BearingPoint as the partner of the ESCP “Retailing 4.0" Chair is committed to contributing to building bridges between the academic world and companies. As part of this engagement, the BearingPoint Retail, Luxury and CPG team mentored the writing of a series of articles of ESCP MSc students and shared insights on major retail stakes. Enjoy your reading!
On a general note, consumers have been developing new consumption habits and needs which require the attention of retailers to adapt and grow their businesses to satisfy consumers. Customers are looking for more convenience in their everyday life with things like self-service stores, they want things faster without having to do much effort. Indeed, 83% of shoppers say that convenience is more important to them than 5 years ago and nearly 66% pay for a delivery shipping service and a quarter for more than one. (National Retail Federation, 2020)
For 50% of consumers, personnalization is helpful and enhances the shopping experience.
With e-commerce, consumers have the option of buying online and thus not coming to stores. What they hence look for when going to physical locations is the shopping experience they get, such as product testing and tasting to discover new things or be advised on the best solution for them and want more and more personalization options. 50% of consumers expressed the fact that personalization is very useful and improves the shopping experience while 41% said that bad personalization was reason enough to go shop at a competitor. (Brooks, 2018) Another new habit is their concern with buying local, having sustainable options available as well as participating in the sharing economy.
Sustainability is going to be one of the most impactful trends for the future of retailing and with the current coronavirus crisis, some consumers have grown more aware.
One aspect of the sustainability trend is the locality of the supply chain activities. Customers are inquiring more and more into the origin of the products which calls for a transparent supply chain. They are interested in local production and knowing about the sourcing of raw materials. The use of digital tools like Kwalito or BuyOrNot will probably spread amongst retailers to give consumers access to information.
Another aspect is the circular economy growth. Wastes created are a big discussion topic which calls for solutions to dispose of products at the end of their life. The fashion industry is the 2nd most polluting sector in the world after the oil industry. In France, in the next 3 years, the law will forbid producers, importers and retailers to dispose of non-food products in the garbage, they will need to either donate, reuse or recycle all unsold products. (Samuel, 2019) Companies must thus think of ways to either recycle or dispose of the goods in an environmentally friendly way. An example of companies finding ways to avoid wastes are big food retailers like Carrefour or Franprix who partner with companies like Too Good To Go or Phoenix to avoid having to throw away large amounts of food. This is hence a challenge but also an opportunity to create jobs and new retail activities. The circular economy can also be linked to the growing trend of 2nd hand markets and the sharing economy whereby people rent pieces of clothing especially luxury pieces for an event and send it back for another person to rent it later on.
Ever evolving technologies will keep on being an important trend for the future of retailing.
The back offices activities dealing with logistics and supply chain activities like inventory will be impacted. Warehouses will be increasingly automated to allow for more efficiency and decreased costs. Efficiency and cost reductions are still going to be key decision factors which is why even if RFID chips are still very expensive for most retailers, we can believe that they will be more widely used in the future for the long-term cost reduction effect. (Behrend, 2016) Indeed, with it, better decisions can be taken when it comes to choosing from which warehouse to replenish stores for example. This thus allows for a more efficient but also an eco-friendlier supply chain. Having an efficient supply chain represents however important costs for small and medium retailers, so they will tend to partner with big groups to benefit from their know-how on efficiency and help them lower their costs. For example, Carrefour partnered with Ubereats and Glovo to benefit from their visibility and their know-how in fast delivery services.
Technologies will impact the front offices to improve the consumers’ in-store experience whether it be with mixed staff teams made up of humans and robots in stores, or with faster automated cashiers. Salespeople will be equipped with tablets to always have customers’ information on hand to be knowledgeable about them, the products in stock, the product origins and thus make the experience seamless.
Although we expect to see technology increasingly in stores with maybe virtual mirrors and robots, experts in the beauty and affordable luxury sector still believe that it will never be fully technological or automated. Human touch is a big aspect of the experience consumers look for when coming to physical locations and even though some will look for convenience and speed this only concerns certain types of retailing such as convenience food stores. This whole concept can be summarized under the phygital marketing term.
An example of phygital would be menus in restaurants that clients can see by scanning a QR code which reduces their waiting time and makes their experience more seamless while still getting this human touch with a waiter taking the order. Another example would be customers having the option to call an in- store advisor from their home to get counselling on the best option for them without having to move from where they are. Big retailers are really looking into improving their phygital capabilities and to do so they often acquire start-ups to get those experiences for their customers. Indeed, start-ups are usually quite innovative and disruptive which is key for the retailers to differentiate themselves from the competition.
