New Directions for Retailing, Part 2

Stephen DeAngelis

August 28, 2012

In Part 1 of this two-part series, I discussed some new tactics being tried by brick-and-mortar retailers to halt the erosion of their sales to online retailers. At the end of yesterday’s post, I cited an article by Jon Swartz in which he noted that some analysts predict that, despite these efforts, the end of large retail stores is inevitable. They see them being replaced by storefronts that “will be there for a ‘touch and feel’ experience only, with no actual sales. Stores won’t stock any merchandise; it’ll be shipped to you. This will help them stay competitive with online-only retailers.” [“Why shopping will never be the same,” USA Today, 9 August 2012] In other words, these analysts are saying that some retailers are going to apply the old adage, “If you can’t lick them, join them.”

 

Some large retailers have already taken small steps towards the future described above. In an earlier post entitled The Battle Against “Showrooming” Continues, I noted that Macy’s appears to be fighting showrooming by beefing up its own on-line presence. Back in January 2011, the company announced that it was significantly increasing the number of employees it was dedicating to on-line shopping. [“Macy’s Expects to Add 725 New Positions to Expand Websites,” by Lauren Pollock, Wall Street Journal, 4 January 2011] Other large retailers are also beefing up their online sales channels; but, the future that Swartz envisions go much further. He continues:

“Branding strategist Adam Hanft says this all might sound futuristic, but much of it is rooted in reality. He says satellite stores will open in apartment buildings and office centers. FedEx and UPS will delve deeper into refrigerated home delivery. Google trucks will deliver local services. Clothing — even pharmaceuticals — will be produced in the home via affordable 3-D printers. ‘Every waking moment is a shopping moment,’ says Steve Yankovich, head of eBay’s mobile business, which expects to handle $10 billion in transactions this year. ‘Anytime, anywhere.'”

Although I agree that some products may one day be purchased and delivered “via affordable 3-D printers,” I suspect that the home won’t be the primary location of these devices. One reason is that consumer products are made from a variety of different materials and affordable 3-D printers aren’t likely to be able to accommodate multiple “printing” material. Even if they could, it is unlikely that homeowners will be able to afford and keep a supply of various materials on hand. A more likely scenario is that a new type of brick-and-mortar store will emerge that houses an array of 3-D printers capable of churning out all sorts of products using a variety of materials. To learn more about 3-D printing (or additive manufacturing), read my posts entitled 3D Printing and the Supply Chain and Additive Manufacturing at the Heart of a New Industrial Revolution. Swartz continues:

“Game-shifting tech — such as smartphones, location-based services, augmented reality and big data, which makes sense of all the data on mobile devices and social networks — will most assuredly upend several multibillion-dollar retail markets, forcing retailers to adapt or die, say venture capitalists and analysts. … And almost all of it will be paid with … your phone. ‘Cash will still exist, but no one will use it,’ says Jim Belosic, CEO of ShortStack, a self-service, social-media platform that lets users create custom Facebook tabs. ‘Carrier payments and the swipe of a smartphone will do the trick.'”

Mobile phone payments have caught on more quickly in emerging market countries than in developed countries. That’s because many consumers in the developed world aren’t convinced “that paying with a phone is safer and more convenient than using cash or a credit card.” [“The Campaign to Digitize Your Wallet Is Intensifying,” by Brian X. Chen, New York Times, 9 August 2012] The focus of Chen’s article is a recently announced partnership between Starbucks and Square, “a technology start-up that lets you pay for things with a smartphone.” Chen continues:

“Businesses of all kinds, including big companies like Google, Microsoft and Sprint and small start-ups like GoPago and Scvngr, are hoping to profit from mobile payments — if only they can figure out what kind of system appeals to consumers and merchants. Google has developed a mobile wallet app that uses a technology called near-field communication, which allows a phone to communicate wirelessly with a nearby cash register. GoPago has an app that lets customers place an order before arriving in a store; it shows up on a tablet on the merchant’s counter. Square offers businesses software for the iPad that shows pictures of nearby customers who are using the Pay With Square app on their smartphone, so all they have to do is state their name to pay for an item.”

