futurecasting-report-june-4

THE SECOND ERA OF DIGITAL RETAILA vision forthe future ofshopping andthe smart shelfA report byIntel Labs and The Store WPPSteve Brown, Futurist and Senior Industry Advisor, IntelEdited by David Roth, CEO, The Store WPP, EMEA and Asia

THE SECONDERA OFDRIEGTIATAILLLegal disclaimer: All trademarks and brands listed in this document are the property of their respective owners.

CONTENTS1 Executive Summary: 6 Only the brave will win 10 142 Introduction 223 Futurecasting process 26 384 Looking back before we look forward 52 645 Retail trends and challenges – 70 Manufacturers, retailers and shoppers 766 Disruptive forces on the horizon 7 The future of the shelf 8 It’s all about the data 9 Summary and next steps 10 Retail 2030: A vision for the future of shopping

1 EXECUTIVE SUMMARYONLY THEBRAVEWILL WIN The $15 trillion retail sector is about to undergo a major round of disruption as it experiences a second wave of digital transformation. Retailers will need to learn new skills, embrace new4 technology, and take big risks. They will all need to be much braver than in the past; and only the bravest will win.Shopper expectations are But retailers have been slow focused IT spending on theevolving faster than retailers are to innovate and are furiously “bones” of retail: manufacturer-innovating and over-capacity in discounting as they fight for facing efforts designed tothe retail sector has put shoppers every dollar. The spaces they optimize the supply chain,in control. Shoppers want their occupy are too big and in the manage inventory, and handleneeds met faster. They are wrong places. Urbanization secure transactions. In responsedemanding more efficient, higher is only piling on the pressure. to new shopper expectations,quality, personalized, and omni- Unless something changes, the retailers are rebalancing theirchannel shopping experiences. race to the bottom is on. IT spend to include customer-They want products and services facing technologies that improvetailored to their individual tastes Technology will remake the the “face” of retail: technology toand desires. They are demanding face, the bones, and the brains improve the shopper experience,increased transparency into of retail. Specifically, computing to make mission shoppingpricing, retail operations, and capability will come at costs, more efficient, and experienceproducts, and want a bigger say physical sizes, and performance shopping more enjoyable.in how products are developed levels that will quickly disruptand sold. retail. Historically, retailers have

5Computers that can see, hear will help retailers to drive and manufacturers to buildand understand the world operational efficiency, better new service businesses. Smartaround them will enable brands understand their customers, stores will be filled with smartand retailers to hold new types and deliver personalized infrastructure and smart shelvesof interactions with shoppers, experiences, personalized offers, that bristle with a myriad ofand tell stories in new ways. dynamic pricing, and customized sensors that gather vast amountsWearable computing will help products and services. of data. In-store automation willshop assistants to deliver much free up labor to focus on customerbetter customer service. Giant In the coming decade, smart cars service and enable humandata centers will amplify the will navigate down smart streets touch connections that can’t beeffectiveness of both the “bones” in smart cities. Smart products replicated online. Giant computersand “face” by connecting them will be delivered by smart trucks will analyze this data so retailersto the “brains” of retail: analytics to smart stores inside smart can optimize operationaland intelligence at every stage of packaging. These smart products efficiency, gather valuablethe retail machine that multiplies will create new revenue streams insights for manufacturers, andthe effectiveness of the bones built around new business deliver compelling personalizedand face. This added intelligence models that enable retailers experiences to shoppers.

1 EXECUTIVE SUMMARY At the center of all this innovation Shelves will understand natural of a wide variety of new business is the smart shelf, able to facilitate human language, context, and models that allow retailers to the conversation between even sense emotional states. They optimize the experience for manufacturers and shoppers will serve shoppers intelligently shoppers, for manufacturers, and actively participate in the by assessing whether they are or both. Proprietary, vertical selling process. The smart shelf stressed, relaxed, in a hurry, solutions that initially flood the will revolutionize the level of confused, in discovery, or close market will eventually yield service retailers are able to offer to making a purchase decision. to lower-cost solutions based to manufacturers and shoppers Like any good sales person, on open standards, APIs and alike. They will interact with the the shelf will have a personality building blocks. This will lead to shopper in a way that is natural, that combines deep product an explosion of value creation as it comfortable, and fully respectful of knowledge, trustworthiness, great enables developers to collaborate shopper privacy. shopper insight and strong selling across standardized platforms. skills. It will navigate a wide range SHELVES WILL DELIVER of conversations, make choosing Networked shelves in homes will PERSONALIZED EXPERIENCES easier for the shopper and move enable retailers of consumables to TO THE SHOPPER, REWARD them towards purchase. Smart anticipate demand and optimize SHOPPER LOYALTY, CREATE shelves will also handle loss the position of products within the DATA-LED SALES AND prevention, and manage samples, supply chain, increasing availability, MARKETING OPPORTUNITIES inventory and assets. To unlock reducing spoilage, and minimizing FOR MANUFACTURERS, AND maximum value, smart shelves the need for discounting. Retailers MAXIMIZE PROFIT FOR THE will need to be supported by a will be able to anticipate local RETAILER BY OPTIMIZING sophisticated back-end server community demand not just by PRICING DYNAMICALLY. infrastructure able to gather, store, looking to historical consumption and analyze data, and deliver patterns but also by understanding6 media and other services to the aggregate in-home inventory in shelf. The will be deployed as part real time.

The sharing economy creates speed delivery services could create lock-in. Shoppers love the 7an opportunity for retailers to accelerate the trend. “Next added value they derive from amonetize goods and services hour” delivery capability is broader ecosystem offering andin new ways but also threatens emerging and will eventually reward retailers by giving themexisting retail business. become widespread, removing “first option” selling advantage.Shoppers are finding more the immediacy advantage for Retailers that get this right willefficient ways to consume. In a traditional retailers. enjoy deeper customer insightfast-growing trend that could and will be able to sell across andlimit future consumption and AUTONOMOUS DELIVERY up as they delight customersthat could spread to nearly VEHICLES, DRONES, AND with a broad ecosystem ofevery sector of retail, some ROBOTS WILL SLOWLY personalized value.shoppers now aspire to merely EMERGE AND BOOST ONLINEhave access to products rather DELIVER SPEED AND The retail sector is about to bethan to own them. CONVENIENCE EVEN FURTHER. disrupted by a set of technology and business forces that willLocal just-in-time Traditional retail will need to reshape the retail landscapemanufacturing, led by focus on highly emotional in the next decade. Winners inever-improving 3D printing products where the buying this era will partner broadly andtechnology, will reframe the process is highly experiential. make the short term and longeconomics, supply chain and Consumable will be term investments necessarycustomization capabilities of automatically ordered by smart to embrace these disruptiveretail. 3D printing promises homes and scheduled for forces and create new value forto offer shoppers maximum delivery. their customers, their suppliers,choice and immediacy inside the and their shareholders. Losersminimal physical store footprint. Membership shopping clubs will fight or ignore these are becoming wildly popular unstoppable trends andThe shift to online has with shoppers. For retailers they ultimately they will disappearremade the retail landscape alter shopper’s behavior and from the high street forever.and the availability of high- Retailers that want not just to survive but to thrive through this period of transformation will find a set of highly actionable next steps and recommendations throughout this document. These are all summarized together in chapter 10. WLDSEEIGETCLI’OTSCANOJLDUMRMEEERPTTAAOINIOLT.F.HE Steve and David



INTRODUCTION

2 INTRODUCTIONTIRSHEENTAO$IW1L5SETEVRCOITLLOLVRIIONNGTAHTETHINETSEPRENEEDT.OFTo thrive and survive in retail,companies now need to innovate atthat same pace. That means businessesincreasingly need to be virtual, not justphysical. By digitizing the entire businessflow, retail will become more responsiveto customer needs, able to personalize theshopping experience for each and everycustomer, and be able to continually tuneand optimize their businesses over time.

