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Understanding the Omnichannel Shift What Forces are Shaping Today’s Digitally Integrated Shopping Experience
“E-commerce is rapidly evolving into New Retail. The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer.” Jack Ma, Executive Chairman, Alibaba Group, 2017 Source: Alibaba
Each customer has an evolving set of expectations Asset-Light Lifestyles Demands Hyper- Convenience & Personalization Flexibility Expectations Demands Seamless & Experiential Frictionless Environments Experience On-Demand Immediacy Critical Accountability Consumer – Instant Transparency & Gratification Traceability Consumer Empowerment Source: Edge by Ascential Retail Insight, 2019
That are not being met by traditional stores Global Sales Breakdown by Selling Model (%) – 2013-2023 (store-based, pureplay, omnichannel*) Omnichannel 18-23 (CAGR): +10.1% Pureplay 18-23 (CAGR): +15% Store-based only 18-23 (CAGR ): +4.1% Source: Edge by Ascential Retail Insight, 2019 *Omnichannel = These models sell through both online and offline platforms, usually with the same banner name and an overlap in assortments (e.g. Walmart.com).
Store opening rates are slowing worldwide Stores CAGR (13-18): +2.8% Stores CAGR (18-23): +1.8% Source: Edge by Ascential Retail Insight, 2019
Ecommerce pureplays have disrupted the landscape Top Ten Global Retailers By Sales/GMV (USD bil) 2018 2023e 515702652889 1006062366281 405479905838 633507217255 302506647594 514353802181 154152056000 321110670375 138434000000 231246677440 128058721143 202408730954 122664871374 160760253706 118491071644 147413441896 114728086186 145650074665 110952470032 143105879242 Billions Source: Edge by Ascential Retail Insight, 2019
But even these players recognize the importance of the store Source: Edge by Ascential Retail Insight, 2019
Technology underlies omnichannel success Artificial Mobile Intelligence Robotics & Internet of Diffusion curve: The evolution Automation Visual Search Things of new technologies Facial Recognition Voice Augmented ‘The New Adoption Reality Normal’ Virtual Reality ‘Inevitable’ Blockchain ‘Clear’ ‘Relevant’ ‘Detectable’ Time Innovators (2.5%) Early adopters Early majority Laggards Late majority (13.5%) (34%) (16%) (34%) Source: Edge by Ascential Retail Insight, 2019
This emerging tech continues to be tested to determine true winners IoT Robotics Artificial Intelligence Mobile Voice AR / VR Blockchain Facial Recognition Visual Search 3D Printing Source: Edge by Ascential Retail Insight, 2019
Enabling the key features of the ‘Store of the Future’ Global: Unmanned and Checkout-less Store Count by Retailer, March 2019 850 750 638 500 500 425 213 100 100 30 20 15 10 6 5 4 4 4 2 2 1 1 1 1 1 0 Auchan Fxbox BINGOBOX EasyGo Bianlifeng Xiaomai JD Banacoo Amazon Go F5 Future Store Suning Shinsegae Alibaba 7-Eleven MobyMart Mama 11 Mart Irispay X-24h Yijie Well Go 24IGO Source: Edge by Ascential Retail Insight, 2019
The physical store as we know it is under threat Weakening demand for New set of consumer Growth of e-commerce discretionary purchases expectations Channel & operational Store closures Store of the Future Initiatives diversification � 12 Source: Edge by Ascential Retail Insight, 2019
The Store of the Future is defined by 4 main characteristics Helping Helping shoppers shoppers connect with connect with each other a brand or retailer Social Experiential Operational Excellence = Execute in a profitable and sustainable way Curated Frictionless Aid the Build a shopper differentiated experience proposition Source: Edge by Ascential Retail Insight, 2019
Experiential elements in-store drive excitement and traffic, as well as promoting product discovery and education Auchan brand pop-ups Johnnie Walker experience store Source: Edge by Ascential Retail Insight, 2019
Social elements of stores drive dwell time and become established meeting points, increasing traffic Lululemon community zones Starbucks Reserve Roastery Source: Edge by Ascential Retail Insight, 2019
Curation emphasizes carefully evaluated product mix that captures trends and retains shopper attention Amazon 4-star Budgens sustainability signage Source: Edge by Ascential Retail Insight, 2019
Frictionless stores focus on payments and item collection process efficiencies Sam’s Club advanced Scan & Go Casino Franprix robotic shopping cart Source: Edge by Ascential Retail Insight, 2019
