Is retail really dead? With the closing of big department stores and retailers’ revenues consistently declining, some commentators are predicting the end of retail. But are the doomsayers right? Start-ups are disrupting and big players are adapting to the existing customer experience by bringing the future closer to us. Now.
Author: Thomas Hagmann, Partner, EY-Parthenon, Strategy
Is retail really dead? Open the business pages of any newspaper and you will probably read a story about big department stores closing and retailers’ revenues consistently declining. Some commentators even go as far as calling it a retail apocalypse. But has the end of retail really come?
Whilst traditional bricks-and-mortar stores have suffered immensely in the last decade, other retailers, and not only the online ones, are actually holding their ground. Compared with 2017, the Swiss retail market managed to increase its revenues by 0.4% in 20181.
So, what separates retailers that are swallowed up by the digital transformation from those that are riding the wave and seem to be growing? We know that the future of retail is changing, which is why at EY we have started the FutureConsumer.Now initiative, helping business leaders understand the future consumer. It imagines several paths into the future, allowing companies to shape their business for tomorrow, today.
Buying is mundane. Shopping is an experience. Consumer demands are changing. The consumers of tomorrow are short on time and hungry for experience. What will they want? Nobody can predict the future, but those companies that start to imagine it can have a role in shaping it. We have started exactly this thought process with the FutureConsumer.Now initiative. For the future consumer, there will be a difference between shopping and buying. Buying will become transactional. Buying will be me realizing the battery for my remote is dead and that I need to buy a new one. Everything I need, from detergent, to batteries, to new socks, every transactional item I want will be bought quickly, cheaply, and efficiently on the go via a smartphone. In short: buying will become a practical, mundane chore.
Shopping, on the other hand, will become experiential. It will be individualized and data-driven. It will include interacting with a brand I identify with and therefore will be something worth spending my time on.
Based on data I have provided, shopping will evolve into me discovering a new item I didn’t know I wanted. The experience of shopping will be drastically different from today, as algorithms will use the data I have provided and offer me an experience I am actively looking for. In short, shopping will develop into both entertainment and pleasure.
The landscape is changing. Fast. In the future, Artificial Intelligence (AI) assistants will manage everyday practical transactions and take over the buying process, facilitated by an ever-increasing network of the Internet of Things (IoT).
According to one of our latest findings, it is estimated that by 2020, 50% of essential household items in the US will be auto-replenished using IoT whilst 100 million consumers are expected to shop in an augmented reality environment.
But if AI is doing the buying for us, what will happen in the future? Consumers will only shop for the very few products and services that help them express who they really are. There will be disengagement from 99% of products to super-engagement on the 1% of products the consumer is really interested in. Consumers will be able to check in real time whether an item has been ethically sourced, or try on products using digital avatars whilst simultaneously getting feedback from friends and family on social media.
All of these developments will fit the individuality of the consumer, who will only want to identify with brands that align with their value system.
The world today looks different from how it will look tomorrow. There will be a paradigm shift in the future when comparing today’s retail consumer with tomorrow’s, some examples of which are highlighted in the table below.
As is evident, there are many changes from the status quo today – to stay on top, companies have to be willing to adapt and start shaping the future now.
Source: EY Research
Until now, consumers were defined by brands. In the future, consumers will define brands. The future is not some distant concept, far away. Already today, there are several start-ups and initiatives that are pioneering this new landscape and embarking on shaping the future.
Knorr, a well-known Swiss food brand, for example, is using an AI platform to analyse the Instagram feeds of individual users to give them specific recipe suggestions based on their experiences and interests. Their “Eat Your Feed” tool tracks a person’s Instagram feed and personally suggests dishes from Knorr’s recipe database, always including one Knorr ingredient. If your recent post was of your vacation on the beach in Mykonos, Knorr’s bot might suggest a Greek salad and will offer to put together all the ingredients for easier shopping. This allows the consumer to actively get advertisements and suggestions based on their lifestyle and preferences.
