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Retail trends to unfold in 2018; innovative store concepts, blockchain and supply chain transformation

18th January, 2018

In 2018 retailers will look to innovative store concepts, blockchain and supply chain transformation

Digital is everywhere in retail today. The threat from more agile internet-based companies continues to drive traditional players to try innovative new approaches. Over the next year we will see innovative in-store education centers, more “endless aisles” concepts and blockchain for sustainability at the top of the retailers´ agendas. These are the 2018 trends to watch, predicts Ulf Tillander, Global Industry Director for Retail and Wholesale at IFS.

1)     2 in 3 retailers will start new in-store engagement initiatives

In the consumer- and product-centric retail sphere, the physical store is a major asset; after all, that’s one of the main reasons Amazon forked out $13.7bn to buy Whole Foods. The challenge going forward for retailers will be in harmonizing the digital and physical sides of their business to create unique customer experiences in-store. There are some great examples of this happening already. Apple’s much-derided “town square” approach presents a cross between a retail store and an education center, wrapped up in a plaza-like package that resembles Apple Park. The aim is to focus less on selling the products per se and more on how consumers can use them, combined with the idea of turning stores themselves into event locations, hosting everything from coding workshops to photography classes.

Elsewhere, Sweden’s government-owned alcohol retailer Systembolaget is curating an in-store experience designed not only to sell goods but to educate consumers in drinking responsibly and understand the “why” of the company. US chain Nordstrom, meanwhile, is differentiating by empowering staff with real-time shopper information which allows them to offer a highly personalized experience to the customer. Bricks and mortar retailers like this will increasingly live or die on the quality of the service they can offer customers—pushed hard by online rivals who can arguably offer a much easier purchasing experience. The idea to include education about product usage in the service offering makes a lot of sense and will in many cases boost loyalty and additional sales. Expect to see more retailers following in 2018 to integrate physical stores with digital learning experiences and turn stores into education centers.

2)     1 in 3 retailers will integrate IoT to optimize the supply chain

A lot of the headline-grabbing technologies in the industry—think smart mirrors or in-store apps — are front-end systems designed to drive sales and conversions. However, where retailers really need to invest in 2018 is in the back-end and supply chain; this is where the Internet of Things (IoT) comes into its own.

Ultimately, consumers come into the store so they can physically pick up and even try out items, something you simply can’t do in cyberspace. Forrester Research Inc. says that about 10% of retail store sales are lost due to items being out of stock. Customers will look to your competitors, online, or other stores to find the item they want.

This makes it essential to better manage stock levels to ensure inventory is always available. With IoT sensor-driven automation in the supply chain the “endless aisles” concept is becoming a reality —managing the supply chain in a more intelligent way to get goods into the hands of the consumer.

The concept means that retailers make the sale possible by selling inventory kept by external suppliers. To the customer, though, it appears as if you sold the item. When a customer orders an item from you that appears out-of-stock in-store, you actually place the order with a supplier. The supplier then ships the product directly to the customer from their own inventory. Companies like Macy’s and Wal-Mart have already turned to this method to optimize their supply chains. The coming year we will see a growing number of retailers utilizing IoT not just in the front-end, but also in the back-end, to optimize their supply chains.

3)     The blockchain adoption rate is accelerating and will play a significant role for 1 in 8 retailers

A big part of the retail push to become more relevant to the consumer involves the notion of trust. Millennials increasingly prioritize sustainability when deciding who to shop with, and in these days being able to prove that your products are developed, sold and shipped in a sustainable manner is becoming increasingly important.

Sustainability also leads us to the increasingly popular concept of the circular economy; the idea that industry stakeholders should do their bit for the environment. H&M is trying to lead the way here by using second-hand clothes to manufacture new products, and in its environmentally friendly Arket brand.

Blockchain can help in proving to the market that you are a sustainable company. The distributed ledger system may have been more commonly associated with financial services, but it can play a major part in retail, adding much-needed transparency to the ecosystem. This could be particularly useful in fashion, where there are so many moving parts — from suppliers of the fabric, to those that color, sew, cut and transport the finished product. According to the World Economic Forum, connecting blockchain to carbon credits to create a “carbon currency” may be the key to demystifying and consolidating the carbon market so it can scale up. Carbon credits are the perfect candidate for a digital currency as they are data-driven, rely on multiple approval steps and exist separately to the physical impacts to which they correlate. It is my firm belief that in 2018 we will see more retailers experimenting with how blockchain can improve transparency and traceability within the supply chain.

Joining the dots

As we’ve seen, digital is central to the success of retailers, but many are struggling to join the dots between back-end and front-end, customer-facing systems. Most industry analysts believe that the answer is Unified Commerce—an omnichannel-like approach built on a single, unified cloud-based platform. However, the issue lies with those who implement this sort of technology in isolation to the pre-existing systems, expecting it to magic a solution to the disconnected ways of the business. The key is to break down the siloes within the company, allowing the software solution to span across all divisions of customer service and unite them into a unified desktop.

In fact, many retailers will have invested in different, possibly bespoke, technology systems in the past and will be at different stages of their digital transformation journeys, with differing end goals. The one thing unifying them all is the need to drive more innovative ways of reaching and interacting with consumers at the front end. This makes it vital to connect front and back end systems while providing a complete view of the factors that drive demand and customer experience.

In order to drive success, it is also imperative that the front and back-end systems are connected within the business. Powered by cloud innovation but allowing greater flexibility yet, because no two retailers are the same. Retail organisations must first build out their back-end digital platforms to create a more agile continuous approach to development that will allow for more experimentation.

By connecting the back-end systems to new technologies such as IoT and blockchain, the retailers will be able to completely transform their supply chains and add new layers of transparency and sustainability.

Online-only players have been at the vanguard of the innovative approach for some time, but there are huge opportunities for traditional retailers who understand the path down which they need to travel. They also have one very important secret weapon that will help their efforts, if used effectively: the physical store and the service-minded personnel within.

 

Author: Ulf Tillander

Global Industry Director of Retail and Wholesale at IFS

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