Retailers are leveraging automation and AI to create cost savings Walmart robotics implementations Ahold Delhaize AI-driven supply chain forecasting Source: Edge by Ascential Retail Insight, 2019
Not all initiatives work, a test & learn culture is required to uncover true winners Amazon pop-ups, 2016-2019 Barnes & Noble Kitchen, 2016 -2018 Experiential Social Frictionless Curated Walmart Scan & Go handsets, Lidl meal kits, 2015-2019 2013-2018 Source: Edge by Ascential Retail Insight, 2019
What capabilities are required to win in-store? Experiential Rethinking Digital New Merchandise retail fundamentals front of store integration Measures of Success In what ways will How can the How can the front How can retailers How can retailers retailers add of store evolve to provide a truly instill a new set of Store of the experiences to face market seamless KPIs to reflect Future use stores and what challenges and customer the changing role merchandise to impact will those consumer needs? experience of omnichannel differentiate and have? between store operations? drive traffic? and online? Source: Edge by Ascential Retail Insight, 2019
Experiential retail is the execution of in-store experiences that stimulate shoppers and cannot be replicated online The 5 E’s of Experiential Retail E Experiment Educate Equip Excite Entertain
Brands can lead with retailers experiential inspiration initiatives Build Your Own 6-Pack by Coca-Cola & Kroger Revamped Candy Aisle by Hershey’s & Target � 22
Store merchandising strategy should be informed by 3 main components 2. Private Label % of 1. Store space mix Store merchandise total sales split by function 20-35% 35-50% ≥ 50% ≤ 20% Medium Fulfillment Services Inventory High Low 3. In-store category management breakdown Category roles: Seasonal / Events- Solution-based Core Destination related (e.g. meal, conv.) Source: Edge by Ascential Retail Insight, 2019
Case Study: Trader Joe’s operates stores with a small footprint and limited product range that are highly productive ~4,000 SKUs 80% private label Trader Joe’s Sales Per Sq Ft 2013-2023 (USD), Average Sales Per Sq Ft of Supermarket & Neighborhood Stores Channel in the US $2,124 $2,091 $2,058 $2,023 $1,980 $1,937 $1,894 $1,671 $1,622 $1,608 $1,579 $669 $669 $655 $655 $641 $641 $626 $626 $612 $612 $600 $600 $572 $572 $583 $583 $561 $561 $569 $569 $546 $546 Average 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 � 24 Source: Edge by Ascential Retail Insight, 2019
New touchpoints are emerging to replace the traditional front of store Associate Mobile Checkout Serviced click & collect Curbside pickup Collection lockers Self checkout Automated click & collect Self scan Just walk out Home fulfilment
Impulse purchase solutions must evolve with the front of the store In-store Innovation: Online Optimization: Ocado personalized Pickup Prompt: Lidl lockers Hershey’s Smile Sampler checkout product recommendations � 26 Source: Edge by Ascential Retail Insight, 2019
Digital integration is possible across the entire shopper journey Discovery/ Selection Purchase Fulfilment Service Inspiration AR displays Smart shelf labels Checkoutless Automated Navigation technology pickup Robotic Augmented reality RFID technology License plate Virtual services assistants showroom recognition in-store Social media Digital curation Facial/fingerprint Digital lockers Artificial engagement recognition Intelligence Gamification Motion sensors Contactless Artificial Endless aisle payment Intelligence Digital signage/ Personalized VR shopping Drones Transparency kiosks content
Digital integration is additive to the in-store shopping experience, guiding and informing Carrefour – Coca Nike social media Cola LED guided wall & ‘Shoe shopping Terminal’ � 28 Source: Edge by Ascential Retail Insight, 2019
Investments in these areas lead to measurable success Target – Quarterly Comp Sales Growth and Traffic (2016-2018) 7% 6.5% 6.4% 110 store Start of USD 7 bn 3 year store remodels in remodelling program of more 5.3% 5.3% 5.1% 2017 than 600 stores 5% 4.5% 3.7% 3.6% 3.2% 4% 3.0% 325 store remodels 2.1% planned for 2018 1.4% 2% 1.3% 0.9% 0.0% 0.0% 0.0% -0.2% -0.2% 0% -1.1% -1.3% -1.5% -2% 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Target Comps Target Traffic Source: Target Investor Relations
Our vision of the Store of the Future in 2030 Source: Edge by Ascential Retail Insight, 2019
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