In 2018, the Amazon Go store on the corner of 7th Avenue and Blanchard Street in Seattle, Washington offered shoppers a peek into what the future of retail might look like. The convenience store was unlike just about any other store in the world. To enter, customers had to scan the Amazon Go mobile application on their smartphones. Once they got inside, a system of cameras and sensors could detect what products they picked up off the shelves. Real-time data collection paired with existing data about each consumer drove real-time marketing, offer communications, shelf navigation, and more. When people finished shopping, they carried out of the store with them. By 2018, other retailers such as Alibaba and JD.com had created an aversion to these automated stores, heightening the pressure on prior generations of retail to re-think their business models, capital allocation, and workforce.
Whether or not the Amazon Go Store was an early indicator of the future of retail, it was undeniable that the store had arrived at a time of great change within the over 25$ trillion global retail sectors. The major general shifts occurred over the past 50 years as the industry first developed large dominant chain stores and then began to digitize. By 2019, e-commerce made up nearly 14% of global retail sales. As digitization spread trough retail, it meant more than simply selling products online- it changed the nature of the physical store, it changed shopper behavior, it changed the financial model of retailers, and it changed the value chain that supplied goods to shoppers.
Roles of Retail Stores
Retailers sold goods to shoppers. Sometimes retailers produced these goods themselves. More often, retailers acquired their merchandise from manufacturers or wholesalers. For most of the history of the industry, the main retailing channel was the physical store. Retail stores played several roles that provide value to consumers and goods suppliers:
Distribution – Shoppers sought retailers from which they could acquire the selection of goods and brands that they desired at an acceptable price and with sufficient convenience. Stores served as a distribution node between product suppliers and shoppers. Retailers acquired bulk quantities of goods and tailored them into smaller quantities for stores. They used stores as a link in the value chain that received truckloads of inbound merchandise through back rooms that, in turn, quickly flowed through to the sales floor, where customers browsed and bought.
Merchandising – The activity of selecting, displaying, and promoting the sale of goods was called merchandising. Merchandising dramatically influenced shopper behavior. For example, apparel retailers curated clothing products that they believed shoppers would enjoy and often displayed full outfits together to educate shoppers about potential fashion choices. Goods suppliers valued retailers´ ability to merchandise products well.
Marketing – Marketing plays a critical role in the success of retail stores by helping to attract and retain customers. Some specific ways in which marketing impacts retail stores include increasing brand awareness; Promoting products and sales; Creating a positive image; Identifying and targeting specific customers and building customer relationships.
Store experience – The store experience can influence customers’ perceptions of the brand and their likelihood of returning to shop again. Some specific ways in which store experience impacts retail stores include: Attracting customers: A positive store experience can help to attract new customers and encourage them to return for future visits, enhance brand reputation, drive sales, and differentiate from competitors.
The First Three Generations of Retailing
First generation “The Independent Store”: This generation of retailing is characterized by the emergence of small, independent merchants who sold goods directly to consumers. This would include things like street vendors, general stores, and other small businesses. These merchants would typically have limited inventory and rely on personal relationships with customers to drive sales.
Second generation “Big Box and Specialty Retail Chains”: This generation of retailing is characterized by the emergence of larger, more organized retail businesses. This would include things like department stores, chain stores, and other businesses that had a more formalized structure and inventory management system. These businesses would typically rely on advertising, promotions, and other marketing efforts to attract customers.
Third generation “Initial E-Commerce”: This generation of retailing is characterized by the rise of technology-enabled retail businesses, such as online retailers and big-box stores. These businesses would rely on technology to manage inventory, process sales, and target marketing efforts. They would also often have a more extensive product range and larger physical stores. These retailers would also use data and analytics to personalize the shopping experience and target their marketing efforts.
Leadership Challenges in Entering Generation Three
G3 growth compelled the previous G1 and G2 retailers and their entire supply chains to respond. Many retailers pivoted to a multi-channel model to “jump on the G3 S-curve” by building e-commerce capabilities while managing their physical retail operations.
- Adapting to technological change: Retail leaders must be able to adapt to new technologies and integrate them into their businesses. This may involve investing in new software, hardware, and other technologies, as well as training employees to use them effectively.
- Maintaining customer trust: In a time where data privacy and security is a growing concern, Retail leaders must be able to build trust with customers by ensuring the protection of their data.
- Speed of Commerce: Decision cycles shortened, and retail moved towards real-time customer interactions. Digitized retailers were winning share with real-time product availability and marketing, promotions, and more. Shoppers expected faster and faster order-to-delivery times with instantaneous confirmation that merchandise was in stock. At the same time, business partners, such as brands and advertising partners, expected fast decisions, often including inventory forecasting or media purchasing decisions.
- New “Moments-of-Truth”: In the consumer sector, the “moments-of-truth” were the key instances in the shopping journey that influenced product purchase decisions. In G2 the key moments-of-truth had been when a browser first noticed product packaging on store shelves and then when a consumer used the product. In G3, digital content became the sopper´s first go-to resource in critical categories such as health, beauty, baby, decorating, etc. Search engines, social, marketplaces, brand sites, and influencers became key moments-of-truth. Packaging previously designed for the store shelf for the first moment-of-truth did not have the same effect on digital shoppers. The moments of delivery and opening packages also became key moments-of-truth. Delivery companies such as Cornershop, Deliveroo, and Grubhub greatly influenced the costumer´s experience. Purpose-built packaging that could thrive through the delivery experience could be as important as the quality of delivery itself.