A tech reboot of retail

A tech reboot of retail

There are reports of doom and gloom in the retail sector almost weekly. Earlier this year, analyst Forrester predicted that in 2020, there would be a significant decline in global retail sales, particularly with non-essential items sold offline, which will be a big challenge for bricks-and-mortar retailers

The forecast, published in April 2020, suggests that, due to the coronavirus, global retail sales in 2020 will decline by an average of 9.6% globally – a loss of $2.1tn. Forrester also predicts that it will take four years for retailers to overtake pre-pandemic levels.

For the UK, Forrester expects a £56bn loss in UK retail sales in 2020, an estimated decline of 11.4% from 2019. 

Looking at the global figures, Michael O’Grady, principal forecast analyst at Forrester, says: “Retail categories like grocery and essential consumables are performing well, while other categories like fashion, beauty and cosmetics are seeing a marked decline in consumer spend.”

Predictably, the coronavirus lockdowns have benefited e-commerce. However, what is interesting in the latest IMRG Capgemini online retail index, published in November, which tracks the online sales performance of over 200 retailers, is the fact that multichannel retailers recorded growth of almost 63%, compared with 20% for online-only retailers.

Planning with data

Joanne Peplow, UK artificial intelligence (AI) and analytics team lead, director insights and data, at Capgemini, says the coronavirus has highlighted the limits of using historical data for forecasting and merchandising in retail.

For instance, spring and summer fashion merchandising plans are normally made 18 months before the season, but coronavirus lockdowns have made it very difficult for clothing retailers to predict how they should stock their stores. “How do you forecast demand when people are not doing what you expect them to do? You can’t use year-on-year historical demand,” she says.

Peplow says that in fashion retailing, AI-based image and speech analysis can help retailers understand what people are actually wearing. Similarly, in consumer packaged goods, she says Unilever was able to look at trends in the Far East to ensure it could ramp production of hand sanitiser to meet customer demand in the UK and Europe.

Traditionally, businesses have used metrics such as gross domestic product (GDP) and social and economic factors for three- to five-year strategic planning. But given the economic and social turmoil that has occurred due to coronavirus, Peplow believes that, at a category level, the data models for merchandise planning will need to take into account GDP and the proportion of the population of a region that has been furloughed.

Such analysis can feed into data models that can be used to inform merchandising and supply chain planning. This requires a change in culture. “Merchandisers have gut instinct, but you have to trust your datasets,” says Peplow. “We are not looking at 100% accuracy. There are diminishing returns. We want to get a better forecast. Just a couple of percentage points may be worth millions.”

This is an example of the 80:20 rule, where the retailer can have advanced analytics and AI tackle 80% of forecasting and use a human forecaster for the 20% that machines are unable to process.

No matter how AI is used, Peplow believes explainability will be a key part of change management to enable the algorithms and data models to be used effectively. “If you use complex algorithms with a large number of data points, it is hard to explain the data model to a merchandiser with 20 years of experience,” she says. 

Convenient shopping

In August, McKinsey published Retail reimagined: The new era for customer experience. The report presents the results of a survey of consumers in the US, the UK, France and Germany. In the report, McKinsey notes that 40% of the consumers who took part in the survey said they tried new brands or made purchases from a new retailer.

Widespread adoption of mobile technologies for contactless payment and quick store navigation will help in creating a more hygienic and convenient shopping experience

The report’s authors, Lars Fiedler, Eric Hazan, Brian Ruwadi and Kelly Ungerman, recommend that, to navigate the coronavirus crisis, retailers will need to strike a delicate balance between enabling the social interactions that shoppers find valuable and being responsive to heightened concerns about personal health.

The report suggests that widespread adoption of mobile technologies for contactless payment and quick store navigation will help in creating a more hygienic and convenient shopping experience. The authors suggest that retailers consider adopting the right technology to make stores more compelling and useful, such as giving sales associates digital devices and tools.

According to McKinsey, these could be used to enable them to help customers find what they need, offering shoppers product recommendations on the next product to buy, or making phones and mobile apps a useful part of the shopping experience. Such technology not only provides next-level customer experience, but it also gives retailers access to valuable data that can feed into personalisation algorithms or be used to optimise prices and promotions. McKinsey urges retailers to consider moving quickly to start reinventing the customer experience now.