The phygital trend impacts both the physical stores and ecommerce platforms with for example the use of new direct to consumer models such as click and collect trends, whereby consumers order online and come pick up their order in stores. This became even more popular during the coronavirus situation. Consumers are looking for a seamless experience on any devices whenever and wherever they want, ... They want to shop in stores, online, from the laptop, tablets, phones, from abroad, at night, early in the morning, etc. This requires a lot of agility, flexibility and consistency from brands. Virtual reality and Artificial intelligence will be increasingly used to provide the consumers with highly personalized experiences in stores, on the ecommerce platforms and on any devices the customer will want to interact with the brand. (Niemtzow & Park, 2019)
Although recently it was not the topic of interest, trade wars have been impacting retailers. The competition across countries with the addition of taxes to protect one’s own national market have rendered the delivery of products across borders complicated and sometimes very costly. This impacts largely on the localization of good’s production which combined with more recent ecological concerns might lead to more relocation of companies in their country of origin or neighboring ones.
Indeed, about half of the activities in the retail industry can be automated and will be noticeably affected by the rise of robotics, artificial intelligence or digitalization, in an attempt for companies to grow economically and to produce more (Frey & Osborne, 2013). Nevertheless, even though some jobs might disappear, many believe that it will also improve existing jobs or create new ones.
As of today, changes in the back office are already happening and will continue to evolve with the introduction of more and more disruptive innovations. One of the major trends emerging in this regard is fully automated warehouses, where robotics takes over the human jobs. Indeed, Gap, an American fashion retailer, has already started using machines in its warehouses that can handle the work that four employees usually perform (Dastin, 2020). As such, routine intensive occupations are on the decline and might totally disappear to be replaced by machine learning or robotics, as more and more retail companies are following the trend.
Walmart has recently launched a monitoring inventory software, that enables the firm to have a real-time inventory management and to better manage its merchandise storage. Furthermore, using automation in the back office allows better forecasting thanks to the use of data based on real-time shopping experiences.
Taking the example of the pilot store “Hointer”, the CEO wanted to recreate a mixture of technology and traditional shopping experience (GeekWire, 2012). Hence, there are no more employees in the shop and the customer only needs his cellphone to scan the clothes QR code, to decide what he wants to try on and to pay. This pattern follows a trend of (partially) automated shopping experiences. Indeed, they aim at making the customer experience smoother and faster, without having to wait for checking out for instance. Amazon Go is one of the pioneers and people need to download the app to shop in the stores. From the app they can manage by themselves their entire shopping experience, from scanning the items to paying the bill as cashiers will slowly disappear (Gasparo, 2019).
How to shop at Amazon Go (https://www.amazon.com/)
Looking at the fashion retail industry, some big brands such as Zara or Mango have already started to automate some part of the in-store experience with offering the customers to pay via a mobile app or by installing self- check-out kiosks in the stores. Hence, many retail sales workers might see their job disappear in the next decade as less and less human interactions will take place in the stores (Rheude, 2016).
Furthermore, online-only start-ups are becoming a new trend too. These companies do not have any physical stores and manage everything online. As such, their entire supply chain is automated and they do not need to hire any sales person as they only rely on their e-commerce platform to sell (Rheude, 2016).
To sum up, back office automation is very likely to be the future of retailing as the success of a business depends on its day to day performance and not on seasonal offerings anymore.
Indeed, there are many more opportunities for commercial operations that are stressing commercial organization to be more reactive and agile. Hence, as a cosmetic retailer specialist said: “retailers need to find an efficient way to support the frequency of commercial operations and to manage the constant demand flow coming from the customers”. Therefore, “employing” robots instead of humans for intensive routine work allows firms to produce more while earning more. Nevertheless, automation in the supply chain is very costly and it will take time to become popular among any type of retail companies, as for now it is very specific to some players only. In the front-office, however, human interaction will also decline as stores will become more automated in the future, leaving the customer alone with his phone to shop. Indeed, sales people and cashiers will be replaced by technology and automated processes, in an attempt to enhance the customers experience.
According to “The Future of Employment”, 85% of the jobs that will exist in 2030 do not exist yet (Frey & Osborne, 2013). This mean that the following activities will likely emerge from the new identified trends developed before in the article.*
Contrary to commonly held beliefs that the new technologies and e-commerce will be the end of physical retailing, it appears that the retail sector is vastly changing and adapting to a lot of new trends to keep satisfying the consumers while maintaining a high-touch and partly physical experience. It is widely believed that technologies will increase unemployment.
However, as retail experts mentioned, it is rather an evolution of the job titles and descriptions than jobs being suppressed. Some back-office jobs will be automated but this is not a vast majority. Lastly, it is important to note that even though technologies and sustainability are the major trends at the moment, they do not actually go in the same direction. While some technologies allow for more sustainable actions, some also require a lot of energy and consequently pollute a lot. The question we should ask ourselves now is, whether one trend will take over the other or if they will end up balancing each other out.
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Authors: Julie Lartigue, Emilie Ramon, Romane Isler, Domitille Sebaux, Qingyue Tan, Mark Esser, Zala Plibersek