Retail in the digital age: What are the main challenges for the future?
A 5-day tour in the United States, going from the West- to the East Coast, in order to discover how the retail sector in the digital era is changing and...
Story, in New York, has realized this. Their KPI (key performance indicator) is not sales/m² but experience/m². Secondly, everyone, by now, has seen the Amazon Go video. That remains a fine example in which a business, without compromising on convenience, caters to customer needs. Introducing this Uber effect in the retail environment is even on Albert Heijn‘s strategic agenda. Rebecca Minkoff’s flagship store in New York combines convenience with experience by using an interactive video wall to make other aspects of the ‘path to purchase’ easier to grasp and richer in content.
Steven: It’s one of my mantras: convenience is the new loyalty. Customer loyalty programs or –cards have become ‘old hat’. They actually lower your profit margin and the loyalty of your customer. I believe that your consumer’s purchasing behavior dictates his (or her) need of convenience.
Today’s shoppers expect the most efficient way to buy. The brick-and-mortar store is no longer their preferred interface, quite the opposite in fact. Everyone can see how those interfaces have changed over the last 10 years, and certainly since the use of a smartphone became mainstream. These days, we all live in a world where interfaces just consist of a single button. Think, for example, of the Amazon dash buttons and the ‘Push for Pizza’ applications. That’s been around for three years already so, to my mind, ‘convenience’ is actually no new trend at all. All goods can already be bought with a simple click (buying is now an automated process). In Singapore, for example, you can even buy a Ferrari or a Porsche with a single push of a button. You buy a pricey car as if it were a loaf from a bread dispenser machine. This might seem like an incredible level of convenience but this example perfectly illustrates how interfaces have changed from very complex to simple and automated.
That convenience trend will only accelerate through the use of AI (Artificial Intelligence). In Amazon’s view, even pushing a button requires too much exertion and is now working on a fully automated consumer interface. Each individual interface will observe your consumer behavior and know what and when you want something (or want to buy something) or deliver it to you even before you realize that you needed it. That is real-life customer service.
Google is also targeting this market. It combines on- and offline data, because then it knows the shopper’s purchasing behavior better and it makes the purchase easier. As Peter commented, every step of that decision to buy is relevant and, at every step, more information about your customer can help you facilitate the purchasing process, but also make it more fun. In a nutshell? Convenience is definitely the key to growth in retail at present and also the way in which you can create a more unique shopping experience.
A survey is conducted yearly among Belgian retail managers to gauge how eager they are to embrace digitization. In 2017 this figure dropped alarmingly to just 17% of the managers who felt ready to make the switch. In 2016 it was just under 40%. How do you account for this result?
Steven: Retailers reckon that we’ve reached stage 3 of the digital era. Stage 2 started in 2007 and was all about smartphones and social media. These past 2 years it’s been more about e-commerce and mobile apps. That was all fairly transparent. Everyone knew what he had to do and thus felt ready to take the next step.
In 2017 we are all in a flux again, as stage 3 is coming. The key thing here is data collection so that – with the aid of AI – you can create, … that’s right, … more convenience. Convenience both in terms of internal processes and in customer-facing. Many market watchers underestimate the speed at which everything evolves. Those 5-year plans mean that people are still busy rolling out stage 2 whereas, actually, they ought, by now, to be fully engaged in preparing stage 3. An added problem is that stage 3 is very abstract and unclear to many companies. It also requires other competencies (knowledge & skills) that are not always available, as standard, within a company.
Peter: Indeed, a typical ‛Day After Tomorrow’ effect. Up till last year, many of them still thought that digitization meant: ‘an extra store, but then online’ and that is doable/manageable. That is a mentality in which one follows the traditional product life cycle model, in which a few innovators are followed by early adopters, etc., …. But, these days, innovation works differently. You see a few attempts, a few startups that think up new concepts with the aid of technology. You could compare it to a few movements in the seawater just before a tsunami strikes. For, all of a sudden, someone comes up with a feasible application that operates easier and better and which we all immediately start to use and expect to see ‛in store’.
The retail sector is moving rapidly now. People were already busy focusing on the ‘Tomorrow’ but now it seems that that ‛Day After Tomorrow’ is really roaring down on us, and that’s something that you can’t extrapolate from the present, just like that. It’s the difference between ‘built-in’ digital and ‘built-on’ digital: it’s no longer a matter of ‘we’ll just… put a digital coating on it’. No, these days, you have to rethink your company around the theme of a digital world and a customer who exists therein. Besides, you can’t digitize your existing process just like that, you have to re-conceive it to align with reality.
Inspiration from Silicon Valley or New York remains very distant (and of no concern) to Belgian retailers. Examples like Colruyt prove that retail success can be built up locally too. Consequently, Belgian retailers take the view that international trends don’t apply to them. Do you share that view? What are the key international trends that a Belgian retailer ought to be mindful of and how can they be applied to Belgium?
Peter: International trends don’t catch on so fast perhaps in Belgium, but to deny that these technologies will have an impact on the Belgian consumer is risky. Your best ploy is to look at countries such as the UK and the Netherlands. There you’ll see true-to-form European consumers. That’s where you – as a Belgian retail player – see what your reality will be ‛Tomorrow’. That is a HUGE advantage! Combine that observation of your neighbors with the inspiration, technologies and business models that you see in the States or in Asia and with your knowledge (data) of the local shopper.
Sadly, these days, you don’t see many players who harness this, not even the last-mentioned aspect. That’s a pity for the Belgian economy in which the bol.coms and Coolblues of this world already have a very prominent position. Recently, a lady-friend of mine wanted to shop for something as simple as a rubbish bin. She had no desire to go to a shop for that. After searching on Google, she immediately landed on a Dutch website, albeit with a .be extension. How (un)clear is that? I was recently in London with some friends where we simply, from our position in a big park, ordered and received a picnic within 2 hours, via Amazon Prime. Apps like that would be very popular with Belgian consumers too.