2:1AWPHEYRNFOEWCT?STORM IN RETAILWhy is retail bracing for major change? And why is the change coming now? The answer is that retailis about to experience a perfect storm of change fueled by a wide set of powerful technological, social,demographic, ecosystem, business, and economic forces.EXPCEUCSTATTOIMONERS SECLOONWODMOIWCN EXPLOONSLIIONNE TEDCISHRNUOPLTOIGVIEES MANUFACTURER EXPECTATIONS 11In the next decade, this perfect new set of expectations related highly competitive retail sector.storm will drive a massive to omni-channel shopping, They are playing a zero-sumreimagining of retail. This will customization, efficiency, game where an increase inpresent both huge opportunities transparency, and the quality of sales for one retailer comesand huge challenges to all the the experience itself. at the loss of a competitor.players in retail, across all sectors. Competitive forces areThis report explores these forces • Manufacturer expectations therefore on the rise.and the specific actions retailers – Suppliers want increasedwill need to begin planning NOW. visibility into retail operations • Online explosion – The shiftThese actions will ensure retailers and expect new services from to online sales has remade theare best positioned to be the retailers including shopper retail landscape forever andwinners in all this change, rather analytics, targeted advertising, requires totally new thinkingthan the losers. and other analytics and in the omni-channel, 24/7 insights. shopping landscape. The shiftThe major forces on the future of towards online will continueretail are: • Disruptive technology - to disrupt retail as increased Moore’s Law is now delivering delivery speeds remove• Customer expectations amounts of computing immediacy as a channel – Changing shopper capability at costs and physical advantage for traditional retail. demographics, increased sizes that will soon disrupt retail choice, and exposure to and other sectors. The resulting combination of new technology mean that these forces is leading to one of customers now have rapidly • Global economic slowdown the biggest transformations in evolving attitudes towards – Retailers are operating in an retail in decades and is ushering in shopping. Shoppers have a increasingly over-saturated and the Second era of Digital Retail.

2:2ATHNEDFBARCAEI,NBSOONFESR,ETAILA helpful way to think about the future of retail is to consider the face, the bones, and the brains of retail.These constructs will occasionally be referenced throughout this report. The Face The Bones The Brains All the customer-facing elements All the retail elements that sit All the data analytics and of the store used to maximize behind the face to feed the store intelligence that is deployed the shopper experience in a way through every stage of the that makes mission shopping and shopping experiences. retail machine. This intelligence more efficient, and experience Today these include helps retailers to drive shopping more enjoyable. These things like fixtures and operational efficiency and better include merchandising, signage, fittings, the supply chain, understand their customers. and other look and feel elements This knowledge is then used to of the store. Future advances in inventory management this area might include interactive systems, loyalty card and reward deliver a personalized set of brand experiences, virtual systems, and point of sale experiences, offers, pricing, shopping assistants, and terminals. Future advances in the services and products. bones of the store might include12 spectacular holographic smart infrastructure, indoor location tracking, 3D printers, displays. The face is robots, delivery drones, and also the place that data is automated and reconfigurable gathered on the shopper and fed store fixtures. to the brain.Thinking about the face, bones, • Personalize the shopping • Free up sales staff in the storeand brains of retail is a valuable experience (section 5.3) to deliver better customerway to reframe the conversation service by automating non-on the future of retail. It offers a • Deliver personalized or value added activities that canhelpful way to let go of old notions customized products (section be mechanized or handled bythat are tied to tired retail formats. 6.2) algorithms.And it’s a productive way to frameideas for future innovation and • Create new business models • Augment and improve salesdeployments. and revenue streams (section staffs’ selling capability using 6.1.2) wearable technology andThis report explores many ways assistive AI (section 6.1.3)for stores to differentiate their • Enable retailers to embracebrand proposition and gain the sharing economy with new • Generate the maximum profitcompetitive advantage through selling models such as sharing, from each customer over timethe deployment of technology bartering, and renting (see by using dynamic pricing thatthat transform the face, bones section 6.5) varies by location, by customer,and brains of retail. by minute, and by product • Create interactive experiences (section 7.5)These include technology in the store that make shoppingdesigned to: either more efficient, more fun, or more personal (section 7.5)

2:3ABYMPFELEIFDYINYGOUTHREINBVREASINTMENTSIt’s worth noting that investment in the brains of retail can be considered as multiplicative to the other twoelements. Improving the brains can make the bones and the face of the store much more intelligent and thusmore effective.For example, dynamic pricing personal unless the brains can retail brain—a brain fed by vast 13at the shelf won’t truly hit the direct and choreograph them. amounts of data and powered bymark unless it’s backed up by And supply chains will only be as sophisticated analytics software—cutting edge analytics and streamlined and efficient as the investments in the retailers’ facecomprehensive customer data quality of the insights distilled and bones won’t yield maximumheld in the brain. Personalized from operational data allow them returns.experiences won’t be very to be. Without a fully functioningSHOPPER EXPERIENCE = (FACE + BONES) x BRAINSHOUOWT OTFOTGHEIST RTHEEPOMROTSTIn this paper, we will explore the output of a futurecasting session heldin July 2014 at Intel’s campus in Hillsboro, Oregon. We will describe thefuturecasting process itself, reveal the team’s findings, and then explore theconclusions of the session in detail.Retail strategists, retail planners, chief innovation officers will want to absorbthis whole report front to back. The full report will also be highly valuable tosystems analysts and other IT personnel hoping to serve the retail sector.C-level readers should read the executive summary and may then wish toskip directly to section 10 which provides a cheat sheet summary on themain findings of the report together with a set of recommendations forretailers. Future-looking readers should definitely absorb the contents ofsection 7 regarding the smart shelf. 



TPFHURETOUCREESCSASTING

3 THE FUTURECASTING PROCESS The futurecasting process is designed as a structured thought exercise to explore the likely changes coming to a particular sector or area of focus. In this case the focus was the retail sector in mature markets. Futurecasting uses a combination of expert consultation, science-fiction prototyping, and backcasting to come to conclusions about the likely future. During a multi-day creative workshop, participants combine a wide range of insights to build actionable models of the future. Futurecasting is also not a passive exercise. The aim is not to predict the future, but to decide what future we want to build, and to define concrete initial steps we can take to begin on that journey. It also seeks to anticipate possible scenarios such that companies are able to prepare their strategic responses should these scenarios come to pass. The diagram below illustrates how insights are boiled down through the futurecasting process and turned into actionable next steps. Small, big and natural Long tail Millenials Clubs Sharing Personalization economy Security Face, bones, Analytics Customer Extensible Data Omni- brains integrity channel Polarization at center Trust Standards shelf Convenience Delivery Smart Control Smart Protect trust16 Anything Efficiency infrastructure can become 3D printers a computer Drones Frictionless Space IOT KEY TRENDS SYNTHESIS BACKCASTING The process starts with expert • Technology trends – Disruptive Once experts have shared their testimony spanning a broad technology, influential insights on important and salient range of disciplines. Accurately technology trends, and timing trends, teams synthesize what modelling the future requires the for mass market viability and they have heard and boil it down combination of a diverse range of impact to the most important points they insights. These include: think will shape the future of the • Economic trends – Global subject at hand. • Social trends - What people earning and spending, love, what they are scared of, manufacturing supply data, Finally, by using science-fiction what their challenges are, what energy prices prototyping, attendees build out their aspirations are, how and models of the future and then where they derive meaning, • Business and ecosystem use them to step backwards in and what their attitudes are. trends – Retail ecosystem and time toward the present using an broader business model trends approach known as backcasting. • Demographic trends – Shifting This allows them to extract attitudes, habits, and values, by • Infrastructure - Consideration the main focus areas for future age, gender, location and other of existing infrastructure and innovation needed to get us from factors other barriers to change today to the imagined future.

