The changing nature of retail, Big Data and AI

Family-run restaurants and niche retail stores all have something in common. Their atmosphere is difficult to copy and their soul is full of charm. The waiters miraculously remember the exact beverage behind ‘the usual, please!’ and the sales people are eager for you try on the new jacket that will go well with the blue suede shoes you bought last month.

What does this mean to the retail industry and in particular to brick-and-mortar retailers that aspire to thrive in next decade? It is the right time to adopt to change and immerse your business in it. Like chameleons, who are able to adapt to external circumstances by changing the colour of their skin, successful retailers of the future should be flexible, agile and quick. Just like chameleons they should adjust to communicate and engage with their surroundings, while maintaining their fundamental qualities.

Here are the three fundamental principles that will help build a strong retail business:

Case studies of brands that embraced change and the three fundamental principles listed above.

Let’s take a look at one of the most conservative global industries and the brand that revolutionised it with its unique approach.

What was the choice offered by BMW to its customers a decade ago? They could choose between several types of vehicles and a selection of modifications. In other words, as BMW customer you were able to make a choice from several hundreds of variations, including interior specifications. But something changed around 2009 (see graph below). This is BMW Group global revenue from FY 2006 to FY 2015 (in million euros, source: Statista.com)

The revenue growth seen in 2009 was taking place following some very interesting and daring executive decisions. The manufacturing process was made as flexible as possible, thus increasing the brand’s long-term competitiveness. For BMW, the emphasis is on producing to individual requirements, this approach is sometimes thought of as mass-customisation.

BMW spotted the need for personalisation, the resounding desire of its target audience to make their unique statement and showcase exclusive sense of style.

By 2016 a BMW customer was able to configure and control virtually anything about their car. We could line up a random dozen of BMWs bought in 2016 and we would not find two identical vehicles. BMW have also managed to carry something very important through the years. Looking at the pictures of the old BMWs, those that were manufactured several decades ago, it is still possible to recognize the brand. The heritage and the essence of the brand shine through time, while the brand adapts to the new reality and seamlessly communicates its core values of security, comfort, and innovation.

Forcing this shift in manufacturing is a dramatic increase in the complexity of demand coming from consumers. Surveys on the impact of digital demand – including e-commerce, mobility, social media and omnichannel retailing – all point to a big increase in the number of SKUs, variety and range of options expected by the modern shopper.

Every human on the planet is absolutely unique and the expression of this is a distinct sense of freedom that is communicated to the outside world. Increasingly, people are also eager to pay a premium for this.

Another example of a global brand that adapted a non-trivial approach to its business is a UK-based fashion retailer, Ted Baker. The firm operates over 300 stores all over the globe and each location is totally unique.

Inditex Group, the name behind the famous clothing brands including Zara, Bershka and Stradivarius are successfully implementing the second principle, twice a week the selection of items available in a particular store changes. The customers keep coming back and are able to find what that they have not found each time. Possibly, due to this strategy, the owner of the company is now one of the richest men on the planet.

The road of change

Let’s take a quick look into what is happening in ecommerce. The businesses that are based online access unprecedented depths of consumer data and are able to target, customise and adapt their products and services almost instantaneously. Thanks to analytical solutions such as Google Analytics, they get to know their customers intimately and are able to act as their preferences change and even predict those changes. They are also capable of testing hypothesis at relatively low costs and making solid data-driven decisions.

According to a study released in 2015, 48% of consumers spend more when their experience is personalised and about 78 percent of consumers will give marketers data on their in-store purchases so they can have personalised e-commerce and other shopping experiences. Another 53 percent of consumers want marketers to recognize them across all of devices. Its now time to for retailers to bring the online and in-store shopping experience together.

Technology and application of big data evolves and the new reality of brick-and-mortar retailing is also far from traditional.

Brick-and-mortar holds an advantage for its ability to satisfy shoppers’ needs to try out products and immediately take them home. An exciting and personalised in-store shopping experience where shoppers can easily browse, feel and try-out products that they are likely to purchase or be interested in — coupled with stellar inventory management and customer service — can make or break physical retailers.

Physical retailers can no longer expect to succeed by conducting business as usual. Technology and smart use of data will enable them to respond by merging the digital and physical experiences, and devising new methods of in-store customer engagement.

All three fundamental principles of a successful retail business that we listed above are attainable with help of data and technology. By efficiently capturing, and analysing big data, retailers will increase the speed of doing business, significantly improve customer experiences, and drive superior business performance. But as it often happens, it is a simultaneously complex and straightforward task. The complexity comes from the amount of time and data that are required. The more data is collected, the more precise and agile technological solution will be developed in the future.

The retail evolution has started and it will allow us to build the future of brick-and-mortar retailing in three key phases:

Phase 1: Data

We will be collecting data about every single retail location, including but by no means limited to footfall, conversion, dwell-time, frequency of returns and in-depth demographic data. Additional information about average household incomes and more details about the preferences of the target audience who reside in the area will be collected from open sources, while people counting and demographic sensors enable data collection at and around the point of sale. Coupled with operational data, this analysis will be yield invaluable insights for the senior management and business owners.

Phase 2: Artificial Intelligence

The first phase will last until 2018-2019, and the most exciting is yet to come. By 2019 Artificial Intelligence will be working with big data and allowing retailers to answer an endless variety of questions – who exactly is visiting my store? Who is nearby? How many times my target customers come back before making a purchase? What exactly are the consumers searching for? How is this week’s weather forecast influencing buying behaviour?

Why AI? Because it will go a long way. The Next Rembrandt project and IBM Watson are two fascinating examples of AI’s potential.

The essence of AI from retail perspective is increased revenue enabled by retailers’ ability to predict and influence buying behaviour better than ever before. AI will be able to suggest insights and see patterns that are unfeasible to a human. As a chameleon who constantly adapts to external circumstances, each retail location will operate based on the unique insights offered by AI.

Phase 3: Prediction

By 2020-2022 we should be able to predict revenue generated by each suggested change and the management will be tasked with making quick and smart decisions based on what drives their own business to maximum profitability.

Technology will enable innovative retailers to move forward faster, revolutionising the industry, while gaining market share, cutting costs and maximising profits. By then, early adopters of technology will be out of the reach of their more traditional competitors!

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