Disrupt or be disrupted?

A question for retailers

Karina van den Oever

By: Karina van den Oever
Blog

Amazon is the ultimate disruptor of retail. They recently launched Amazon Go, the convenience store model with no tills. Using what they call ‘just walk out technology’ – a mix of cameras, deep learning and multiple sensors (similar to those used in self-driving cars) – you just scan your mobile when you walk in, pick up what you want and walk out.

Amazon has also just been granted a patent for an on-demand apparel-manufacturing system that would only produce clothes once orders for them have been placed. Goodbye markdowns, hello speed to market.

And other retailers have been playing catch up, fighting back by setting up online stores, launching mobile apps, offering free and fast delivery, and free returns. And recently, the focus has been on major transformation programmes to achieve omnichannel retailing to deliver the ultimate prize: a single view of stock and customers.

A handful of more innovative retailers have started to roll-out their ‘stores of the future’. They are cleverly bringing technology into stores to create a seamless integration between the physical and online experience. Staff and customer iPads enable endless shelf, mobile payments, and ‘clienteling’. Some are experimenting with augmented and virtual reality by introducing magic mirrors and immersive technology. And some are improving their store experience by offering services like beauty treatments and coffee shops in an effort to bring customers back into stores.

Retailers need to re-think their business models.

But, with the rate of technology change, and the sprouting of new propositions (not only from Amazon, but also from the new disruptors who are successfully solving very specific customer problems), the very definition of retail and its business model is being challenged.

Optimising omnichannel retailing is no longer enough. Retailers need to re-think their business models. They need to look beyond the obvious and really discover the the art of the possible.

The linear model of retail, where “retailers make or buy products and push them to customers who then buy and consume them”, is no longer the only model that works. These are the 4 key trends reshaping how products move from the manufacturer to the customer…

1. Customers are playing a more active role across the value chain

Customers are brands, designers, curators, salespeople, and producers themselves. Social media has given us, as customers, the power to curate and ‘sell’ products – and be brands ourselves. One example is Shupperz – a new platform that brings together a community of shoppers (or ‘Shupperz’) who buy and sell for each other. 3D printing, although it hasn’t reached scale yet, will ultimately enable customers to design and produce their own products…

2. Personal shopping is being democratised through artificial intelligence and machine learning

Very.co.uk (Shop Direct) uses artificial intelligence (AI) to personalise customer journeys and promotional offers, as well as provide real-time style advice. Amazon Echo and the recent Walmart-Google partnership (which includes Walmart selling products on Google Express and Google Home) will make hundreds of thousands of products available through voice ordering, powered by AI, enabling hyper-personalisation.

As retailers rely more and more on machines to make decisions for them, this will re-shape the retail workforce. For instance, pricing, assortment and promotion decisions can easily be made by machines, as they have the capacity to analyse far more (internal and external) data more accurately and much faster. This means more data scientists and fewer merchandise and promotions analysts…

3. Rentals, subscriptions and circular models are gaining traction

Millennials and Generation Z are less interested in material ownership and instead, place a much higher value on experiences. Rental models, such as Rent the Runway where customers can rent designer clothing and accessories (and review their experiences) has 6 MILLION members. It recently received a $60 million investment, opened 2 stores in New York and LA, and a shop within a shop at Neiman Marcus.

The subscription model means customers can receive hand-picked orders for free, and only pay for the items they keep. A great example of the potential of this model is Trunk Club. Having started out as a men’s designer subscription offer, Trunk Club was bought by Nordstrom and now offers the same service for women. Birchbox, a subscription business for beauty products, is currently discussing a potential sale with various retailers, including Walmart.

The circular model enables retailers to increase the volume of used garments in their retail operations, and boost the use of recycled fabrics. This year, fashion companies such as Asos, Adidas, Inditex (Zara owner), H&M, Hugo Boss and Tommy Hilfiger, have signed up for the scheme. The commitment involves defining a circular business strategy by the end of the year, creating targets for 2020 and publishing their progress of implementing these commitments for a more sustainable economy…

4. Retail supply chains are changing shape thanks to technology

Ministry of Supply (a clothing retailer) have installed a 3D printer in their Boston store that can make a garment on-demand in 90 MINUTES. The machine can be set to make garments all day and night, and can create customer-adapted designs, allowing customisation of colours. On-demand production is changing the sequence, timescale, responsibilities and waste levels in the retail supply chain. This means adopting different ways of working and partnering.