3:1TPHAERTICIPANTSA huge thank you to all the experts that generously gave their time and passion to contribute to thethree-day futurecasting session held at the Intel Jones Farm campus in Hillsboro, Oregon in July 2014.Rachel Antalek Vice President Starbucks 17Jose Avalos WW Director, Visual Retail IntelMegan Bednarz End User Marketing IntelJon Bird Managing Director Y&R LabstoreBrett Blundy Managing Director BB Retail CapitalSteve Brown Futurist, Intel Labs IntelDick Cantwell Vice President Cisco Consulting ServicesDiane Collins Vice President Meads JohnsonFrancesco Cordua Vice President RTKLNicolai Gerard General Manager Pepsi CoEd Halla Managing Director Eye LevelJack Hanrahan Retailer Relations WestfieldMaroun Ishac Business Development IntelRay Itaoui Owner SanityBrian David Johnson Futurist, Intel Labs IntelGraeme Kelly Enterprise Architect MyerScott Lamensdorf Vice President Kantar RetailRyan Lester WW Director, End User Enablement IntelRobert Pettit Client Development Director FitchAnthony Ritch Vice President WestfieldDavid Roth CEO The Store WPPHerb Sorensen Scientific Advisor TNS GlobalJames Sorensen Senior Vice President TNS GlobalJon Stine Global Director, Retail Sales IntelJohn Warn Regional General Manager Westfield, Scentre GroupAdrian Whelan Business Development IntelAnne Zybowski Vice President Kantar RetailWithout the passion, vast experience, deep knowledge, • Paul Thomas Intel Chief Economistand enthusiastic participation of every person that • Dick Cantwell VP of Cisco Consultingcollaborated in the futurecasting session, this report • David Roth CEO of The Store WPPwould not have been possible. Thank you all. • Herb Sorensen Scientific Advisor to TNSAnother big thank you to the experts that set the Global and creator of www.shopperscientist.comscene for the futurecasting session, groundingthe attendees in the latest trends in technology, • Anne Zybowski VP of Kantar Retaileconomics, retail, IT, demographics, and shopper • Jamie Gutfreund CMO at Noise.behavior. • Steve Brown Futurist, IntelThe expert speakers for the futurecasting session:

3:2KSYENYTTHREESNIDSSOFThe futurecasting participants first listened to a day of informed opinion and insight from a varietyof domain experts spanning the retail industry and beyond. Within small teams, participants thensynthesized and distilled all that they had heard, highlighting key insights and determining the factorsmost likely to shape the future of retail. They then considered the implications of trends to the world ofretail, both positive and negative, and determined how the retail sector should respond as a result.Here are some examples of the key trends and retail imperatives that emerged from teams during thesynthesis process: Trend Retail imperative Compute will enable us to Need to ensure control still remains in the hands of the shopper add intelligence into anything and that we are solving a customer need/pain point and not just and everything using technology for technology’s sake Trust is becoming digitized and Retailers must build and protect trust with shoppers value is being created by refining data into wisdom Retailers will need to offer customized or customizable solutions, accessed via easy interfaces, and can use them to upsell customers18 Shoppers, particularly Millennials, Retailers can lease as well as sell things, they could act as a want more customized products reputation management system for resold goods, and could provide an indemnification service as a value add Some shoppers prefer access to things rather than to Retails should build stores with no checkouts, or totally automated purchase them stores using RFID or vision data to manage inventory and perform automatic checkout Millennials have a strong desire for efficiency Retailers must put the customer at the center and obsess over what’s right for customers, not what serves suppliers best Shift from supplier control to customer focus Innovate internally and outsource for speed Technology can make a bricks Better understand value proposition and needs across categories; & mortar store more efficient enhance the shopping experience for more engaging categories and automate the “commodity” categories Routine shopping is primarily done on autopilot; shoppers don’t want Pursue a long-term strategy to “get off the drug” and have greater to be bothered while shopping focus on the shopper Product proliferation in bricks Understand the customer using data, build responsive stores, & mortar has made making invest in frictionless experiences, and invest in quality of staff choices very difficult Stores are polarizing their business models: efficient on one end, experiential on the otherYou will see these trends, and others like them from the futurecasting process,show up throughout the body of this futurecasting report.

3:3FTHUETUFRUETCUARSETAINRGOU-NMDOPDEEOLPINLGEAs a vehicle to building out models of the future, teams then created imagined personas of people livingin the year 2024. These people spanned a range of ages, socio-economic backgrounds, outlooks, lifestylesand geographic locations. Each team then brainstormed a set of new shopping experiences that might be ofinterest to their imagined person, using the trend synthesis as a basis for exploration.A sample scenario is listed below as an example of a set of experiences being imagined by one of thefuturecasting teams:In a dense urban environment of the future, circa 2025, Alexandria and her 19husband live in a newly-constructed smart apartment building in Mexico City. Intelligent shelves are deployed in their home pantry that use a combination of RFID and visual recognition technology to identify items. The shelf can measure and securely report inventory of products stored in each home. An intelligent fridge is fitted with similar capabilities.Alexandria’s personal home inventory feeds into a recipe recommendationsystem. It offers meal choices and also suggests shopping lists. Real-time inventory rolls up to provide an overall picture of neighborhood inventory levels. A “Friendly neighbor” service helps Alexandria get the ingredients need for her next meal. It alerts her to inventory she don’t have but that a neighbor does have and hasn’t used, and facilitates the request to move an item from their home to hers (and handles appropriate billing).Intelligent shelves in Alexandria’s local store (which is conveniently builtinto the base of her tower block) are able to determine when a productis removed, and who removed it (and then bill appropriately) providing africtionless way for Alexandria and her husband to purchase items they need. A membership program for the local store securely stores people’s consumption information and uses analytics to predict future consumption of members based on real-time usage (gathered from the store, the pantry, and the fridge) and ensures desired items, even if they are what would formerly have been considered unusual purchases, are in stock as often as possible. Alexandria is delighted as this means her local store nearly always has the particular brand of cured meat her Colombian husband likes so much.Secure links into Alexandria and her husbands’ calendars improve the accuracy of theneighborhood consumption prediction analytics by knowing when they are away. Alongside physical products, the local store includes attractive and interactive virtual spaces that enable Alexandria to browse online services and products she can order easily for delivery. The online shopping experience is seamlessly integrated alongside the physical product displays to create a fluid shopping experience where the physical and virtual blur.The local store acts as an aggregation hub for packages Alexandria has ordered andthat are delivered next day or sometimes next hour by online vendors. Her neighborhas invested in a butler’s hatch for their apartment and has the store deliver packagesand goods directly into her home but Alexandria hasn’t got around to that yet. The store has embraced the sharing economy and manages a set of shared community items including a carpet cleaner, toolbox, and a couple of cars. It has both an online and in-store dashboard showing availability of these shared items and enabling shoppers to make reservationsIn addition to renting “do it yourself” community items, Alexandria’s local store has a portal thatenables her to schedule a range of household services such as cleaning, repairs, and babysitting.As a member of her local store club she has access to a broad ecosystem of local service providerswho give her preferred rates and service levels negotiated through group bargaining.

3:4BACKCASTINGThe backcasting process is a way to figure out the interim steps that are needed in order for an imaginedfuture to become true. The result is a set of concrete actions that need to be taken at various times betweennow and the time in which the futurecasting scenario is to be realized. The process also extracts a set ofcapabilities that will need to be developed.The teams did this for both the 2017 and 2020 timeframes. This provided a set of nearer term steps they could taketowards realizing their visions for 2024.A set of sample actions and capabilities extracted by the teams are listed below by way of example:By the year 2017 By the year 2020• Need data integrity on stock availability across • Same day and next day shipping for goods the purchase chain • 3D printers to create products, cotton fabrics• Need a social media platform to allow visibility and designs that are designed by friends or of buyer to friends’ likes/interest in products (other) participants in the market – or markets in other parts of the world• A consumer platform that is extensible to all screens• Hire data scientist to conduct behavioral analysis and modeling on needs and purchase habits20 3:5SCIENCE FICTIONPROTOTYPINGOnce backcasting had been used to start to extract concrete actions and capabilities that would be neededfor each scenario, science fiction prototyping was employed to stress test that scenario and look for issuesand nuances they might have overlooked while in the experience creation phase.These prototypes took the form of stories from the considerations that would be applicable to the shorter-future, usually set in a time placed several decades term experiences being imagined.beyond the futurecasting time horizon. The goalof science fiction prototyping is to use the added By way of illustration, a sample science fictionfreedom afforded by the extended timescale to take prototype is included opposite to demonstrate thethe imagined scenarios to the extreme. Teams were process. The team had a bit of fun with the story, butencouraged to imagine something going terribly it highlights some serious potential security issues withwrong and then being remediated or fixed. This their experience scenario that have applicability backapproach reveals insights and important design to the 2017 and 2020 time frames:

The year is 2055. Alexandria is now 73 years old. She Alexandria’s life is turned upside-down, and she realizes 21recently experienced a stroke, has partial paralysis and somebody is out to kill her and take everything she ownshas great trouble speaking. Her husband was somewhat and has worked so hard to build. She now has nothing toolder than her and died back in 2050. Her four children leave to her kids as inheritance, and doesn’t know whatare all grown and have moved to other cities in Mexico, to do.and across Latin America. She summons her automated lawyer and criminalAlexandria takes a pill twice a day to manage her investigation service, LawAI by thinking about avarious ailments, which include high blood pressure, shirtless Tom Selleck as Magnum PI, her pre-agreedobesity, migraines, COPD and chocolate addiction. brainwave icon for the service. Her BMI (brain-machineIt has been specially designed for her by her health interface) hat has been a godsend since her stroke.provider based on her genetic code. LawAI’s holographic representative appears in her lounge and listens to her problem. The representativeShe still lives in the same building, albeit in a much is not a real person, but certainly looks like one. It ismore spacious condo, and now relies heavily on the powered by powerful algorithms and represented as“Convenierge” service to assist her with many of her a 3D avatar carefully selected to look as friendly anddaily living tasks. It understands and anticipates all her calming to Alexandria as possible, based on her dataneeds and service robots deliver all her goods, her food, profile. The algorithms of the law service immediatelyand her medication to her home. begin to run diagnostics on the system and search for compromises. They quickly pinpoint a weakness inRecently, Alexandria has noticed that her life feels Alexandria’s security features that she has inadvertentlydifferent. Her medication looks the same, but doesn’t failed to keep up to date. The thieves have coveredseem to have the same beneficial effect on her that it their tracks, but the algorithm traces the criminals to aonce did. Perhaps she’s imagining it? But her blood location in Ghana. The law algorithm coordinates withpressure certainly does seem to be on the rise. And local Ghana law enforcement algorithms and passeslately, the range of food her robot is loading into her them all relevant data enabling a crime bust.fridge and pantry doesn’t seem quite right. Productsshe’s never used before are showing up. And many of the The law service checks the details of Alexandria’s SLAstaples she uses for her favorite recipes are missing. and finds that she signed up for an indemnity contract back in 2035 that is still in force. This covers her forAlexandria suspects something is up. She hasn’t had to losses incurred as a result of any data breach that resultscheck her billing statement in years. She’s just learned from using their service. The law service instantlyto trust Convenierge to take care of everything for her. negotiates a settlement with Convenierge and herShe waves her hand to bring up a visual display of her account is restored within 4 seconds.spending on the wall and is shocked by what she sees. As part of the settlement Convenierge sends a luxuryFrom being quite financially comfortable, she now self-driving pod to take her to the nearest doctor forsees that she only has three months of living expenses immediate assessment. The doctor and her AI algorithmleft in her account. Somebody has been ordering vast examine Alexandria. They scan her body, and quicklyamounts of goods and services, and billing them to resequence her genome. The algorithm identifies theher. Somebody has hacked her “Auto birthday present” poison in her system and formulates a potent combo ofservice and been sending themselves high value items chemical, biological, and nanobot treatments to cleanse– a 4D camera, a 70-year special anniversary edition her bloodstream and major organs. This single pill isBack to the future hoverboard, and even a new eKidney 3D-printed in the office, and administered with a niceto her niece. Only of course it was never delivered to cool glass of water and a shot of whisky (now understoodher niece, Naomi, but went to some address in Beijing. to have incredible medicinal properties). She waits forAlexandria also sees that many of the healthy, high- just 15 minutes for the treatment to act and is rescanned.quality products she has enjoyed over the years have Once given the all clear, the LimoPod™ whisks her backbeen substituted with poor alternatives. Some of them to her apartment where her family, alerted by the Laware known to include ingredients that were banned in Service to her recent brush with death and destitution,the ‘30s for their serious health issues. Even worse, as have flown to celebrate the fact that she’s ok. There isshe investigates further, she finds that her custom pill cake, and of course lots of healthy Irish whisky to washis actually a slow acting poison. The criminals clearly it down.intend to knock her off before her money runs out, andtake over her apartment.The particular insights that the team drew from this science fiction prototype that they then went back andapplied to their 2024 experience were:• Security is key• Indemnification and remediation plans are key to building consumer trust• Need regular security audits that catch issues early on• Add self-driving delivery vehicles to 2024 experience



BLLOOEFOOOKKRIFNEOGWRBWEAACRKD

4 LOOKING BACK BEFORE WE LOOK FORWARD RLTHEEEATARMINLEDFCRIAAONM INDUSTRY24 Over the last thirty years, digitization has utterly transformed and remade the media and publishing sector. A lengthy upheaval was triggered by sustained technological change. The changes wrought on the industry ushered in new business models, obsoleted prior expertise, changed customer expectations, and remade the entire business landscape. Both winners and losers emerged. Companies that embraced the digital revolution prospered and powerful new companies like Netflix*, Spotify*, and Google* rose to prominence. And companies that either denied the trend, or actively fought it, have since been consigned to history. We all fondly remember Kodak*, Xerox*, and Blockbuster video*.

4 :1MOORE’S LAWTo understand what happened you need to understand a little about the implications of Moore’s Law.Moore’s Law states that you by Moore’s Law was enough envied. Moore’s Law has delivered 25can squeeze roughly double the to trigger a series of powerful an entire TV production andnumber of transistors onto a piece breakthroughs that remade the broadcast facility in your pocket.of silicon every 18-24 months. entire industry, from production to Anyone with a digital device canThe more transistors that can distribution to consumption. shoot, edit, and distribute highbe squeezed onto a tiny sliver definition video content to everyof silicon, the more capability It started with media production. corner of the planet. In moments.computers get. Each generation, Steady advances in computingsmaller transistors deliver higher capability first displaced Not only has this empoweredperformance, lower cost, a smaller typesetters in the 1980’s with everyone with new, excitingfootprint, and they consume desktop publishing but then ways to communicate their ideasless power. This is what allows quickly spread to video editing, and their passions, but it hascomputers with capabilities that special effects and computer also challenged existing forceswere unimaginable even for a animation (known as CGI) in the in a giant industry sector. It hasgiant room-filling computer thirty 1990’s. Increasing bandwidth and changed consumer habits andyears ago to slip easily into our an exponentially growing Internet expectations. It has removedpockets and purses today. remade media distribution. And middle men. It has obsoleted now nearly all media production, talents. It’s created new youngWhen combined with associated distribution and consumption is media stars that are able toadvances in communications, transacted digitally. make a small fortune creatingstorage and other technology content from their bedrooms.Moore’s Law disrupts business Today, a five year old kid with And it’s made other people andmodels, businesses, and a smartphone has the kind of companies irrelevant.entire industries. In the media production and distributionand publishing industry, the capabilities at their disposal that Disruption is not fun whencomputing performance delivered a 1980’s media mogul would have you’re being disrupted.End-to-end disruption of media and publishing industry mapped against Moore’s Law 100B 10BTransistors on a chip 1B CONSUMPTION DISTRIBUTION 100M Tablets 10M PRODUCTION Spotify/Netflix Streaming YouTube iTunes 1M Computer Graphics/Special Effects 100K Video Editing 10K Desktop Publishing Personal Computer 1980 1990 2000 2010 2020 2030There are interesting parallels between the media and retail sectors. Both involve production, distribution, andconsumption. So what can we learn from the impact of Moore’s Law in media?

4 LOOKING BACK BEFORE WE LOOK FORWARD 2LMNAOWDOREAREN’ASDOTFHE DIGITAL RETAIL26 Retail has already been touched by the digital revolution. Digitization has already given us inventory systems and supply chain management tools that optimized the relationship between manufacturers and retailers. Digital point of sale terminals now speed financial transactions. And every retailer has at least some online or e-commerce presence.

4:2RETAIL IS NEXTRetail is now facing a second wave of digitization. And that second wave has already begun.This wave will see a full-scale digitization of the face, bones, and brains of retail.If the first era of digitization of The exponential computing transformation of every elementretail was characterized by supply capabilities being brought by of retail. This is because Moore’schain management, inventory, and Moore’s Law in the coming Law doesn’t just give you doublepayment systems, the second era decade will enable a total remake the computing capability everyof digital retail will be shaped by of the face of retail—the front of few years. It can also be usedsensors, data analytics, robotics, house experience that shoppers to deliver the same computingnatural interfaces, and computing see and feel. Digital technology capability at half the price, andubiquity. These will be used to will also change the bones half the power consumption. Andimprove the shopping experience behind that new face—including that computing capability canby making it more personal, technology to deliver mass be packaged inside smaller andmore efficient, and more fun for customization, and to deliver smaller spaces and places. It is thisconsumers. This same technology products to shoppers in mere parallel ability of Moore’s Law towill be used to continually improve minutes. simultaneously make computingthe operational efficiency of retail, intelligence more powerful, moreto enable new business models, to In the coming decade, computing affordable, and more compactmaximize revenue, and to speed power will be available at price that will disrupt retail in the nextfulfillment and delivery. points that will enable the total decade.Retail breakthroughs mapped against Moore’s Law 27 100B 2ND ERA 10B Autonomous Delivery Vehicles OF DIGITALDrones RETAILAccurate Indoor Location Smart Shelves 1B RobotsTransistors on a chip Wearables 100M Square Smartphone 10M Alibaba.com 1ST ERA 1M ORFETDAIIGLITAL 100K QR Code Amazon and eBay Chip and PIN Windows POS In-Store TV Inventory Systems 10K Loyalty Card 1980 1990 2000 2010 2020 2030

4 LOOKING BACK BEFORE WE LOOK FORWARD LRMAEOWTOARIMLEA’SKES SMART28 Smart products will be sold in smart stores bristling with smart infrastructure. A plethora of sensors will gather data on shoppers. This will enable retailers and manufacturers to delight shoppers with fully customized shopping experiences.

