It’s that time of year again — time to put on the prognosticator hat and take a stab at foreseeing what’s ahead for the retail industry in the coming year.
There are a few things that seem certain: Customer expectations never stand still — and just to up the ante — they’re also not consistent.
Disruption is one constant, but that’s been true of the retail industry for years. We live in an age of immediacy, and it has prompted rethinking every single part of the business. Retailers can expect more of the same for the next 12 months, even the next three years.
At the risk of being wide of the mark — or maybe just off by a smidge — here are STORES’ predictions for the retail industry in 2019.
Retailers will go ‘all in’ on artificial intelligence.
AI and machine learning no longer fall under the heading of emerging technologies. Intelligence-enabled platforms and systems are now fully capable of delivering customer-centric insights, helping retailers tackle inventory woes and providing data to support optimal pricing strategies. If retailers don’t plan to go “all in,” there’s a good chance they’ll find themselves on the outs with consumers who have come to expect a more personalized experience.
Another reason the rush to AI and machine learning will continue to ramp up: 2019 promises a flurry of new startups hawking systems that mesh data from weather, econometrics, competitors’ promotions and forecasts of future buying patterns. It’s not a moment too soon. Trendwatching reports consumers will expect retail brands to use new forms of data to offer personalization that proves they know customers better than customers know themselves.
Jason Goldberg, who leads the commerce and content practice at SapientRazorfish and hosts The Jason & Scot Show podcast about ecommerce news, predicts machine learning will become more realized in 2019, and its impact will be transformative. “Potentially, machine learning is a bigger disruption of our industry even than digital was,” Goldberg says. “And I don’t say that lightly.”
He says because AI is a “big, broad, amorphous thing,” it’s not necessarily something companies can just implement or turn on; it’s a whole suite of tactics they can use to create better customer experiences and save time.
Advances in AI are proving their return on investment, but Bryan Gildenberg, chief knowledge officer at Kantar Consulting, insists the focus needs to be on problem-solving. “AI takes the sheer abundance of data that retailers have amassed and, using sophisticated algorithms, can improve inventory quality and increase product recommendations,” he says.
“But the first order of business has to be problem-solving. How will it be used to make better decisions? What’s the specific use case?” he asks rhetorically. “Investments in AI and machine learning can result in increased revenue and better customer experiences, but the solutions adopted need to be based on each retailers’ specific strengths, weakness and customer objectives.”
Voice-recognition technology spurs conversation, but monetization remains uncharted territory.
Being able to shop via Google Assistant or Amazon’s Alexa device is useful — maybe even fun. But voice-enabled shopping starts to plateau when shopping moves much beyond replenishment items or products people use routinely. Would a shopper use Google Assistant to buy a dress for a friend’s wedding?
That’s not to say the technology isn’t valuable — or even here to stay. In fact, retailers including Target have integrated with Google Assistant, experimenting earlier this year with coupons. What’s the next step? It’s clear consumers have more of an appetite for voice than playing music and checking the weather, but will they rely on this technology to connect with their pharmacist? With the jury still out on ROI, it remains impractical for retailers to develop their own devices with proprietary, AI-driven shopping assistants.
Google recently added Best Buy, Sephora and Nike to the growing list of retailers from which shoppers can purchase directly through Google’s Shopping Actions service, a unified shopping cart capability integrating Google Assistant, Google Express and its search capabilities. John McAteer, vice president of U.S. sales and operations for Google Retail and Tech, reports transactions are up 14 percent and is looking ahead to a bigger bump in 2019.
“We’re still early stages here and sometimes the conversation is clunky, but the notion of voice in and voice back is resonating with consumers and they’re shopping more with the retailers who make this an option,” McAteer says. “It comes back to determining what is the right consumer experience.”
Meanwhile, voice-recognition is gaining momentum as a mobile interface, slowly upending traditional search. “The current search paradigm is awkward. When shoppers are in a store they can be specific about what they’re looking for,” says Dan Mitchell, director of the global retail practice at SAS Institute Inc. “Using voice to search from a mobile device moves closer to replicating that experience. It’s possible we’re approaching a turning point for the acceptance of voice for mobile and online search — particularly as machine learning gets better and better.”