Improving customer loyalty

In 2016, sports equipment retailer Decathlon created Add Lab, a centre based at its B’twin Village cycling store in Lille, France, dedicated to 3D for designing, optimising and repairing. For example, the centre can 3D print a made-to-measure prototype of a defective part on a home trainer bike or the post for a table tennis net.

Along with repairing customers’ sports equipment, the centre prototypes, designs, validates and manufactures small tools, as well as small production runs. Once the parts have been tested and validated, they are added to the Spare Part Index catalogue shared by all the regional workshops in France and around the world. This makes it possible to repair products on the spot without having to wait for the parts to be delivered, or even to make bespoke parts that had not previously been produced. This service is available in-house and for Decathlon’s customers.

Decathlon says more than 100,000 projects have been completed by the Add Lab since it opened. More than 60,000 of these were dedicated to finished products, such as making spare parts or fittings for shops.

“Since we began working with additive manufacturing we can now make 100,000 parts a month and have better products,” says Julien Guillen, leader of additive manufacturing at Decathlon.

By having the schematics of parts stored digitally so that they can be sent to a 3D printer for on-demand manufacturing, Decathlon is also able to extend the life of products that are no longer in production.

Long term, 3D printing such as what Decathlon is doing in Lille, can improve customer loyalty, as customers know they can return to the retailer to have products repaired and have the confidence that spare parts for a product they have bought will always be available, even when it is no longer in production.

For Guillen, another benefit of using 3D printing and digital manufacturing techniques is that it is greener because the company no longer has to keep warehouses full of old stock. Spare parts can be made on-demand using 3D printing and digital manufacturing.

As well as providing Decathlon with a way to design and make products more affordable, he says 3D printing enables store staff to co-create customised parts with customers, personalising the customer experience.

Enhancing in-store experience

Last year, furniture retailer Natuzzi introduced Microsoft HoloLens in its London flagship store in Tottenham Court Road.

“We have worked with our partners Microsoft and Hevolus Innovation on a new customer journey to give consumers an idea of their homes in a way that makes them fall in love,” says Natuzzi’s creative director and stylist, Pasquale Junior Natuzzi. “We let them walk their home virtually, showing our collection without boundaries. The Mixed Reality system gives us an incredible opportunity to lower the stock and the inventory in our stores and increase the sales per square foot.”

Visitors to the retailer’s London store can use Microsoft’s HoloLens 2 headset to see a life-size hologram replica of a room in their house and place a chair or sofa in it. Using augmented reality means they can then change the furniture’s colour, material and finish, walk around it, rotate it and move it to a different area in the virtual room.

Before customers leave the store they will receive a 360-degree rendering of their furniture layout, which they can see again on their phone or by using a virtual reality headset. 

IT-driven retail innovation

This year has been the most challenging for traditional, bricks-and-mortar retailers. What it has demonstrated is that nothing can be taken for granted. Retailers have needed to adapt very quickly as forecasts, based on historical data, were invalidated during the pandemic lockdowns. People were not socialising or travelling to work. Local shops, groceries and e-commerce sites benefited. But as people have not been going out, the rulebook that tends to guide high street fashion retailers has been torn up.

“The HoloLens Mixed Reality system gives us an incredible opportunity to lower the stock and the inventory in our stores and increase the sales per square foot”
Pasquale Junior Natuzzi

“It’s really important to understand what people are wearing,” says Capgemini’s Peplow. Image analysis on social media may be among the approaches fashion retailers will need to use to remain relevant to high street shoppers.

Clearly, operating seamlessly across multiple channels will become a key line of defence for bricks-and-mortar retailers to compete with internet retailers.

But while online shopping is convenient and may well offer an item at the cheapest price, in-store shopping is more than just transactional. There is strong evidence that high street retailing needs to become more experiential, such as the way Natuzzi is using mixed reality in its showroom. And while the idea of stores “3D printing” products may seem far-fetched, Decathlon’s use of the technology shows there are niches where it works extremely well.

What these very different approaches to retail show is how a physical store with a sprinkling of innovative technology can offer a level of customer experience which is hard to mirror in online-only retailing.

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