4:3Natural computing, powered by computers SO BRACEthat can see, hear and understand the YOURSELVES.world around them, will enable brands and THE SECOND 29retailers to hold new types of interactions WAVE OFwith shoppers, and tell stories in new ways. DIGITAL RETAILWearable computing will help shop assistants IS ALREADYto deliver much better customer service. UPON US.Drones and automated vehicles will speeddelivery and boost convenience for impulseshopping. In-store automation will freeup labor to be more customer-facing andimprove customer service; labor that canenable human touch connections in bricksand mortar stores in a way that cannot bereplicated online.Finally, huge computers will processvast amounts of data to generate bothoperational insight and also detailed insightsinto individual shopper behavior. From thisretailers and manufacturers will be ableto drive operational excellence, deliverincreasingly improved service, and providenew personalized experiences to shoppers.The second era of digital retail is already inwell underway. According to IDC, fully 10% ofall IOT (Internet of things) investment in 2013was made in retail. And by 2017 they estimatethat annual IOT investment by retailers willexceed $466 million.Current consumer desires in retail are wayahead of what retailers can deliver. ButMoore’s Law is coming to the rescue to helpretailers close the gap.Retailers should prepare themselves foras much innovation and disruption in theirsector within the next decade as media andpublishing endured in the last three.Such is the power of exponential change.



RCTRHEETAANLIDLLESNAGNEDS

5 RETAIL TRENDS AND CHALLENGESMREATNAUILFEARCSTUARNEDRSSH, OPPERSRetail sales represent about 18% of the US GDP, equivalent to $3 trillion in 2013, and rising to $4.1 trillionby 2020. At the same time, consumer spending patterns are shifting and their dollars are now beingattracted to other sectors—to healthcare, to services, and to other non-retail household spending.Globally, UNI estimates the retail sector employs In this section we will review the trends affectingaround 142 million people across the 82 countries for each of the main constituents involved in retail—which they have data. The top 250 retailers account manufacturers, retailers, and shoppers—and also thefor roughly 40% of global retail sales, but operate on challenges that these trends present to future retaillow margins. Again according to UNI, the composite growth.margin earned by those top 250 retailers in 2011 wasjust 3.8%.MANUFACTURER Goods Goods RETAILER Services SHOPPER32 Discounts Convenience Services Experience Traffic Co-Op Loyalty MDF $ $

5:1TMRAENNUDFSAACNTUDRCEHRASL/BLERNAGNEDSS –Manufacturers and brands are facing a range of ongoing challenges.• Manufacturers currently have • Major consumer goods 70-80 brands that they see very limited (or no) visibility of manufacturers are moving to making them the most money their products once they hit simplify their brand portfo- in the coming decades. the loading docks of retailers. lio, having either acquired or They are demanding much created too many brands over • Manufacturers see continued more insight into what’s hap- time. They are battling cus- downward price pressure due pening inside the retail store. tomer confusion caused by to increasingly commoditized, They want to get closer to the “choice overload”. Proctor & undifferentiated products. customer, and have new ways Gamble recently announced it to interact with that customer is selling off or ending the life • Manufacturers face increasing in retail. of up to 100 of its brands. It competition from retailer own will focus its attention on the brands. 5:2 33RTREETANIDLSERASND- CHALLENGESAs they look to the future, retailers are facing an unprecedented number of major challenges.These challenges are:• The shift to online – Traditional retailers have to • Security and trust – As retailers gather and store navigate an omni-channel world and compete more and more personal data on their customers head on with pure play online retailers. they will need to guard security and honor privacy if they want to avoid breaching trust with shoppers.• Footprint – Retailers are finding they need smaller retail spaces in different locations as urbanization • Oversupply – Too many retailers with too many hikes rents and shoppers demand more local brands are leading to a highly competitive high street. shopping. • Inefficiency – In a highly competitive environment,• Polarization – As retailers specialize and focus to retailer efficiency becomes more important than meet customer expectations they are polarizing ever. The shopping experience can feel very along four important vectors. inefficient, and many stores host highly unproductive space showcasing rarely purchased items.Each of these six challenges is explored in the following sections.

5 : 22 INT:R1 ODUCTIONTHE SHIFT TO ONLINENinety percent of retail sales today are still conducted inside the store. But the balance between onlineand in-store sales is shifting, and online browsing now has an enormous influence on the pre-purchasephase. In a US study, Accenture found that 88% of respondents researched products online beforebuying in the store, a phenomenon commonly known as “web-rooming”. This compares to just 73% ofconsumers who claim to practice “show-rooming”, the practice of browsing in-store before buying online. The shift towards online fulfillment The exposure of traditional retail According to WPP’s annual study will likely continue as routine to cannibalization by online sales of the top 100 most valuable purchases of commodity goods varies greatly by sector. For brands, the most valuable retail and consumables becomes example, high-value, small, and brand in 2014 is not any of the automated and delivered to the light goods such as electronics will brick and mortar retails, but home. In the US, brick and mortar be affected in a different way than online retailer, Amazon. Amazon retail sales are predicted to rise lower value, heavier items such as has embraced digital technology just 3.5% in 2H’14, whereas online home improvement materials. to deliver efficient operations sales are expected to jump 14% and provide shoppers with in the same timeframe. Deloitte Shopping models are emerging unparalleled choice. They are states that just over 5% of total that span the online and physical now imagining and developing retail sales are now done via realms. “Click and collect” is a delivery network for the future mobile devices, but they expect becoming popular in some that is designed to deliver goods this to reach 17-21% by 2016. geographies around the world in hours or perhaps even minutes. such as Europe and Australia. This34 allows the shopper to order online, and then pick up their goods at a nearby location.The main challenge for traditional core physical store business and And retailers have no way to buildretailers is how to get the sometimes offer a different range a unified picture of a shopper’sadvantages of online (breadth of products, different pricing, profile that spans both virtual andof offerings, high availability, and don’t share inventory. This physical space. Retailers will needreviews, product details etc.) has led to shopper confusion and to deploy IT solutions that offer ainto their physical stores and at frustration. Retailers will need single view of the shopper acrossthe same time get the best of to unify all their systems so that the enterprise.physical into their online offering customers feel just one seamless(immediacy, size & fit confidence, experience that traverses multiple Traditionally, retailers have spenttouch & feel etc.) channels. a lot of time looking at the back- end of their business, deployingRetailers face a significant Retailers are finding they have a IT in the “bones” of retail to helpchallenge as they try to unify huge “data gap” for their brick streamline their supply chain,their in-store and online shopping and mortar customers. They are manage inventory, and reduceexperiences. Shoppers see no able to gather streams of data on costs. This will continue, anddistinction between the two shopper behavior for their online technology still has an ongoingworlds and expect to be able to customers: purchase history, role here. But in addition, retailersinteract with retailers and brands browsing history, wish lists and now need to look at IT in a newacross mobile, web, and physical more. Yet in the store, there are way and consider how to use it tochannels as they meander rarely any such data-gathering improve the “face” of retail. Theythrough the shopper journey. mechanisms. Today, when a will need to use IT in the front-endRetailer online stores typically retailer’s biggest online customer of their stores, improving their in-grew up separately from the walks into one of their stores, the store experience, and using it to store staff have no idea, and so ignite sales with shoppers. no way to react appropriately.