Chatbots and digital assistants continue to be a valuable resource for brands that want shoppers to feel as though they’re being “physically” assisted while shopping online. BRP Consulting’s 2018 Customer Experience/Unified Commerce Survey found 7 percent of retailers are currently using AI as digital assistants and chatbots; another 48 percent plan to implement this capability within three years.
Numerous retailers are using chatbots as a customer service tool and for some it has become a personal shopping assistant. The downside: Customers don’t always know they’re communicating with a chatbot, thus compromising transparency. Others worry how the information shared is managed.
‘Storefront as a service’ will take its place in the retail lexicon as shared experiences become more engrained.
Several concepts are bubbling up that blend retail and work space — enough of them, in fact, that it appears to be more than just a fad.
Re: Store will open its first store in San Francisco in the spring. Founded by Selene Cruz, the startup project has described its mission as looking to help online-only brands secure both co-working space and their first physical storefront. Cruz came up with the idea after launching a direct-to-consumer handbag brand and facing multiple challenges ranging from storing inventory to finding physical space that would allow her to meet shoppers’ requests to touch and feel the bags.
Re: Store has outlined a monthly pay structure of $350 plus a commission of 20 percent for emerging brands. The entrepreneurs can add co-working space for $550; another $850 earns brands a storefront.
Nikki Baird, vice president of retail innovation with Aptos, believes the concept has value. “Digital natives can grow their business to a point, but it’s difficult to scale without a physical presence. It basically takes the infrastructure as a service to another level by including physical retail space, office space, etc.”
WeWork opened its first retail location, dubbed WeMrkt, in New York City this summer and is planning an ambitious, nationwide expansion, eyeing 500 WeMrkt stores over the next few years. WeWork executives have shared the desire to build a retail brand around its community ethos with stores selling products geared to the needs of the people who work out of its locations. WeWork is betting that companies interested in supporting one another will buy each other’s products.
Baird mentions several others including New York City-based Bulletin, which builds stores fully stocked with female-run brands and donates 10 percent of store proceeds to Planned Parenthood. She also is keeping tabs on Neighborhood Goods, with its concept in Plano, Texas. It doesn’t have a co-working element, but helping digital brands transition to the physical world is a key.
“Ultimately, brands need foot traffic, so that’s a win,” Baird says, “and shared experiences are being embraced by shoppers across the spectrum.”
Health and wellness objections are among the top initiatives retailers outline for 2019.
It comes as no surprise to those paying close attention to news over the last six months. Venerable consumer business Weight Watchers announced in the fall that it was changing its name to WW to retool itself as a wellness organization that goes beyond weight loss. The new moniker is also a nod to the company’s updated tagline, “Wellness that works.”
It’s the beginning of what promises to be a flurry of moves by retailers looking to snag a bigger share of the booming health and wellness market. At NRF’s Shop.org conference in September, CVS Pharmacy President Kevin Hourican said the company had built a software tool powered by data that can be used as a resource for pharmacists looking to provide savings options in the form of either generic substitutions or therapeutic alternatives. CVS also is preparing to launch a new, icon-based prescription labeling and scheduling system, and it’s piloting “Beauty in Real Life,” an elevated experience focused on providing new products and services.
Walgreens, meanwhile, has partnered with skincare products manufacturer Johnson & Johnson to create an online diagnostic tool to help shoppers address specific skin conditions.
Supermarket retailers are equally engaged. The Kroger Co. created a mobile app called OptUP that makes it easier to shop for healthy products. When shoppers scan a nutrition label, the app synthesizes all the nutrition information and assigns the food a score, making it easy to compare foods and make healthy choices.
Numerous chains including Hy-Vee, Giant Foods and Albertson’s are rolling out smaller footprint stores focused exclusively on healthier food options. And the number of apps aimed at helping shoppers to do a better job of tracking health and wellness has expanded exponentially and will continue to explode over the next 12 months.
Keep a watchful eye on the cannabis industry. As it continues to professionalize and legalize, this segment is projected to grow 220 percent globally in 2019 alone.
The linchpin of retail success in 2019 will be supply chain efficiency and expertise fueled by AI.
In a world where great customer experiences depend on supply chain proficiency and visibility, the need for retailers to collaborate with the right logistics partners and deploy real-time data analytics for forecasting product and demand cycles is imperative.
