Sensors and MEMS Mobile Apps Cloud Computing Beacons · 2015-03-26 · March 24, 2014 ! Sensors and...

March 24, 2014

Sensors and MEMS

Mobile Apps

Cloud Computing

Beacons

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r – H e a d G l o b a l R e t a i l & T e c h n o l o g y

F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m N e w y o r k : 6 4 6 . 8 3 9 . 7 0 1 7

1 Fung Business Intelligence Centre (FBIC) publication: Disruptors Report

Copyright © 2015 The Fung Group, All rights reserved.

March 24, 2014

Executive Summary A series of emerging technologies has the potential to disrupt retail, placing new pressures on stores to provide a seamless, omnichannel (anytime/anywhere) shopping experience for consumers and forcing new business models on retailers. This paper provides an overview of these trends. Look for in-‐depth follow-‐up reports from FBIC on individual trends in the coming year.

The Technologies • Sensors and MEMS. Tiny sensors are used in smartphones and other devices to gather data about

the physical world, including location and movement, enabling “Internet of Things” applications for in-‐store promotions and back-‐room efficiency.

• Mobile apps. More than a billion smartphones are sold every year and developers are creating apps for every imaginable use—including for anytime/anywhere shopping.

• Cloud computing. The ability to store data and tap into remote processing power and other remote resources in the cloud makes complex smartphone apps possible. The cloud also provides flexibility in IT operations and access to capabilities that retailers don’t have in-‐house.

• Beacons. Compact, inexpensive Bluetooth transponders can be installed throughout stores and other spaces to provide continuous connectivity with consumers, track activity on the shopping floor, and transmit data to consumers and associates.

How Technology Is Changing Shopping…Again The convergence of disruptive technologies will drive further changes in how shoppers behave and will place even more information and power in the hands of consumers.

• The purchasing experience: The old, linear purchase funnel has turned into a more complex journey as shoppers explore all online and offline possibilities, consult their social media connections, and (eventually) select and purchase.

• Webrooming: Retailers have been plagued by the “showrooming” phenomenon—shoppers kicking the tires in a store, and then buying online. Showrooming is giving way to “webrooming,” in which online shoppers complete purchases in stores. This is an opportunity for retailers that can provide seamless online/offline experiences and Amazon-‐like in-‐store fulfillment.

• Click-‐and-‐collect: home delivery, with its longstanding hurdles, is being circumvented by in-‐store collection and strong demand for click-‐and-‐collect is forcing some internet pureplays to open physical stores.

• Subscription buying: Services such as Amazon’s Subscribe & Save offer discounts on regular purchases of staples such as cleaning supplies.



March 24, 2014

The Store of the Future As the new disruptive technologies spread, stores could well morph into hyperconnected environments in which the digital and physical worlds meet.

• In-‐store offers: When a consumer walks into a store, beacons identify her by detecting her smartphone. Based on her profile, the store can offer coupons, shopping tips and other suggestions.

• Self-‐serve options: Armed with a mobile phone in a store (or using an information kiosk), a shopper can continue to browse online and order merchandise for pickup or request that a particular dress be placed in the changing area for her to try on.

• Clienteling: This involves equipping associates with tablet computers, which can be used to tap into data about customers, suggest items and even allow customers to pay.

• Automated inventory: Using sensors to automatically determine what is in inventory, retailers can replenish stock when it is actually needed, rather than according to a schedule, thereby avoiding stock-‐outs and limiting markdowns.

• Online/offline fulfillment: Stores will need to provide a seamless, omnichannel experience for cross-‐channel shoppers who want to collect or return purchases in store.

• Mobile payments: New payment systems are emerging, including touchless cards and mobile payments that are made with smartphones. Eventually, checkout could be completely automatic—with scanners totaling up all the items in the shopper’s cart and automatically debiting his mobile money account.

These disruptive technologies create challenges for retailers: they are not cheap to implement, they are still evolving, and they require new business models and capabilities. There are also barriers to adoption that retailers must consider, including privacy and security concerns on the part of shoppers. Overcoming these obstacles will take time, but retailers that do not learn to master the new technologies will be victims of disruption, rather than the disruptors.



March 24, 2014

OVERVIEW: How Technology Is Disrupting Retail Retailing is colliding with technology. Most shoppers are dependent on mobile devices—particularly smartphones, but also tablets and perhaps soon smartwatches. And they are not alone. Everyday objects are also logging on, with sensors and actuators in cars, fitness monitors and surveillance cameras connecting to the Internet. Cisco predicts that by 2020, this “Internet of Things” will connect 50 billion objects to the Internet, making it possible to track and manage almost every kind of activity, including what takes place on a shopping floor, in a stock room, or on a loading dock. As these devices proliferate, how we live and work, how we take care of our families and our health, and how we shop will all undergo disruptive change.

In this series of papers, we will examine how disruptive technologies are shaping consumer markets, redefining products and forcing new business models on the retail industry. These changes will put even more power in the hands of consumers. But they also have the potential to create value for retailers and consumer goods brands that use the new technologies to get closer to customers, increase sales and reduce costs. Potentially, retailing could emerge in a healthier state. But it will take new capabilities, careful investment, focused effort and a willingness to experiment—and perhaps fail—and then experiment again.