5:2:2FOOTPRINTTrillions of dollars of retailer’s capital is tied up in physical presence and real-estate. Increasinglyretailers are finding that the spaces they occupy are too big, and in the wrong location.Scale once offered competitive advantage. But Shoppers want 35retailers are finding that is no longer the case. Startup more in-townretailers can take advantage of the cloud to source, shopping, andmarket and deliver their products efficiently and more localeasily without the need for scale. And pop-up stores shopping,are taking quick advantage of short-term footprint implying smaller stores. But they areopportunities. still seeking choice, value, and a great shopping experience. Technology thatUnused space has become a burden, and long-term creates virtual spaces (such as the giantleases have shifted from being strategic plays to touch displays of virtual shelves used bynow being chains around retailers’ necks. Traditional Adidas in some of their flagship stores)retailers with large swathes of unproductive space or that makes more efficient use of spacewill find themselves less able to invest in the customer (such as the Hointer store model) willexperience or to lower prices, making them more enable more products to be displayed invulnerable to newer retailers who lack this real-estate these increasingly smaller spaces.baggage. Smaller stores inevitably lead to theUrbanization continues apace; by the year 2050 simple question of what products retailersaround 2½ billion more people will be living in cities choose NOT stock. Just in time inventorythan today. As populations concentrate in mega- will become critical. Smart retailers willcities and mega-corridors, real-estate is getting more use analytics to match their inventory toexpensive and stores are getting smaller. customer demand, a demand that shifts both seasonally and in real-time. In a worldIn the grocery category, these small, local stores are where not having something in stockbecoming the “communal pantry”, holding inventories means the loss of a sale to a competitor,of food staples for people to grab when they need algorithms will increase the chances that ait. Section 7.6 outlines a technology proposal for a retailer has exactly what the increasinglynetworked system of smart shelves, some in the home time-pressed shopper is looking for.and some in the store, that embraces and builds on theidea of the communal pantry.

5:2:3 POLARIZATION Retail stores are beginning to polarize in four interesting ways, and they are starting to polarize towards the extremes with little or no space for a position in the middle: • Physical size - Big vs small As well as polarization between or delight shoppers with stores the small and the large stores, built for shopper efficiency, • Product type - Emotional vs expect a polarization of products. reduced friction and for getting commodity Brick and mortar retail will the customer in and out as quickly focus more on highly emotional as possible for their more routine • Shopping model – Shopper products where the buying purchases. It is worth noting that experience-focused vs shopper process is highly experiential companies like Hointer* have efficiency-focused while smart homes will auto- ably demonstrated that shopper order consumables that are then efficiency models should not • Price – Price vs value delivered. be reserved for non-emotional product categories but can also While many stores will get smaller, And stores will either optimize play a role in meeting shopper and move to be nearer to the to delight shoppers with a high- needs in emotional product consumer, some stores will still touch, high-tech, fun experience categories like apparel. be very big, taking advantage of built around the buying process, scale to create a variety of in-store experiences and abundant choice.36 Retailers will need to fit in with the new rituals Based on their strategic focus and product and routines of the changing customer and to category, retailers will need to appropriately understand the difference between ‘fast’ and rebalance their store and channel portfolio over ‘slow’ shopping missions. They will need to figure time. With long leases, this will be a slow process. out how to best meet customers’ expectations And retailers will need to find ways to reallocate for each of these missions, and then what space to boost the experience for shoppers. products, services, formats and channels they One big UK grocer has already stated they will need to meet the relevant shopping missions in no longer be building any new large stores, their sector. and will in future exclusively invest in smaller, in-city stores and their online retail and delivery capability. They are also using space in their bigger stores for restaurants and coffee shops to create more of a destination experience.

5:2:4SECURITY AND TRUSTFundamentally, shopping is about trust: Trust that value-exchanges will be fair, that transactions aresecure, that products will be of high quality, that the shopping environment is safe, and that all normalsocial contracts will be respected. A brand stands for all of these things, and when any of these are violated,they hurt brand value. That can translate into massive destruction of value.Retail brands remain at high risk. You need only look at what befell Target* to understand the impact a securitybreach can have on customer confidence and trust. Target has paid a heavy price. Their data breach in December2013 wiped roughly $5 billion off their market cap and plunged earnings 46% the next quarter.Shoppers are demanding the level of personalization financial transactions, 37that only the collection and analysis of personal loyalty programdata will deliver. Retailers have little choice but to systems, and personalembrace it. As retailers deploy technology to gather data gathered onmore and more data on shoppers, they will need to consumers. Tokenizedensure they apply appropriate focus and resources security systems with highto guard shopper’s privacy and secure their personal encryption and hardware-data. In a landscape of heavy competition, a security based security will significantlybreach that leads to a puncturing of customer loyalty outperform software-only security solutions.could be fatal. Retailers will need to consider a regimen of regular internal security audits to catch issues early on andRetailers will need to embrace robust end-to-end assure data integrity.security for all their data, including data related toRecommendationRetailers may also consider adding identity theft indemnification to their offering as a way to boost and sustaintrust with shoppers. Target had to do this after the fact to try and mitigate their security breach of 2013, offeringshoppers a free year of identity protection services as a way to woo back shoppers. As personal data gatheringbecomes more commonplace, brands that stand behind an indemnification and remediation guarantee willprobably benefit from increased customer loyalty and trust. 5:2:5OVERSUPPLYRetailers are not just facing a scenario where they have stores that are too big, and not in the right places. Inmost mature markets shoppers are oversupplied by the number of retailers they have to choose from. Shopsare abundant. Brands are abundant and even confusingly abundant. The retail sector is saturated and thegoal for retailers has now become to steal market segment share away from competitors rather than to driveoverall growth for the retail sector.Differentiation in this era becomes critical, and those that embrace the second era of digital retail will find manypotential avenues for differentiation.

5:2:6INEFFICIENCYThe retail model today is innately inefficient. A vast amount of space is devoted to “dark”retail, hosting rarely purchased products that enjoy very little traffic. For shoppers, thepurchase experience can feel inefficient and even painful. Many large stores, for example the average number of displays clear business decision not to use grocery stores, host a ‘very long, visited in small supermarkets is the Ziosk deployment as a way low tail’ of items that represent 33% versus close to 10% in a larger to save costs and reduce staff only a very small fraction of store super center like a CostCo* or a headcount. Instead, they focused sales. In a grocery store, the top Walmart*. their wait staff on building 500 items (out of 35-40,000 better human connections with line items in the average store) Technology will also boost brick customers. The Ziosk system acts represent one third of all sales. and mortar retail efficiency. as a point of sale terminal, taking The top 1000 is 42% of sales. Many low value-added manual all the friction out of bill payment. The others are there to give the processes will become automated Time waiting for the bill is the shopper a feeling of choice and by leveraging mobile, IOT, robotic, number one customer complaint abundance and to attract them and other technologies. This will in hospitality. As a result of the to the store. These are the items free labor to be more customer- Ziosk deployment, customer that might perhaps better be facing, further improving the satisfaction went up, tips served via the online channel customer experience and increased, Chili’s staff satisfaction once delivery is able to meet differentiating retailers versus increased, and everyone was consumers need for immediacy their competition. This implies happy. (see section 5.7). that retailers will need to invest in the quality of their staff as retail Smart retailers will need to38 There is good news about the labor is more focused towards examine existing processes and delivering highly-differentiated determine where humans add shift towards smaller, local customer service. true value, and where automation stores. Using technology to can remove manual, low value, or deliver new formats and virtual For example, Chili’s* restaurant tedious activities, freeing in-store spaces (as in the Hointer* and chain has deployed the Ziosk* labor to do what they do best… Adidas* examples above) could table-side menu and ordering boost the customer experience. lead to a potential reduction system in many of its restaurants. in real-estate rental costs and This system automates the RETAILERS THAT improved productivity. In smaller process of getting the customer’s AUTOMATE FIRST WILL stores, shoppers visit a higher order to the kitchens—a process BUILD DIFFERENTIATION percentage of the displays and formerly conducted using paper, AND WIELD A CLEAR shelves in the store, making that pen, and paying a person to walk ADVANTAGE. space potentially more efficient that piece of paper physically for the retailer. According to WPP, from A to B. Chili’s made the very Retailers will need to understand the right mix of human and digital investment needed at each customer touch point to ensure they meet customer expectations. Sometimes money saved through automation may be best invested back into lower prices or better returns. Sometimes it will be best to invest back into a better experience. The answer will depend on customer expectations, and those will vary by sector, and by brand. Retailers will need to invest in the quality of their staff as retail labor becomes more focused on delivering highlydifferentiated customer service.