Of course, that’s easier said than done. The pressure points retailers have been struggling with for several years are not abating; the trucker shortage is expected to worsen, with the American Trucking Association reporting the industry needs an estimated 50,000 more drivers to meet demand. The trucker shortage’s ripple effects include higher rates being charged by freight carriers and companies raising prices on products.
Another source of concern: The Trump administration’s tariffs on imports from China, which have significant ramifications for retail supply chains.
Brian Kilcourse, managing partner at RSR Research, believes supply chain needs to be a key area of retail investment in 2019. “The traditional retail supply chain is under tremendous stress to still be able to deliver the best cost-of-goods while responding to the effects of the disconnectedness between consumer demand and fulfillment,” he says.
He looks for companies to increase spending in supply chain analytics with an emphasis on systems that use AI to support real-time inventory forecasts and transportation metrics.
While much of what retailers do every day to support the supply chain is about basic block and tackle, this segment is rife with new technology — everything from autonomous robots to drones and from self-driving vehicles to blockchain systems and shipment-tracking sensors.
Retailers will continue to experiment with ways to get product into shoppers’ hands faster than ever. Expect more to dabble in repurposing in-store space or repurposing dark stores for inventory storage and faster shipping capacity. Localization is a top theme as meeting customer demands for delivery in hours suggests the need to move inventory closer to demand.
Sustainability has officially gone mainstream; ignoring the green movement could be perilous.
Customers are demanding transparency. They’re paying more attention to the ethical practices of the brands they buy. And they have embraced the reality that their purchase habits have an impact on the world. As a result, they’re voting with their wallets, and the impact on how companies operate and the steps they have outlined for future growth and relevancy was front and center in 2018; it will gain even greater momentum in 2019.
Brands with a sustainable heart including Coyuchi, Eileen Fisher, Everlane, Parachute and Rothy’s have captured shoppers’ attention with campaigns that tap into renewable concepts such as Coyuchi for Life and Everlane’s recently announced ReNew collection of outerwear made entirely from discarded plastic bottles.
Meanwhile, a flurry of businesses has emerged to capitalize on the so-called shared economy. Online retailers like ThredUP and Poshmark allow shoppers to buy favorite brands at a fraction of what they would cost if purchased new. Shops such as Reformation, Rebag, TheRealReal and Tradesy, which sell previously owned luxury shoes and handbags (inspected for authenticity), have been embraced by shoppers. And clothing rental brands — think Rent the Runway and Caastle — are giving socially conscious consumers the option to rent fashion-right items, wear them a few times, then send them back.
Further cementing the significance of sustainable business practices, there is a trend toward reducing a business’s carbon footprint. TheRealReal introduced a “sustainability calculator” that works to quantify approximately how much greenhouse gas, energy and water is saved from each piece of women’s clothing that is consigned. Ben & Jerry’s ice cream is piloting a platform at its newest Scoop Shop in London that connects consumers to their own carbon footprint. Created by the nonprofit Poseidon Foundation, the program uses blockchain technology to integrate carbon markets into transactions at the point of sale. And footwear retailer Aldo is now climate neutral, meaning 100 percent of its carbon footprint is offset.
The move to sustainable business practices will pick up steam in 2019, emerging as a tenet of retailers’ and brands’ businesses.
Look for increased interest and early stage experimentation in blockchain technology, but adoption will continue to be slow.
Blockchain is an emerging technology, and it continues to be the target of opinions and predictions that are too often based on buzz rather than reality. It doesn’t appear to be a passing fad, but then again, blockchain won’t reinvent retailing — at least not any time soon. Early success suggests it falls somewhere in the middle.
Those still asking what blockchain is or dismissing its substance based on cryptocurrencies are missing the big picture in a big way. Essentially, it’s about building a ledger that is difficult to alter and easy to verify. In 2019, we will see retailers testing which business problems are best suited to blockchain. Already a handful of tangible and productive use cases for blockchain have surfaced.
On the supply chain side, blockchain can deliver improved visibility and greater transparency. Using this technology, suppliers and retailers are better able to track the progress of shipments; it has value as a means of ensuring accountability and confirming that supporting data is accurate. Case in point: Walmart recently launched its Food Traceability Initiative which will go into effect in 2019. Walmart says it will be able to trace the origin of any leafy greens it carries back to their source in 2.2 seconds — a process that used to take more than six days.