Steven: In the US, we often get feedback that our groups ask too many ‘European questions’. We build in too many ‘if’ scenarios that delay things. Belgian startups over there get to hear that too from US-based Venture Capital investors. It’s not a clear-cut story though. Naturally, we have successful retailers and brands in Belgium, but shouldn’t we be ambitious too and want to be the first ones to whisk those Belgian – our – consumers off to the future? What we do see, all the time, are foreign parties that do seize that opportunity … and that’s a pity. There’s no silver-bullet solution here either, but it’s a question of disclosing some average figures and trying out new things, bit by bit. Perhaps, initially, with a limited segment of the customer base. In that way, at least, you build up expertise which you can then scale out, when necessary.
I think we’re making a big mistake if we – as Europeans – don’t keep a close eye on both the US and China. We have to be alert to what we can learn from them, not to mention steal or copy.
The food sector is – and always has been – the biggest chunk within retail. Traditionally, no one could imagine us doing our shopping online, without actually seeing the fruit and vegetables. To what extent, in your view, has e-commerce been determinant for food?
Steven: I expect that, online, this will trend in the same direction. So far, food has been the smallest chunk within e-commerce on the market. But that is about to change. First, consider the success of pure players, like HelloFresh, but the biggest confirmation is, once again, to be found at Amazon which recently acquired WholeFoods. Think back on their AmazonGo concept, multiple delivery options, on the amount of data that they hold on their customers and I’m pretty sure that, in the future, they’ll capture a large slice too of the food market. You may think that’s too distant from our shores, but the fact that you can already do food shopping in Belgium via Amazon, is the beginning of much, much more.
Peter: That’s right. As a Belgian retailer, I wouldn’t hesitate to devote all my energies to this. My children have grown up in a world where it’s completely normal to buy things WITHOUT seeing them first. They simply want the merchandise… fast! It’s perhaps absurd to ascribe to the online story just yet because, at 8.30 a.m., we still see buyers queuing outside the Spar, ready to buy their fresh oranges. Converting them shouldn’t be your first concern but rather a new generation of people whose purchasing power can but rise, and who will consider this way of buying as the ‛new normal’.
Pierre-Alexandre Billiet, CEO of Gondola, refers, in his book, to the importance of ecosystems: brands and retailers that must work together to create growth and value within the retail sector now that they TOO find themselves within the ‛new normal’. Your view on that?
Peter: He’s right in that it’s an issue that retailers and brands need to discuss. We’re already living in a platform economy. Platform players win. Platform players rule. Look at the past, where Apple became the undisputed winning platform for the music industry by creating a completely new ecosystem. More recently, one sees how new platforms, like Uber, with the aid of network effects, make themselves indispensable and transform the world. This could happen in retail too. And then it would no longer be a battle between brands and distributors, but a dogfight to become a ‛category king’...
Steven: As a company, you have to be very alert to this. The evolution of all personal virtual assistants (Amazon Echo, Google Home, Siri, …), guarantees an ‛ecosystem war’ between the big tech companies. Amazon is investing heavily in Amazon Echo and Alexa because they want people to buy products of amazon.com in bucketloads.
For Google this is a big threat because if Amazon pulls it off, then no one will need search engines anymore. Their answer is Google Assistance and Google Home. As for Apple, this might threaten the smartphone industry, so they’re anxious to develop Siri as quickly as possible.
Big tech companies are plowing huge sums into these smart interfaces and voice assistance. These new interfaces will have a huge impact on the hierarchy and visibility of brands, not to mention the role of the distributor in this story. People trust these companies and will readily switch to buying products via their available interfaces. As a result, Amazon, Google and Apple can become the real ‛A’ brands on the market. They would lead ‘the deck’.
All others play the deck at a much lower level. If the big ‛A’ brands pull it off, all other brands in the world will just become a commodity in this market. Developing a tech ecosystem is, therefore, a top priority. There’s no alternative anymore to collaboration while, on the other hand, huge sums of money will have to be spent in order to keep the own brand strong.
The possibilities that technology and globalization offer today, are enormous. One of the top three retailers worldwide recently sketched a very somber picture of the future for retail, namely that it’s just a matter of time before ‛retail’ disappears. All the intermediaries will disappear. How can retailers and brands still create value and growth in the future?
Steven: It’s essentially a battle for the title of ‘commodity-magnet’. About looking for new ways to influence consumers to choose your product over others. Two aspects are crucial here:
The human aspect: Everything and everyone will have to score well on their human capacities and capabilities: both off- and online. Shoppers expect a fantastic human interface, not a mediocre one. Customer service should be the core of your company and, actually, a consumer, when purchasing, doesn’t want to notice that he’s being assisted by technology. That’s possible digitally, but in a shop too, you – as a customer – will be happy that the shop-assistant knows your preferences and can assist you better.
Communication via different channels: Companies will have to assess what channels to use, which isn’t easy as every market uses different channels. It’s a big ask for retailers to stand out in a world where digital platforms are at the top of the brand hierarchy. Tons of money will have to be sunk into these platforms. You’ll also need a budget- and expertise change, aligned to the new needs. If you’re still doing your marketing today in the same way as in 2003, then it’s high time for some radical choices. You can no longer keep ticking boxes and allocating marginal fractions of your budget to what your future growth is supposed to represent.
Peter: I still believe in customer loyalty, even in an era of platform economies, but one proviso is that you take account of the new digital reality. A reality with umpteen possibilities and two clear goals: convenience and experience for the customer.
In order to build that value, you should be busy, today already, with developing ‛Day After Tomorrow’ strategies. Extrapolating from the past is, in that respect, totally passé.