5:3SHOPPER TRENDSShoppers have a new and maturing set of expectations of retail. Above all shoppers expect tobe put at the very centre of the shopping experience, and to be fully in control throughout.Shoppers see one shopping experience, spread CONVENIENCE, 39across multiple channels. And they want those EFFICIENCY AND SPEEDchannels to be as integrated and seamless as EXPERIENCEpossible—one experience that matches across all CHOICE AND CONTROLchannels. They want to order products online, and TRANSPARENCYreturn them to physical stores. They expect stores BRAND INTERACTIONto have the same online and physical inventory. PERSONALIZED/CUSTOMIZEDAnd the same prices, regardless of channel. OWNERSHIP TO ACCESS AND ASSOCIATIONRetailers that obsess over what’s right for the OMNI-CHANNELcustomer, rather than what best serves them ortheir suppliers, will succeed in the long term. Backin 1997, Amazon CEO, Jeff Bezos, was quoted assaying, “From the beginning, our focus has beenon offering customers compelling value.”Putting customers at the center means retailerswill need to tailor solutions by channel, byshopper mode, and even by geography: in Asiathey will need to embrace a model that is morefocused on mobile, consumer to consumer, andownership. In the US they will need to embracethe shift towards access over ownership, and inEurope they will need to put added emphasis onhome delivery.Many of the shifting attitudes of shoppers arebeing led by the Millennial generation. There aretwo billion Millennials (people currently betweenthe age of 18 and 34) and according to TheCassandra Report they will represent $2.5 trillionin spending by the year 2020. Millennials expectto have a much more active relationship withbrands and retailers than previous generations—more of a two-way conversation. They have a lowtolerance for inefficiency and are looking to moresustainable modes of consumption. You will seeMillennials reflected broadly in the shopper trendsbelow.The main changes in shopper expectations aresummarized on the following pages:

5 : 32 INT:R1 ODUCTIONCONVENIENCE, EFFICIENCY AND SPEEDConvenience is king. Shoppers want what they want, when they want it, how they want it. And they wantto get it as quickly and as easily as possible. Amongst some baby boomers, a also to deploy technology that In the US, people are making 2.3 stress-free shopping experience helps people quickly find and trips/week to the grocery store. can be the number one priority select the products they need. Many convenience purchases they have when deciding where to Shoppers enjoy choice, though are for commodity consumables shop. But for most shoppers, the not so much choice that selection which could potentially be shifted number one need is speed. These becomes confusing. Shoppers to an automatic fulfillment and shoppers buy things because they favor retailers that help them delivery model. want them right now. They are understand their options and that driven by immediacy. Retailers simplify the choosing process. Despite retail shifting to a 24/7 that can deliver products and model in some categories and services same day, same hour, or Shoppers are also looking to locations, impulse purchasing is instantaneously will be the ones reduce the overall number of declining, in part due to the fact that win. stores that they have to visit in that people now know they can order to fulfil their needs. buy at any time and thus don’t Customers are looking for fluid, need to hold inventories at home. seamless, frictionless shopping For example, when it comes to experiences. The last thing a grocery and other regular needs, Shopper efficiency has consumer wants is that their shoppers value the ability to do all traditionally not been a focus shopping journey is interrupted, their shopping in one place if they for retailers because nobody is whether that be by a glitchy can get it. The average number of paying for the customer’s time. stores shoppers visit is dropping. Yet some stores encourage40 website, an inattentive sales In the US, according to Kantar purchases at 5X the rate of others. Retail, the average number of There may be an opportunity assistant, or poorly designed in- stores people visited in 2007 was for some retailers to differentiate store technology. 12.4. That’s dropped to around 9 themselves based on shopper stores in 2014. And most people efficiency (as Costco has done). People want to get in and out have a core portfolio of just 4-5 of stores more quickly. There stores that they go to most often. is an opportunity to reduce friction at point of sale, andTraditional retailers should their brand proposition, or ensure RFID and/or visual recognitionprepare now for the day when they have similar delivery speeds technology to reduce checkouttheir immediacy advantage is available to customers. friction to zero, while minimizingremoved. If the only advantage theft. The ideal efficient shoppingin buying from your store versus Retailers will need to seriously experience is embodied by theonline is immediate gratification, consider embracing auto- concept of a local store as ayour value proposition is under replenishment services. If they “community pantry” that enablesdirect attack from looming “next don’t, they run the risk of Amazon people to walk in, grab what theyhour” delivery services. These doing it for them. need, walk out, and be billedretailers will either need to invest automatically. This applies toin other differentiators to boost Retailers should invest in mission shopping and perhaps technology that reduces friction some types of experience in the product selection and shopping. Experience shoppers purchase process. Ideally this may still prefer an interaction friction should be reduced down with a human sales assistant at to zero. If your customers still have checkout as part of their broader to wait for anything, then you’re shopping experience. not done innovating yet. Retailers should consider developing

5:3:2EXPERIENCE Retailers selling 41 emotionalShoppers want certain types of shopping to be an productsexperience, and not just be a speedy acquisition. should explore,Many shoppers seek the pure joy of shopping as develop, and deployan activity unto itself, regardless of their need to technology that makesbuy. They see shopping as a day out, an escape, shopping more social,or an adventure. The thrill of the chase. A time to helps shoppers choose, helps them makebe social and present in the physical world. memories, and that deepens emotional relationships with shoppers by increasingExperience shopping is enjoyable, often has a brand and product interaction. Interactivestrong social context, and is sometimes built around technologies that embrace naturalan occasion that has important social or personal interfaces and that span multiple sensesmeaning. For example, a couple might visit a number of the shopper can create memorableof stores to look for ideas and inspiration on a new experiences for shoppers that createkitchen they want to build in their home; a kitchen they deeper relationships with brands. Forimagine filled with future children. Or a woman might example, McCormick Spices created anbe on the hunt for a dress for a special occasion. interactive Guess That Spice machine. The system dispenses a variety of spice scentsIn experience shopping, touching, feeling, or trying and shoppers attempt to select the correctout a product is often essential. Shoppers are drawn spice from a list on a large touch screen into retailers that wrap experiential elements around order to earn discount coupons.shopping that amplify the sense of occasion, enablethe shoppers to make memories, or that enhance thesocial aspect of shopping. These all contribute to theincreased sense of meaning people can then attributeto the shopping experience itself, and by extension tothe retailer’s brand. 5:3:3CHOICE AND CONTROLShoppers now expect abundance. They seek retailers that can offer anabundance of products that are always available and in stock. Shoppersfavor retailers that allow them to shop whenever they want to shop (whichis anytime).As store footprints diminish (section 5.2.2), retailers will need tofind ways to offer maximum product choice within the small physicalspaces they have available. They will need to display and merchandizeproducts as efficiently as possible. Technology that creates virtual spaces,combined with systems that increase store automation could offer a helpful solution.See section 7.3.3 for more detail.

5 : 32 INT:R4ODUCTIONTRANSPARENCYShoppers are demanding increased transparency into pricing, retail operations,and the products they buy.This is particularly true for manufacturing policies, how Transparency also extendsMillennials who now see a your products are made, and to a customer expectation ofpurchase as a ‘vote’ for a brand. how seriously you take corporate connectivity in the store: afterIn their minds, they are what they social responsibility before they all, if you’re resisting their effortsbuy. They want to know ahead reach for their wallet. Mobile apps to use their devices to check theof time that buying a product or like Buycott*, and BuyPartisan* competitiveness of your prices,brand will reflect well on them, make it easy for shoppers to reviews on your products, orand their own personal brand, quickly research a product or information on your operations,‘Brand Me’. Consumers want to brand as an aid to their purchase then they will conclude thatunderstand your company, your decision. perhaps you have something to hide.42 at the speed of the Internet, transparency cannot be faked. The “green-washing” phenomenon of the last Retailers will need to consider proactively increasing decade quickly revealed some organizations as less the transparency of their operations. This might sincere than others as they responded to consumer include being able to provide shoppers (or more demand to operate more sustainably. Companies accurately prospective shoppers) details on the origin like apparel retailer Everlane* are already staking out of their products, labor practices, and even political leadership positions in this space. donations. For some retailers this will imply cleaning up some of their operational policies and practices Retailers that don’t already provide in-store and placing more emphasis on supply chain ethics and connectivity as a service to shoppers will need to supplier management. In an era of savvy shoppers continually reevaluate their decision. that are empowered with information that is available OpportunityAs the provenance of products becomes more important to consumers, manufacturers and retailers may beable to differentiate by wrapping origin stories around their products.

