“The next five years will bring more change to retail than the last 100 years” – Cyriac Roeding, CEO of Shopkick
I had the delight of leading a small, intimate talk to a group of leading retailers in New York City earlier this week, at an event sponsored by agile software development firm Thoughtworks. The focus of my talk was to put into perspective the reality of the high-velocity trends that are impacting every single aspect of the world of retail.
If you are a CEO of any type of retailer, and do not understand the scope of these trends, you need to get onboard — fast.
1. Mobile is eating retail
The future of retail is all about mobile and if any CEO doesn’t understand that, they should be out of a job.
Already by 2013, statistics show that sales through mobile and tablet devices were up 138% in 2013 from the year before. That takes us to the point where sales through some type of mobile device is estimated to be at least at 30% of *all* retail sales.
If that doesn’t get your attention then consider that another group suggests that by the end of 2015, every single retail transaction in the US will have some type of mobile element. It doesn’t matter what type of element — it could involve the actual purchase transaction, or logistics tracking, or a payment process, or some type of loyalty transaction.
Think about that. Every single retail transaction will somehow involve a mobile device somewhere along the way. That’s significant, because it provides big opportunity for business transformation — but it also provides for the potential for massive business model disruption, new competition, loss of market control and dozens of other challenges.
It gets even bigger over time. In the UK, leading retailer John Lewis suggests that every category will migrate to online shopping in a big way — with their estimate that by 2023, 27% of all fashion sales will be through a mobile device.
2. Control of the speed of innovation has shifted to Silicon Valley
The retail industry, like every other industry, is caught in a trend that control of the speed of innovation moving to the pace set by Silicon Valley speed? For a long time, the pace of innovation in retail has been relatively slow and deliberate; aside from some cool new cardboard layouts for end-cap displays, and sprucing up a store layout, there wasn’t a lot of need to do anything really fast.
Whoops! Now when you enter a store, you’ll use your iPhone to confirm the transaction, and you’ll get an instant receipt. Loyalty transactions will occur through mobile. Consumers will be influenced by something on their mobile (see below) …..
All of which means — new business models, disruptive competition, a shift in control, customer churn — everything is up for grabs once Silicon Valley seizes control and defines your future!
3. Mobile “influence” is going to completely redefine in-store interaction
We’re in the era of what is known as “shopper marketing,” a method of promotion involving mobile devices. Booz & Company research suggests that shopper marketing is already at $50 billion in the US.
What is it? I’ll walk into a store, and behind the scenes, the store will recognize me through an interaction with my mobile device, either because of an App that I have with the retailer; a permissive social relationship; or maybe a loyalty relationship. The result is that I’ll either get a message on my phone with an e-coupon. Or perhaps an LCD TV in the store will put up a welcome message for me, with audio, and suggest I walk over to aisle 7 for a customized special offer just for me!
Farfetched? I don’t think so. Creepy? To us maybe, but perhaps not to the next generation. When we think of the strangeness of the future and our likely negative reaction to some of what might come next, we have to remember this: it’s not bad, it’s just different.
How fast is shopper marketing moving forward? Research suggests that 56% of food wholesalers, 61.1% of manufacturers and 38.3% of sales agencies will likewise invest more in shopper marketing in the coming year. What’s popular? Mobile coupons (51%), personalized mobile offers (44.8%), store-specific mobile apps (40.6%), text messages (36.5%) and location-based services such as Foursquare and Facebook Places (35.4%).
And we’re only in the early stages. If you want to understand the future, grab the Apple Store app, and allow it to check your location. Then go visit your local Apple store, and watch what happens.
4. The change to the mobile wallet provides more potential for massive disruption
Two things are happening: if you think about it, Apple has eliminated the concept of the cash register in stores. And more importantly, they’ve rendered the plastic credit card obsolete with Apple Pay.
And the fascinating thing is that most of the retail and banking world was seemingly caught unawares, which is staggering since everyone knew this was coming for at least the last 20 years! The result is that organizations like Visa, MasterCard, American Express and Discover now find themselves in a heated competition with Apple, Google, PayPal and other high-velocity, innovative tech companies.
Who would you put your money on?
It’s not just that; the battle of the small vs. incumbents (Square vs Visa/MasterCard/Discovery/Amex) continues. It is still terrifically difficult for any small retailer to get a ‘merchant’ accountant from any of the dinosaurian incumbents. That’s why you see so many new business organizations using devices like Square and other industry disruptors.
