An executive summary of the "future of retail"

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Retail Industry Trends & Technology Opportunities
Created by InnoAction Advisory Services (www.innoaction.co)

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Executive Summary
• We set out to explore future retail trends enabled by technology
• What has become very apparent is that retail technology is indeed upending
existing norms and business models …
• ... However, while online and mobile channels will dramatically change retail
business models & experiences, the line between “online” & “offline” will blur
• In the next five years, consumer engagement with brick-and-mortar and virtual
retail will converge, with a deep implication on the retail value-chain
– A fluid and synergistic interaction between online & offline models that are intuitive,
experiential, and seamless to the consumer (i.e. real & virtual are indistinguishable)
– A transparency and integration of the supply-chain that drives more personalization, more
innovation, better value, and fundamentally new economics
– An unparalled understanding of consumer needs and consumer behaviors that allows for unique
retail experiences & engagement, “anywhere, anytime”
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Executive Summary
• At the same time we are witnessing a steady decline in the brick-and-mortar
business models across retail sectors in both developing & developed markets
• Traditional retail growth & profitability is under threat due to cheaper & more
efficient online models, while ROIC is on the decline (the best proxy for value)
• Over the past decade many reputable brands and hundreds and thousands of
retail franchises have downsized or disappeared altogether
• While the “future of retail” is increasingly being recognized as the synthesis
between online & offline, very few brands and retailers are moving there today
• This inertia is a great threat to the future of traditional retailers, but a great
opportunity for those who start to create the “future” today
• A fundamental refocus on consumer needs and a shift back from “transactions”
to “experiences” can revive high street retail back to profitability and repute
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Executive Summary
• Since 2008, nearly 12K retail business have gone into insolvency in the UK
• Large retailers have been downsizing their footprints, while investing in smaller,
local, convenience formats (Tesco, Sainsbury, Waitrose, etc.)
• UK consumers are increasingly demanding more independent stores, more [free
& cheaper] parking, and better local, fresh & healthier food selections
• Given that 85% of shopping in the UK is still done in physical formats (though
declining), the role and concept of “physical” has to significantly evolve
– Over the next 10-15 years, it is expected that “online” commerce should tapper off at 25-30%,
although it will soon be hard to distinguish between what is physical and what is virtual
– Pop-up shops have been a growing trend that allow brands and retailers to continually test and
change the retail experience for consumers, creating ongoing novelty, loyalty, and cache
– Existing concepts like Argos that marry online and offline in seamless ways will increasingly
become more attractive, as is evident by Amazon’s move into the brick-and-mortar space
– Virtual reality, personalization, one-click shopping, delivery convenience, mobile payments,
impulse & geo-targeted promotions combined with rich in-person experiences will be expected
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Executive Summary
• Independent businesses (less than 5 units nationally) account for 66% of all
retail and leisure units in Great Britain
• Shop vacancy rates hover around 14% in GB, translating to nearly 53K empty
units nation-wide, the equivalent of 53 Sheffield City Centers
• Independent retailer footprints have been growing at ~2% while large retailers have
been declining at ~5% - this is driven due to shifting needs & impact of online retailing
– 13% decline in CD/ DVD/ Games/ Books/ New stores
– Decline in fashion retailing especially women’s fashion
– Increase in value-related retailing (charity, consignment, discount)
– Food is seeing a 17% growth, while Health & Beauty are seeing a 10.5% growth
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Over the next 5-10 years, physical store space will
continue to shrink & will focus on experiences & new value
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In Great Britain, an additional 15-30K retail properties could be gone by 2020
Retailers like Tesco, Waitrose, M&S, John Lewis and others have been
shrinking their footprint – a trend towards fewer spaces & bigger experiences
At the same time the initial emergence of the “networked high street” is
taking off – free WiFi, stores as showrooms & distribution centers, real-time
promotions, same day pick-ups & deliveries, loyalty & rewards programs, etc.
Commercial property owners will be forced to rethink how they create value
in an environment where asset utilization is expected to decline
Small to medium properties in dense population centers will continue to
remain attractive assets; however consumer expectations will shift a lot
To maintain or grow ROIC – the primary driver of shareholder returns – asset
managers will need to digitize their properties & monetize them in new ways
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The networked high-street/ mall of the future will curate
personalized retail experiences anytime, anywhere
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Source: PSFK

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Thousands of companies form the retail tech ecosystem –
key focus on e-commerce, advertising, loyalty, & big data
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Web/ mobile advertising
Web/ mobile commerce
Big data/ analytics
Warehousing/ logistics
Customer engagement
Source: www.quid.com