5:3:5BRAND INTERACTION Retailers will need to explore waysMillennial shoppers now have the mindset that to involve theirthey are voting for or investing in a brand when customers in two-waythey make a purchase. These shoppers are conversations about the futuredemanding an increased say in how a product is of their business, the suppliers they use,developed and sold. the development of their products, and the way that they operate. Social networkingShoppers expect to be both creators and consumers, and other platforms can be used to engageand favor brands that make them feel included in shoppers in this dialog and do so in a waythe product development, merchandizing and sales that strengthens the relationship and theprocess. emotional connection between consumers and brands. These conversations need to be authentic and transparent to be successful. These efforts should reward retailers with increased customer loyalty and keep them relevant in a fast-moving marketplace.PERSONALIZED/CUSTOMIZED 5:3:6 43 Retailers will need to Shoppers are increasingly looking for products examine their businesses and experiences that have been customized to and look for areas where meet their individual needs. This is particularly it is appropriate to offer true of Millennials. In a survey by The Cassandra Report, 80% of US Millennials said they would customization as an option. prefer to have a customized product. They will need to push suppliers to deliver products The continued rise of 3D printing and other local, with customization options and just-in-time manufacturing technologies will likelylook for ways to sell-up to a customized accelerate this trend and make mass customization aoption in the store reality. See section 6.2 for more information.In order to customize experiences for their Shoppers are also interested in products that theycustomers, retailers will need to understand can take home and customize. Manufacturers wouldeach shopper as best they can and have be well served to create products that can easilythe intelligence & analytics capabilities be personalized by the consumer, either at timein place to enable them to make every of purchase, or after purchase. All people have aexperience in the store both personal and fundamental need for creative expression and torelevant. express individuality, whether it be in the clothing choices they make, the case that covers their phone, or the color of their car. Beyond customized products and services, shoppers are seeking personalized shopping experiences.

5 : 32 INT7RODUCTIONAONWDNAERSSSHOICPIATTOIOANCCESSLed by Millennials, shoppers in mature marketsare becoming less interested in owning things. Aspirations towards ownership In an associated trend, some were a way to demonstrate Millennials now feel a reduced success, but these are now giving need to own or even access a way to more efficient models product in order for it to reflect of consumption. Rather than positively on their personal brand. seeking to own, many consumers Rather than buy a Louis Vuiton* now prefer simply having access purse, or a shiny new Vespa* to products and services when moped, some Millennials report they need them. “Next hour” instead being equally satisfied delivery speeds only make this merely “pinning” these products shift more attractive. Why own and brands on their Pinterest* an infrequently used item like a page. That association alone is hammer when you can have one enough, and purchase is no longer delivered to you in minutes by necessary or even desirable drone anytime you need to hang in some cases. According to a picture? See section 5.5 on the The Cassandra Report, half of sharing economy for more details. Millennials visit the shops and browse for things they don’t44 want, need, or intend to buy. They browse for fun and without any consumption goal in mind. Retailers will need to fully understand the sharing economy, its implications, and its likely evolution. They will need to build out aconsidered strategy in response that fully addresses whatcould be a major threat to their existing business models.This response might include aspects that embrace thetrend, and others that seek to retard it and that remake thecase for ownership. See section 5.5 for more details.

5:3:8OMNI-CHANNELThe path to purchase has become way more complex. The shopper journey—spanning awareness, familiarity, consideration, conversion, purchase, andloyalty—is anything but linear. Shoppers don’t see a difference between online andin-store shopping. It’s all just shopping to them. And with a shopper populationthat is now connected 24/7, every moment is a potential shopping moment.Shoppers are engaging with Retailers need tobrands and products using a range be able to holdof devices that varies depending and maintain aon time of day: desktop, conversation withsmartphone, tablet and laptop. shoppers that spans across all these devices and also across the physical retailOrdering and fulfillment are space. They need to do so seamlessly andbecoming separated. Shoppers without creating any friction for shoppers.can build a shopping basketonline over a period of days and Retailers must have a consistent messagethen have their orders fulfilled across the shopper journey between thewhen they go to the store. physical and digital worlds, and there mustRetailers should imagine a range be no distinction between physical andof shopping experiences in the virtual inventory.future that span gracefully acrossmultiple channels in this way. 45



FTDHOISERRCHUEOPSRTIOIZVNOEN

6 DISRUPTIVE FORCES ON THE HORIZONDEVIGEIRTAYLTHINGMoore’s Law reduces the size andcost of computing year on year, whilesimultaneously increasing the capabilityof that same computing. Over the lastfifty years we have seen computers shrinkfrom being multi-ton machines that filledan entire room, to bulky devices that saton or under our desks, to today’s mobiledevices that fit in our pockets and purses.

6:1Today’s leading edge chips that are more powerful than all also hear referred to as theare manufactured from many the computing available on earth Internet of things, the Internetmillions, sometimes billions of in the early 1980s. Moore’s Law of Everything, or other similartransistors, each transistor just will continue to deliver cheaper, terms) meaningful amounts of22 nanometers across. These smaller, more powerful computers computing—computing that’stransistors are so small that for the foreseeable future, powerful enough to do something4000 of them would fit across leading to the era of ubiquitous fairly useful—will become so small,the width of a single human hair. computing. so low cost, and consume soThis has enabled us to carry small little energy that we can considerhandheld computers around with In the era of ubiquitous turning anything into a computer.us (better known as smartphones) computing (which you may SIZE BY VOLUME 49 1960 Mainframe 1970 Mini 1980 Workstation 1990 PC 2000 Laptop 2010 Mobile 2020Ubiquitous

6 :1:1 SMART EVERYTHING Retailers will need This implies that within roughly a decade, any to embrace creative object can be made smart. Anything in our world thinking and risk-taking to brainstorm bold new ways can become a computer. As well as being smart, that to create services around the smart object can become connected to the Internet, and also objects they will soon be selling. They sense the world around it. This is a profound change should partner with manufacturers for humanity. Not only will objects become smart, now to start imagining and but so will our environment and infrastructure. demanding these smart products of the future, and the services that will revolve around them. Smart cars will navigate down that generate smart streets in smart cities. incremental revenue. Smart toys, boxed inside smart When you receive an expensive bottle of wine, it should packaging, will be delivered by ship in smart packaging that tells you if it has been properly smart trucks to smart stores. And handled on its way to you. Was Making an object smart changes it shipped in a container at its utility and potentially creates throughout, the smart things the correct temperature and incremental value. A teddy bear humidity? Was it dropped? If so, that can read a book to a child is will be sensing and generating who dropped it and how hard clearly worth more to some people did it hit the ground? Did the than a dumb teddy bear that does data that is uploaded via the packaging properly protect the not. And an expensive purse that bottle, and how could it be better- can report its location when stolen Internet to giant computers that designed in the future? might be an attractive proposition that shoppers are willing to pay monitor and process that data to more for. optimize efficiency and deliver valuable insights to retailers and manufacturers. Often these50 insights will be used to create new value, and to deliver new, personalized services NSMEWARBTUOSBINJEESCSTSMEONDAEBLLSE 6 :1:2 But making a product smart doesn’t just potentially Retailers and manufacturers make it more valuable and increase its utility. It should consider new ways to also enables you to monetize products in new ways, monetize the smart products they and can essentially turn a product into a service. will be selling in the future. New business models will allow them Consider the smart teddy bear. A prices are a barrier to purchase, to target new customers in new toy manufacturer that develops manufacturers could use this ways. By enabling the creation of and sells such a product a few same approach to activate annuities they may also generate years from now will have multiple products for a monthly fee ongoing revenue streams that ways to monetize the value they rather than charging an upfront increase profitability and boost have created. They could sell price, reducing the barriers income for manufacturers and the bear for a one time price of to ownership. In Africa, India, retailers alike. $149.99. Or they could sell the Southeast Asia and parts of bear for $34.99, and then sell Latin America, pay-as-you-go people the book-reading service services are largely the norm and for $8/month. consumer expectations would be highly consistent with this In emerging markets where product as a service approach. incomes are low and high initial