both the consumer and food suppliers.
The winners of the future will be food ecosystems. Those ecosystems who move closer to their product by connecting consumer data right back to the decisions made in the paddock to significantly reduce waste.
Amazon seems to be winning the battle with its Amazon Go store, but nothing is settled yet. The real question is why today’s grocers lack the urgency to innovate their way into the pantry, or modernizing access to food within communities.
What’s next?In the coming months, we will continue to hear about the death of retailers in the ‘messy middle’. To avoid this identity crisis, retailers must focus on the changing reality of the modern economy and become part of the consumer revolution.
So make your choice.
Are you going to move closer to your product? Differentiate your product from the market and add value with a real-time supply chain, and introduce an effective platform to enable suppliers to continue to innovate and share in your margin.
Will you move closer to the customer? Supporting your partners and suppliers with an unrivaled customer experience. Driven by your product discovery engine - where you deftly delight your target audience, creating desire across your physical space, salespeople, mobile and social platforms.
Or do you already do both? Today you’re the lucky ones, working hard to scale your brand into the global marketplace.
But beware, Amazon, Facebook, Alibaba and others are seeking to conquer your brand - you must remain paranoid. The only way to get close to your product and your customers is to become a platform-enabled retailer.
This article was originally published in Inside Retail's Future of Retail report for Inside Retail Live, APAC's retail conference and expo.