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Editors’s note: In this article, the first of a new series on all things digital retail, the authors examine how retailers can prepare to lead in the space they occupy.
Much has been said about the convergence of e-commerce and brick-and-mortar. Omnichannel finds its way into nearly every article about retail today. And why not? Its impacts are broad, and happening ever faster. Amazon and Walmart seemingly jockey daily for dominance in both the 
physical and digital channels. Amazon has not only introduced digitally sophisticated physical stores but also added 450-plus prime retail locations with its Whole Foods Market acquisition. Walmart has launched and refined its third-party marketplace, introduced new services such as Scan & Go, added leading e-commerce players to its portfolio (for example, Jet.com, Moosejaw, ShoeBuy), and unveiled other integrated online-offline offerings such as click-and-collect. Doubling down in the digital space, Walmart opened a tech incubator in the heart of Silicon Valley to foster advanced technologies such as robotics and artificial intelligence, while announcing formidable partnerships with Google and their express and home offerings, and with Uber for grocery delivery.
Eddy Fong
So, what does this mean for retailers caught in the crossfire? This article is the first of a multi-part series, looking at all things digital retail, from the physically digital arms race between Amazon and Walmart, to the acceleration of disruptive technology, to what this means for the food, drug and mass retailers of tomorrow. The series will explore advances in store technology, big data’s accelerating role in retail, and the required capabilities of the new digitally advanced retailer. In this article, we preview how retailers can start to think about leading in the physically digital retail space they occupy.
Focus on the physical store
E-commerce is growing at a rapid pace, constantly in the spotlight. However, retailers must remain laser-focused on the physical store. Nielsen estimates that by 2025, 20% of grocery sales will occur online, leaving 80% of sales still in the store. With Amazon and Walmart turning customers’ physical and digital retail expectations on their head, food, drug and mass retailers that redefine their in-store digital experience, identifying where they can leverage technology to reinforce their own unique value proposition, will be best positioned to compete going forward.
Brent Duffin
Strategy. A retailer’s strategy should define which technologies are most relevant to enhancing the value proposition. Consumers are becoming increasingly polarized, diverging into two segments: price-conscious and premium/experiential. This shifting consumer landscape has driven the growth of both discount players, such as Aldi, and more premium players, such as Wegmans Food Markets Inc. For discount retailers, technologies should focus on minimizing costs. Walmart, for example, is rolling out shelf-scanning robots in over 50 stores, a function served by in-store labor today. For premium retailers, technologies should focus on enhancing the in-store experience. Yihaodian, a Chinese grocer, is using augmented reality to create 1,000-plus virtual stores, delivering an in-store experience for its customers. Thus, the first step must be a rigorous examination of what you stand for as a retailer, who your target market is and what you are trying to achieve. Yes, consumers’ expectations are changing, but which ones matter most and how can you best use technology to differentiate yourself?
Technology. RFID (radio frequency identification). Digital signage. Beacons. Big data. Artificial intelligence. Blockchain. The list goes on. There are countless technologies retailers could roll out. But only with clarity on a retailer’s value proposition can a company identify the right technologies to invest in, avoiding dumping money into the next shiny toy. For example, when introduced in the early 2000s, RFID was heralded as a game changer and must-have for all industries. Many RFID rollouts pushed for a tag on every item. But the high cost of RFID tags and sensors juxtaposed with the low incremental value of many everyday items resulted in poor returns. Since then, RFID has seen the best results on high-value items in complex supply chains. Consider Walmart’s experience of RFID. In 2003-2004, Walmart mandated case-level RFID tags and worked with its top suppliers to execute; nearly seven years later Walmart finally began item-level RFID programs and still had challenges. Similarly, beacons were a messiah for retail when launched. They promised the ability to track shoppers in-store, gather granular consumer data and enable targeted campaigns. However, high investment costs, lack of standardization, slow consumer adoption and difficulties with extracting value from the data have led to stagnation in beacon usage. One success story is Levi’s Stadium in San Francisco. Beacons were installed, enabling guests to locate parking spaces, find assigned seats, purchase concessions and report facility issues. With new innovative technologies introduced constantly, retailers need to be focused in what to adopt and learn from the successes and failures of others.
Bryson Waterman
Process. Just as important as deploying technologies is how the technologies interact as part of a retailer’s broader ecosystem. Platforms that enable cross-technology integration help realize exponential benefits. Imagine a store where a physical store feels like an online journey. As you walk through endless aisles, augmented with virtual reality, you can place physical and digital items in your cart. Sensors all around you digitize physical transactions and share data to create a holistic view. Live information and advanced algorithms allow for immediate, dynamic pricing and marketing/cross-merchandising opportunities. Beacons throughout the physical store guide you as needed. And as you walk out, the digital cart automatically registers the purchases and completes your frictionless payment. On the back end, real-time data capture and analytics allows for almost on-demand assortment planning, forecasting and inventory replenishment. AI, robotics and automation provide consistent and efficient execution of re-stocking, enabling razor-thin inventory levels. Transaction and payment data sync with your historical shopping data inside and outside the store, creating a more holistic consumer view, enabling targeted communications and promotions. And this future is almost here. Coop, an Italian supermarket, is already rolling out a “Supermarket of the Future,” which includes interactive tables with augmented information, vertical shelving and live data visualizations for customers. Similarly, Amazon Go began its futuristic pilot store in late 2016, and recently announced it is almost ready for prime time. The store of the future is an incredible place for shoppers but a scary one for retailers lagging behind.
People. Finally, technology is never plug-and-play. People are ultimately required to identify, link and make the most of the deployed technologies. If they want to win, they must have the digital bench to do it. From recruiting talent to training and career pathing, retailers must consider how to best secure, organize and develop their human capital. Leaders like Walmart have established their e-commerce and tech incubator sites in Silicon Valley, providing access to some of the world’s brightest digital minds and most promising tech startups. Target’s partnership with TechStars is another example of how retailers are tapping into globally renowned tech incubators. Across the Atlantic, Tesco has an in-house innovation team (Tesco Labs) that develops and tests technologies (for example, in-home order buttons, artificial intelligence).
Today, customer expectations are evolving at lightning speed, transformed by the likes of Amazon and Walmart. Forthcoming articles in the series will explore in depth the advances of in-store technology, big data’s accelerating role, and how the new digitally advanced retailer prepares and adapts to meet those expectations. Meantime, let’s watch the next round of Walmart and Amazon unfold.
Bryson Waterman is a principal in the Topline Transformation practice of A.T. Kearney, a global strategy and management consulting firm. He focuses on consumer goods and retail and can be reached at Bryson.Waterman@atkearney.com. Brent Duffin is a manager and Eddy Fong is an associate in the firm’s consumer goods and retail practice, and they can be reached at Brent.Duffin@atkearney.com and Eddy.Fong@atkearney.com. In developing this article series, they collaborated with Randy Burt (Randy.Burt@atkearney.com) and Eric Gervet (Eric.Gervet@atkearney.com), partners in the consumer practice.