The internet of things is creating unprecedented visibility in supply chains. Smart shelves can detect when inventory is low, smart robots can replenish and pick and pack, and smart packaging can monitor sell-by dates. This has enormous consequences for both the retail workforce and operational processes.

“Drones are not only gaining traction during the last mile of delivery (to the end consumer), but also at the starting line & internally.”

Drones are not only gaining traction during the last mile of delivery (to the end consumer), but also at the starting line and internally. After a trial last year, JD.com, China’s second largest online retailer, is adding drone delivery to 20 rural destinations this year. They use drones to fly the parcels to a delivery man in a rural village, and he then distributes the parcels to end customers. Meanwhile, U.S. convenience store 7-Eleven has run the first FAA-approved trial with drone operator Flirtey, and Amazon has filed a patent for multi-level towers for drone distribution and fulfilment. Internally, Walmart is trialling drones to manage inventory in its massive distribution centres.

There is so much going on out there, it’s understandable that retailers are feeling a little bit like they’re a deer caught in headlights. They must be thinking: “How can I possibly be on top of all these innovations and defend myself from potential disruptors? How do I know which ones have longevity versus those that are just hype? Where do I begin? How much will it cost? And what on earth should I prioritise?” 

Leading retailers are setting up innovation labs internally where new ideas are incubated, tested and then piloted quickly. They also practice open innovation by working with relevant startups to help them address the pain points of their customers, either through accelerators or hackathons. Many of the companies I mentioned in this article all have this type of lab – Amazon, Walmart, Neiman Marcus, ASOS and JD.com.

“I firmly believe that if retailers want to survive (and thrive), they need to play a part in shaping the future.”

These labs are great test beds to experiment on new ideas and work in a more agile way than usual. But are they focusing on the incremental, rather than the disruptive? And then where to from there? What about the rest of the organisation? The biggest challenge is often integrating these new propositions into the business. Or should they be integrated at all? What is the right business model?

Retailers, are you struggling to keep up with all of the disruptions happening right now? Or, perhaps even worse, are you in disruption denial? If the answer to either of these questions is yes, here are three things you can do to get prepared:

  1. Acknowledge that there is a need to change – this is the first step to dealing with any form of denial. Stop denying disruption! It is going to continue to happen, so you must accept that incremental optimisation activities will help. But they will not be enough on their own…
  2. Realise you cannot out-innovate the market. So, find out what is in the art of the possible by exploring what is going on out there, outside the walls of your organisation. You can even take it a step further by deliberately trying to disrupt your own business. Do you need to disrupt yourself before someone else does? Get out there, scout for the latest innovations and technology, visit Silicon Valley or Silicon Roundabout, and start to build relationships with incubators, accelerators, venture capital firms, and startups. The key is to look outside the walls of your own company, and build an ever-evolving ecosystem.
  3. Embed innovation in your culture by encouraging entrepreneurship and fast failure. Always challenge the status quo. Rather than thinking ‘why we can’t do it’, ask instead ‘how can we make it happen?’. Apply lessons learned from lean startup methods, such as design thinking and rapid prototyping, principles such as unconstrained thinking, iterative and fast failure, and open innovation. This is perhaps the most challenging solution of all, but it is the most game-changing. It requires a mindset and culture shift, not just for a handful of colleagues, but for EVERYONE in your company. It goes without saying that leaders need to walk the talk, and encouraging an entrepreneurial mindset should be on every CEOs agenda.

Who knows what the future will look like? But retailers can’t afford to wait and see what happens before they react? I firmly believe that if retailers want to survive (and thrive), they need to play a part in shaping the future.

And it’s not so much about what to do, but how to execute it, that really, truly matters. Execution needs to be flawless, customer-centred, and never stand still. It requires iterations, pivoting when required, and not being afraid to fail.

My message to retailers in a nutshell? Think big. Then start small (with razor sharp focus).

And then scale fast to make change happen at pace.

This article was published by Retail Week.

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