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Retail: Coming through the perfect storm

Times are tough for retailers, says Bruno Sirletti, VP, Head of Retail and Hospitality Sector, Europe, Middle-East, India and Africa, but they are fighting back with the improved shopping experience and reduced operating costs.

It’s not a pretty time for property-based retailers right now. They are having to cope with a perfect storm whipped up by increased competition from traditional and online players, increases in labor and property costs and evolving customer behavior. If technology has created some of these new forces, it will also continue to drive profound changes as the retail industry fights back in two main areas: improved shopping experiences and reduced store operating costs. We are going to start seeing some significant changes in these areas in 2019, with the technologies and innovations becoming more mainstream in the next few years.

Improving the customer experience

New store concepts and formats will emerge to strengthen retailer identity in 2019. We expect many retailers to retrofit existing stores with new, more appealing and experiential shopping formats to provide clear, targeted customer value propositions. We expect an acceleration of the quest to re-imagine the physical retail mix with creative store formats – some with a simple and quick shopping experience, others as venues for collaboration and immersive brand experience, and some that are destinations for dining in addition to selling groceries.

Artificial intelligence has an important role to play here. Customers are in control, they expect connected services and they already assume that the retailer knows and understands them, and uses that intelligence to serve them personally. Retailers need to know what each shopper wants at any given time and must make the next step towards a sale easier by effectively communicating with customers during their store journeys. Next year, we will see retailers jump to exploit AI to close the gap between bricks-and-mortar and online stores in the ability to collect, analyze and act upon customer insights.

Retailing is entering a period of disruptive innovation that is creating frictionless in-store points of service. These allow retailers to differentiate low- and high-engagement experiences, from self-checkout to interactive displays and smart fitting rooms. However, the virtues of speed, ease-of-use, control, reliability, and customer enjoyment also come with new business risks that need to be resolved before mainstream adoption. Retailers will increasingly look for automated fraud detection and control solutions to reduce risks in the self-checkout process. To help them address this issue, we are running a pilot with one of France’s leading hypermarket chains to help cut business risks while increasing convenience and simplicity.

As part of the fight back against online competitors, bricks-and-mortar retailers will launch direct-to-consumer store service formats, such as meal kits. Increasingly active lifestyles create commercial opportunities, which is why these new models offer attractive economics not only in grocery food services but also for beauty service counters and in the retailing of personal apparel. Such physical store experiences offer something functional that is not possible online, capitalize on store traffic and tackle store conversion issues, and can leverage any excess capacity via services that yield higher margins.

Physical stores are also starting to build a digital presence. This allows consumers to dynamically and digitally research merchandise that is available in a given store location, based on the consumer’s proximity and what is trending in their specific area, how people live in that area. Stores will also provide assortment recommendations, based on what people with a similar profile have bought. By monetizing the store-first approach, brands will drive more sales.

Reducing store operating costs

The journey towards automated stores starts in 2019. More consumers will buy their groceries from unstaffed small-scale grocery or convenience stores. Evolving automated self-checkout solutions (see above) will make this possible, enabling scanning and payment rather than waiting in line. Automated stores accelerate the trend towards fully online-managed stores, from a cloud-based back-end. The cost of maintenance, merchandising and support for an automated store can be radically less than the cost of staff to run a traditional store.

Precision retailing will get big in 2019 as well, providing real-time visibility and accuracy into merchandise in stores. Retailers will invest in being able to provide customers efficiently with the goods and services they need to enable omnichannel services and therefore to compete against online. Real-time visibility to accurate inventory levels is currently a challenge for many high street retailers, leading to out-of-shelf or out-of-stock situations lost sales opportunities and a decrease in customer satisfaction. We believe the rise of item-level tagging will start with higher-value categories and goods and gradually extend to all merchandise.

Frontline staff will increasingly be enabled to address customer expectations and sell an experience. Right now, there are still many unlocked productivity elements to be introduced for efficient customer service and delivery, meaning that store staff currently have to act on service needs and exceptions without critical tools and sufficient data. We expect to see major efforts to change this by retailers, as part of a drive to improve the efficiency of their store operations and reduce labor costs. This will include starting to use mobile and wearable technologies to communicate between staff and to unlock productivity by automating daily operational tasks.

Part of the solution will be that retailers turn to cloud-based solutions to gain speed and control across stores. A number of key business processes will get a redesign. For example, we expect retailers to trial processes allowing consumers to pre-determine parts of their shopping basket in the cloud, maybe with voice control, to run consistent but agile pricing and rapid promotions from cloud to all touch points and channels, and to lift PoS clients to the cloud for more flexible deployment and delivery.

An equally important dimension of the drive to efficiency and cost reduction will be that more retailers swap ownership of physical assets or shift to the asset-light, as-a-service world for operational non-core services. This offers retailers a ready-to-run, 24/7 managed store space, typically covering all technical infrastructure elements required including point-of-sale hardware and peripherals, retailer’s PoS applications, wireless network, routers, EFT connection and IT security. With these integrated into retailers’ enterprise corporate networks and applications, we will also see the emergence of ready-made storefronts, available in different sizes, via short-term leases.

You can see that there is a lot that physical retailers can do and are doing to weather the current storm. The ideas, technologies and process improvements are out there: 2019 is about a deployment of a package of improvements to make your brand more relevant and more competitive. We don’t expect a complete transformation of the retail industry in the next year, however, we strongly believe that 2019 is the right time for retailers to get started on projects that will have significantly transformative effects over time.

 

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