There’s another aspect too! The move to the mobile wallet involves a need for a rapid and massive infrastructure change. Most retailers can’t move that fast; they are still working to solve the big ERP problems they inherited in 2010! So while they are trying to fix the past, the future is unfolding in front of them way too fast.
4. Same day shipping everywhere destroys markets
Can you say “Amazon-Prime?” I am speaking to countless industries that are suddenly waking up to a world in which Amazon might suddenly be able to dominate their retail business model. Flooring products. Thermostats. You name it.
Anne Zybowski, an analyst at Kantar Retail said it best a few years ago: “A few years ago retailers spent a ton of time trying to make their online stores look and act like their physical stores. Now they’ve sort of reversed course, and the challenge is how to take that online shopping experience that’s so personalized, socially connected and heavily layered with data, and essentially bring it into a physical environment.” The model in which stores carry a lot of inventory is disappearing — the future is all about fulfilment.
We live in the era of “omni-channel retail,” and nothing will ever be the same. The future of retail is all about Google vs. Amazon vs. Wal-Mart, all of whom have promised to build an infrastructure that will support same day delivery to 50% of the US population within a few short years. With that, we are witnessing the rapid emergence of instant delivery startups. Amazon is hiring bicycle couriers to put in place a business model that will offer up one-hour delivery in New York and San Francisco.
But wait! There’s more! ‘Click-and-collect’ infrastructure in major urban centres is happening at a furious pace; sit at your desk, order your groceries, and pick up your order in just one hour from your local grocery store.
Caught flat-footed are a whole bunch of retailers who find that they can’t compete on price, don’t have comparable infrastructure, and frankly, don’t know what to do other than recoil in fear!
5. The “Internet of things” also involves intelligent packaging, which changes everything.
The hype out of CES last week was fascinating. The Internet of things is real — I’ve been talking about it for 15 years.
But what isn’t being talked about in many circles is the impact of intelligent packaging — which completely defines the retail process, not to mention the product.
Intelligent packaging has huge implications. We are talking about packaging that talks to you — maybe we will see Apple’s SIRI embedded in the package. We’ve already got pharmaceutical packaging that does “electronic event monitoring” for patient adherence. We’re going to see food packaging that automatically uploads calorie, carb, sodium and other data to a customer’s smartphone. We’ve already got packaging that comes with a unique code — and will automatically send a text through your mobile to verify that the product is not counterfeit.
We’ll have packaging that lights up when you pick it up with a small LCD screen, and runs a customized video, just for you, because it links to the app on your phone.
We’re talking about …..interactive packaging, intelligent and active packaging, multi-sensory packaging, edible packaging … packaging as mini-billboards…!
6. All this is happening in the context of collapsing product life-cycles
We are in the era of era of instant obsolescence and disappearing lifespans.
Think about this: 60% of Apple’s revenue came from products that didn’t exist three years prior to the earnings release, according to an analysis of Apple’s revenue by mobile app developer Asymco.
Think about that in the context of your operations. What if you had to replenish your product or service line every two or three years? It could become the new normal in many industries. The impact on retailers is staggering.
Think about the graph in your marketing textbook from years or decades ago when you first learned about the concept of product life cycles. Remember how it showed a product coming to market: sales increase, reach market maturity and eventually begin to drop off. That’s been the model of product life cycles as taught in business schools for the past 100 years or so.The rule of thumb was that companies would innovate and introduce a new product. If it succeeded, the company would experience growth. At some point, sales would peak. The product would then become obsolete or overtaken by competitors and sales would decline.
That might involve a time period of 10, 15 or even 25 years.
What a quaint model. Too bad it bears no resemblance to today’s reality. The product life-cycle model today is being turned on its ear by instant obsolescence. In some industries, that product obsolescence now occurs during the growth stage; in the high-tech industry, the decline phase caused by instant obsolescence can occur during the introduction of a product or even before a product makes it to the marketplace.
And so in the context of all the change noted above, retailers have to support faster logistics, marketing, branding, sales training, promotions…….
It’s a lot of change. That’s why innovation in the high velocity economy is all about:
- an accelerated innovation cycle
- rapid ingestion of new technologies / methodologies
- faster time to market
- rapid re-focusing of resources for opportunity or threat
- rabid focus on operational excellence
- rapid response to volatility
- re-orientation to fast paced consumer and brand perception
Are retailers ready? I did two quick text message polls of my audience in New York City, and here’s what I got!
First, they don’t think their ready!
And second, they think they have a lot of mismatches that they need to fill;
The future belongs to those who are fast — particularly as mobile eats retails!