Retail’s (many) challenges

Opinion Piece By Tor W. Andreassen

10 January 2022 16:17

Retail’s (many) challenges

Retail has had an upswing during the pandemic. But this gives them no reason not to worry about the time to come. On the contrary. In this note, I point to four phenomena that can lower or lift the actors.

First. When customers could not or would not come to the stores during the pandemic, the stores had to come to the customers. Two innovations follow from this. First, the stores must develop a new value proposition that provides a good answer as to why customers should visit a store when they can have it delivered to their homes? Service is not enough. Experiences have potential. Second, perceived distance between people when shopping will be an issue for a long time to come. For the first time since World War 2, we experience that other people represent a potential danger to us and we want to keep our distance. The stores innovate as a response to this challenge.

Second. The increased e-commerce transformed the retail industry to use data to a greater extent as a competitive advantage. Artificial intelligence (AI) coupled with machine learning (ML) allows for completely new business models. From this we can make two predictions. Object and language recognition, which are two underlying technologies of the AI / ML technology, mean that more employees will be moved from the store to warehouse and logistics functions. Second, the business model will to a greater extent develop into a dynamic digital ecosystem of actors who work together to create value for customers. Sharing customer and payment data becomes central - an area in which the retail trade has little experience.

Third. Predictive modeling of customer needs, which is an underlying part of the AI / ML technology, means that the synchronization of needs, purchases, and delivery will become almost perfect. The solution is based on large amounts of data, advanced algorithms and new "last mile" delivery solutions that get goods home to people very efficiently. Foodora, Wolt, Uber, and Bring are four examples of "last-mile" actors. As an example, the time it takes from Amazon to receive an order until it is on its way out of the department store, is 45 minutes. To make it more complex: During Amazon Prime Day they received 6,000 orders per second. This says a lot about volume and efficiency. Most, if not all, Norwegian players are not at this level of operations.

Fourth. Customers who miss the social aspects of shopping in a physical store, can use metavers. Here they can shop from home via VR / AR glasses in a virtual world, 24x7, free from congestion or risk of infection from others, and have the goods delivered home. The world's largest retail chain, Walmart, is investing heavily in this solution. Metavers shopping seems promising for two reasons. Because it responds to many of the challenges described above and because the population has increased our digital skills through the pandemic. E-commerce and metavers coupled with efficient "last mile delivery" reduce the need for stores close to where people live. The result can be a consolidation and concentration of power where the big ones get bigger. Small stores, Mom-and-pop stores, disappear. Niche stores can be found online.

The road ahead.

To compete in a global retail industry, Norwegian players must ensure rapid access to competent employees who can contribute to the development and operation of data-driven digital ecosystems as a business model where values ​​are created through customer insight, wide selection of goods and services, and fast delivery to customers. Unfortunately, there is currently a shortage of AI / ML skills in the labor market. The result is that the retail industry is lagging in the development of tomorrow's business models. Being behind the curve can be fatal.

In the book "The Power of Creative Destruction", the authors document that actors who are at the forefront of innovations today (e.g., Amazon), will most likely be at the front tomorrow. Everyone else will either play the “catch-up-with-the-leaders” role or fight to avoid bankruptcy. The 2020 data from NHH's innovation index indicate that the retail trade has a long way to go to be perceived as innovative by its customers. Could playing the catch-up role be the best Norwegian retail actors can hope for?