According to Swartz, the face of retailing is going to change in a number of other ways as well. He explains:

“Technology advances won’t just change the physical appearance of stores for consumers, but should transform the retail workforce into more of a customer-friendly field, too. Retailers who don’t adapt quickly and successfully risk losing out, Sterneckert says. What might this evolution mean for the nation’s malls and shopping centers and people whose paychecks depend on today’s retail model? Experts aren’t predicting the end of the in-store experience, but it stands to reason that as with other industries, technology might improve efficiency while setting retailers on a path toward a leaner workforce.”

At a time when unemployment remains high, the thought of a leaner workforce doesn’t sound very appealing. I suspect, however, that new jobs will open up in the supply chain field to make up for a leaner retail sector because getting goods to customers in a myriad of locations will require more people than it currently requires to get the same amount of merchandise to large retailers. Swartz admits that retailers aren’t likely to go away quietly. He writes:

“Just as online retailers led a revolution in retail shopping in the 1990s, bricks-and-mortar retailers are ready to use technology to fight back. By the time you walk into a store in the near future, the employees there will probably know what you want to buy, based on information on your trusty phone or tablet. Merchants will know your gender, age, race and income, analyst Sterneckert and others say. Once you’re inside, imagine waving your smartphone over products and seeing what’s inside. Holding the phone over a DVD’s bar code might activate a movie trailer on the phone’s screen, for example. All of this will be made possible with so much personal data on smartphones, and the ability of merchants to parse it to gauge who is just browsing and who’s on a mission to buy. The clerk greeting you at the door will be able to make targeted suggestions. Sound Orwellian? All of this is done online today through search engines and cookie technology. Putting a personal touch on one’s in-store experience could mean big bucks for bricks-and-mortar retailers, according to John McAteer, head of retail at Google.”

David Fisch, director of platform partnerships at Facebook, told Swartz, “The first 15 years of online shopping was about making it easier for people to find and purchase items they were looking for. Now, it’s about helping you find what you may not know about, based on your social (media profile).” Marianne Timmons, a Senior Principal at Accenture, told attendees at the GMA Executive Conference in Colorado Springs, CO, that less than five percent of the $200 billion spent on CPG marketing is targeted the way that Fisch suggests. My company, Enterra Solutions, is working with clients to increase targeted marketing so their marketing money is better spent. The elephant in the room when it comes to targeted marketing is privacy. Journalist Charles Duhigg told Swartz, “There is a trade-off between privacy and convenience, which I think will only accelerate. People always choose convenience and don’t realize the cost of privacy.” Nevertheless, change is inevitable. Swartz continues:

“Phones and bar codes will let consumers shop from their kitchens — a digital screen on a refrigerator, for example, will allow orders from home, with a delivery service dropping off the produce. ‘A screen is a screen is a screen,’ says Jill Puleri, of IBM’s Global Business Services retail-consulting practice. At the CeBit computer trade show in March in Hanover, Germany, an exhibit of a futuristic airport gave new meaning to duty-free shopping. Within a few years, travelers will be able to touch a store window containing a digital menu to order goods for shipping. Subways in South Korea, the United Kingdom and elsewhere already contain virtual stores in which consumers wave their smartphones at bar codes to order. The goods are delivered before the commuter arrives home.”

Swartz isn’t writing the eulogy for brick-and-mortar retailers (at least not yet). He reminds readers that “only 8% to 13% of retail shopping in the USA is done online.” Will Young, who heads Zappos Labs, told Swartz that as “impressive as future [online] retail technology might look, it will take good old-fashioned customer service to boost those figures.” I suspect that the primary battlefront for customers will be waged over service rather than price because online retailers will likely keep a pricing edge. Regardless, change is blowing in the wind.