In line with the growing consumer demand that a brand’s image must fit with a consumer’s lifestyle, experience and value system, some companies, such as Yves Saint Laurent, Muji, and JD.com, are now using hotels to stock and showcase their products, ultimately enabling users to experience their products before purchasing them. Consumers can buy all the products on display in hotel rooms, in a way that redefines the shopping and living experience to allow the consumer to create their own self-image based on their lifestyle.
A different start-up in the fashion industry, Choosy, uses a combination of AI, social tagging by users through a specific hashtag and via influencers, and human trend-watching to identify fashion trends on Instagram. They create a brand new collection every two weeks, so that they are able to respond immediately to consumers’ fast-changing mindsets at unprecedented speed.
Traditional sales-forecasting is out. Crowdfunding is in. A similar customer-involvement initiative has been pioneered by Hasbro. Instead of traditional sales forecasting, they employ customer-centric demand sensing by interacting with the customer base through their Haslab platform. This uses crowdfunding to pull demand and subsequently offer the product people want.
Most recently, a 1.3 meter replica of Jabba the Hutt’s sail barge from Return of the Jedi was produced after the minimum threshold of 5,000 people pledging USD 500 each was exceeded in only 10 days. The collective brainpower of the consumer base is used actively to satisfy a demand that was previously unknown by both the customer and the company, creating a truly new shopping experience.
Protect the environment. It’s not even a trend anymore. It’s a given. There are also several start-ups targeting the increasingly environmentally friendly and quality-aware consumer. In Switzerland, the app Almond uses blockchain and analytics for food and beverages to supply the consumer with instant product information such as ingredients, manufacturing process, and estimated carbon footprint. By buying reduced-carbon emission items, a user can accumulate “Almond coins”, which can be converted via PayPal, creating an incentive to use environmentally friendly products. Almond aims to reduce carbon emissions by creating an interactive network of environmentally aware consumers. It’s a do-good, feel-good tactic.
Another Swiss start-up, called Ambrosus, is doing a similar thing by building a publicly verifiable, community-driven ecosystem to ensure the quality, safety, and origin of food using blockchain. It has already partnered with Migros and other larger companies to allow widespread implementation.
Similarly, Tellspec offers a portable spectroscopy device that allows real-time analysis of food safety and quality transparency, identifying potential allergens and chemicals as well as nutrients and calories. Most recently, it has also added the ability to detect the mislabelling of species as well as illegal use of antibiotics. In 2019, it plans to use blockchain to check for illegal fishing and other sources, giving the consumer unprecedented decision-making power over purchasing behaviour.
The retail infrastructure is no longer what it was. Starship, an Estonian start-up, uses a network of self-driving delivery robots that can deliver parcels and groceries from stores or specialized hubs directly to the consumer, with an app tracking the robot’s location and an encrypted key to access the robot’s contents. This removes another obstacle from ordering online by minimizing delivery waiting times, ultimately allowing the act of buying to become even more automated in the future. Starship has already had several pilot runs in Switzerland and seems ready to be launched across the country, however it is currently awaiting legal authorization.
FutureConsumer.Now. These are all examples of how the customer experience is changing, with companies seizing on new opportunities to engage with consumers and reshaping our shopping experience as we know it. This incredible transformation is everywhere, on the high street and on your smartphone. With several start-ups and initiatives already capitalizing on the developing divergence between shopping and buying, the future is closer than we think. Will you be part of it? The future of tomorrow really starts now. That’s why at EY we have started the FutureConsumer.Now Initiative. FutureConsumer.Now is a global EY program that is helping business leaders understand the future consumer, so they can shape their business for tomorrow. It is built around a series of global hackathons held in Berlin, London, Los Angeles, Mumbai and Shanghai. Business leaders, future-thinkers, and EY professionals came together to explore eight hypotheses about the changing consumer. Then they defined and modelled 15 future consumer worlds that might emerge. Find out more here.
1) Credit Suisse – Retail Outlook 2019