Similarly, branded manufacturers are buoyed by the prospect of traceability efforts enabled by blockchain. In the world of luxury goods, particularly handbags, apparel and shoes where counterfeits are all too common, blockchain has the potential to be a game changer. In the fine jewelry market, especially diamonds, blockchain can be used to support claims about ethical supply chains.
And for shoppers who have made it clear that they want to maintain control of their personal data, blockchain is a tool they can use to share data judiciously — allowing retailers to tailor experiences or close the spigot entirely.
Among the challenges this technology faces: For it to really work, there must be end-to-end consistency — no breaks in the chain. Some say this is a drawback.
Robotics in retail is wired for growth and disruption.
Robots are gaining ground on humans, and the pace of disruption is unassailable. That’s not to say that retail workers’ days are numbered. In the quest for “faster, cheaper and more accurate,” the promises of automation — namely labor cost savings and improvements in productivity and accuracy — are fueling interest and investment.
“Investments in AI and machine learning can result in increased revenue and better customer experiences, but the solutions adopted need to be based on each retailers’ specific strengths, weakness and customer objectives.”Bryan Gildenberg, Kantar Consulting
In retail, there are three main areas where robotics will continue to make inroads. Amazon was the first to use robots in its warehouses; there are now than 100,000 in use. British online-only supermarket Ocado has become the poster child for robotics after designing highly automated warehouses and selling the technology to other grocery chains including Kroger here in the United States. Ocado facilities are outfitted with automated robots that take crates of products to stations where robots or humans assemble the orders for shipping. The robots also replace empty crates, allowing the facility to process up to 65,000 orders every week.Customer-facing robots remain a rarity in retail stores but look for the use of robots as tools for inventory management to gain a foothold. Efficiency and accuracy are paramount at retail; so are eliminating out-of-stocks. Inventory is a $1.1 trillion problem for the retail industry, thus ratcheting up the feasibility of investing in robots.
Another instance where robots are surfacing in stores: Hershey has implemented Intel-powered smart shelf technology that processes real-time data on customer preferences and inventory to assure the correct mix.
Robots also play a role in last-mile delivery. Numerous startups are experimenting with robots that traverse city sidewalks in a quest to remove friction and cut labor costs out of last-mile logistics.
Keep an ear to the ground for two fast-food restaurants embracing robotics for food production. Creator on the West Coast and Spyce on the East Coast are producing different types of food, but each is using robotics to assure proficiency and consistent quality.
While some predictions come close to realization and others are so far off the mark as to seem incredulous, there is one retail prophecy that seems downright dependable:
Amazon will continue to dominate the market by creating consumer experiences that leverage customer data and machine learning to delivery personalized experiences.
In early September, Amazon became the second publicly listed U.S. company to reach $1 trillion market capitalization. (Apple hit the milestone in August.)
Over the last 12 months, Amazon grabbed headlines over and over and over. Never complacent, the Seattle-based retailer set a record on Prime Day in July, logging a 24 percent uptick in sales. There were new partnerships with everyone from Kohl’s, Best Buy, J.Crew and Sears (yes, Sears) to Shark Tank, PlayStation and Buzzfeed. The company introduced a plethora of new Alexa-enabled products and announced it would pay all its U.S. employees a minimum of $15 an hour — more than double the federal minimum wage of $7.25 — as of November 1.
There’s some chatter about prime memberships flattening out, but Amazon’s appetite for physical retail, once a scourge to the champion of online retailing, has grown exponentially. There are more than a dozen bookstores in operation and five Amazon Go stores, and Bloomberg has reported that the company is opening 3,000 of its cashier-less stores by 2021. And then there’s the New York City store that opened in September called Amazon 4-star. The shop sells highly rated products across a variety of categories.
If this retail thing doesn’t work out for CEO Jeff Bezos, he’s got his rocket company to fall back on. Bezos has called Blue Origin (the space company he is building) the “most important thing I’m working on.” He hopes to send people into space on what he calls a “tourism mission” sometime in 2019.
One suspects it’s far from the only mission he has planned for 2019, but we will have to wait and see.