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Key technology trends across the retail value chain
Manufacturing
Inventory &
Warehousing
Logistics &
Distribution
Retailing
Post-Sales Support
• Manufacturing moving closer to demand
• Rapid, just-in-time manufacturing technologies
• 3D printing expected to be disruptive
• Online, offline, or multi-channel model influences inventory & warehousing strategy
• Technologies that connect demand, and predictive demand to inventory management
• Design & optimization of distribution networks (supplier, distribution centers, retail)
• Significant trend towards just-in-time deliveries
• Innovation on the “last mile” and store pick-ups
• End-to-end supply-chain integration for data transparency and revenue predictions
• Omni-channel/ multi-channel retailing (physical & digital matter)
• Consumer experience (convenience, selection/ sizing, e-payments, delivery, loyalty)
• Mass customization (individual preferences, deals, recommendations, impulse buying)
• Pick-ups, deliveries, and returns
• Post-sales relationship and engagement
• Loyalty programs, predictive and location-based offers
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Retail tech can improve margins by 10-20% in coming
years, while enabling faster & cheaper revenue growth
Manufacturing
Inventory &
Warehousing
Logistics &
Distribution
Retailing
Post-Sales Support
• Near-shoring, just-in-time manufacturing, robotics, and 3D printing can dramatically
change COGS for brands and retailers: 1-3% impact on overall margins
• In longer run, manufacturers will be disrupted by localized manufacturing/ 3D printing
• Real-time connectivity with demand, combined with JIT manufacturing will enable zero-
inventory business models moving forward: 2-4% impact on overall margins
• Using stores as distribution centers, innovating on last mile delivery, and use of drones &
robots, will transform retail logistics: 3-4% impact on overall margins
• Omni-channel experience, one-click frictionless purchases, big data & hyper
personalization, & virtual experiences will reshape retail: 4-8% impact on overall margins
• Store foot prints will reduce, marketing ROI will increase, sales costs will decline, price
discrimination & better targeting will increase revenues: significant revenue uplift
• Connectivity between consumers and retailers will ensure better experience, hence
increased loyalty; big data & personalization will create higher engagement & sales
• Algorithms based on preference, fit, size of wallet, location, social network preferences,
personal events, etc. will enable anywhere, anytime impulse & guilt-free shopping
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Owners of individual assets will have to curate experiences
that are highly tailored to specific customer needs
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KNOW
FIND
MOVE
your customer….
them…
them to want to buy your product
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Use your understanding of your customer - and their needs and jobs
to be done - to tailor the product you offer and sell them on your
product effectively
Understand where they can be found (both physically and
virtually) so you can easily reach and address them
Understand which customer groups you want to consider, think about who you should
target first, identify their key characteristics so you can clearly profile them, including
their needs and jobs to be done

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To do so property owners will increasingly have to pay
attention to consumer and retailer needs …
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Maslow’s Hierarchy of Needs
Need = a condition of the customer that is unsatisfied in
some way, leading them to take action
Social Needs
Emotional Needs
Functional Needs

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… And build solutions, services, and experiences in their
properties that create differentiated loyalty and value
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• Customers experience GAINS & PAINS before, during, after a job
• What are the GAINS your customer
would associate with a job?
• What would they expect, desire or be
surprised by?
• This could include functional utility, social gains,
positive emotions, cost savings…
• Similarly, what are the PAINS your
customer would associate with a job?
• Which negative emotions, undesired costs, and
risks would your customer experience before,
during and after getting the job done?
Focus on the ENTIRE customer experience
(what they know and feel before, and what the know
and feel after they do a job to fulfill a need)

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Design, digitization, and new monetization models will
separate the retailers from the average
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DESIGN DIGITIZATION MONETIZATION
Consumer + Retailer Needs
Retailer mix
Space design
Value proposition
Demand
generation
Visit longevity
Branding & loyalty
Entertainment & Experience
Free WiFi
Interactive Screens
Real-time Promotions
Search & Find
Real-time Inventory
Loyalty Programs + Personalization
Virtual Reality
Same Day Pick-up/ Delivery
Payments Anywhere
“Freemium” Subscription Model
Performance Fees
Value-Added Services
(distribution, warehousing, etc.)
Advertising Revenues
Pop-Up Shops
Children’s Play Spaces
Virtual Shops
Event Spaces

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The new rules of retail
1. The shopper context has changed for good – trust, transparency, simplicity, and convenience will
continue to be salient factors in buyer’s habits and decisions
2. The shopping process has been disaggregated – shopping is no longer a linear uni-channel
process, it is now disaggregated across time, space and channels
3. Retailers have to extend the store in time and space – given the disaggregation the concept of the
“store” has to be extended across space and time catering to the needs of an individual shopper
4. If you’re in bricks-and-mortar you’re in digital too – the lines between online and offline will blur and
retailers have to thoughtfully transition from a single-channel business model to a multi-channel one
5. If you’re in bricks-and-mortar you can establish an advantage – sensory experiences & impulsivity
are part of human nature, smart retailers will leverage this in physical settings
6. Pricing will become more personalized – retailers will have to build the programs and infrastructure
to individually engage with the consumer, but in a transparent and trustworthy way
7. If shopper marketing is being done in-store it’s too late – shopper research and planning is being
done long before they appear in a store, online, offline or a combination of the two
8. Manage the intermediaries between you and the shopper – have control on the emerging value
chain and maintain the direct relationship with your consumers
9. Surprise your shoppers from time-to-time – there is an expectation about how products and services
are delivered, and creating memorable experiences can increase your brand equity