Disruption Clarified What do we mean by “disruption”? Clayton Christensen, the Harvard Business School professor who popularized the term in his book The Innovator’s Dilemma, defines it as a development that displaces an existing market, industry or technology and produces something new and more efficient. Disruptive technologies are a form of creative destruction that changes the fundamental economics of a market. By definition, disruption is almost always led by outsiders, rather than by incumbents. We are experiencing a significant amount of creative disruption from startups today that are innovating ways for retailers to do things better, faster and cheaper.

Technologies that Will Disrupt Retail The digital revolution has caused sweeping changes in retailing already. Retailers and consumer goods companies must sell on the Internet, engage customers on social media, and find ways to profitably manage the difficult multichannel dance. Through all these changes, it has been the consumer who has gained the most, and the same will be true in the coming decade as the mobile Internet, the Internet of Things and constant connectivity sweep through retail. The most important enabling technologies in this wave of disruption will be sensors, mobile apps, cloud computing and beacons—the basic elements of the new connected retail world.

• Sensors and MEMS: Tiny sensors are used in smartphones and other devices to gather data about the physical world: location, orientation in space, motion, temperature, etc. Due to rapid advances in microelectromechanical systems (MEMS), microscopic sensors can be built into semiconductor chips, reducing cost, weight and power requirements. These MEMS can now be used in wearable technologies (fitness monitors and smart apparel) to track heartbeat, temperature, physical activity, and other health and wellness data.

• Mobile apps: Smartphones are changing the way we use the Internet and developers have unleashed a new world of mobile apps for everything from finding when the next bus arrives to placing a bid on eBay. An estimated 1.6 billion people were actively using smartphones in 2014 according to eMarketer, and this number is expected to grow to 2.6 billion by 2018. FBIC estimates that more than two-‐thirds of these users will be residents of developing economies, where mobile phones are the primary way that people go online. Meanwhile, a recent Flurry survey found that overall mobile app usage climbed 76% in 2014, with usage for lifestyle and shopping apps rising 174% year over year on iOS and Android.



March 24, 2014

- Payment apps are an emerging category that will have important implications for retailers. Apple Pay, an app and payment system for iPhones, is competing with CurrentC, an alternative spearheaded by retailers that include Walmart. In March 2015, Samsung announced its own payment system for Android devices.

Figure 1: Global Smartphone Shipments (Million Units)

• Cloud computing: The storing of data and tapping of remote computing resources on the Internet—cloud computing—is changing the way that companies manage their data needs. Cloud services are multiplying, providing all kinds of IT services as well as outsourced functions such as payroll processing. This not only enables large companies to cut the cost of in-‐house IT departments, but also lowers the barriers to growth for small companies that can scale up without investing in data centers or IT staff. Using cloud-‐based services, a retail startup can expand rapidly without worrying about whether its support infrastructure can keep up.

• Beacons: There has been a lot of buzz around beacons, the small, low-‐cost Bluetooth communication nodes that can be deployed throughout stores or other spaces to relay texts and other data to mobile phone users. Beacons are being used by chains such as Lord & Taylor and American Eagle Outfitters to blend the e-‐commerce experience with the in-‐store experience. In-‐store retail applications using beacons include:

- Proximity marketing: pushing contextual notifications with offers and content to shoppers based on their location in a store.

- Indoor navigation: directing consumers within a certain venue.

- User analytics: Collecting data about consumer behavior to improve layouts and staffing. Beacons allow retailers to know how many consumers with smartphones are entering their stores, the paths that the consumers take within stores, how often they visit and how long they stay.

- Contactless payments: allowing customers to make hands-‐free payments.

The top 100 US retailers will have beacons in 32% of their locations in 2015, which would be four times the penetration in 2014, according to BI Intelligence. The total number of beacons installed in the US is projected to reach 4.5 million by year-‐end 2018, with 80% (or 3.5 million) of them in use by retailers.

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495

725

1,020

1,300 1,284

1,435 1,579

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2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Source: Sta6sta and IDC



March 24, 2014

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16%

28%

72%

63%

62%

Idenffy Customers Walking In Store

Collect Real-‐Time Data From POS

Use Mobile Markefng

Inifafve in place today Plan to do in five years

The incentive for retailers looks to be greater sales: conversions increase by 40% when consumers use digital both before and during in-‐store shopping when compared with not using digital at all, according to Deloitte Digital’s 2014 report, The New Digital Divide. The lift is significantly lower if digital is used only before (+20%) or only during in-‐store shopping (+27%).

Figure 2: Digital’s Impact on Conversion During the Shopping Process

Source: Deloitte Digital, The New Digital Divide, 2014 Notes: Conversion rate is defined as traffic divided by the number of sales transactions (in case of a store traffic is defined as the number of walk-‐in); lift is defined as the percentage increase in conversion from the baseline. In the context of this study, lift represents the increased percentage from standard conversion rates (i.e., when digital was not used before or during shopping journey). Retailers are planning strategic initiatives to improve in-‐store mobile marketing, collect real-‐time data from registers and help identify customers walking into stores by using digital technology, according to a recent Boston Retail Partners survey (see Figure 3, below). Beacon technology will likely be an important enabler of these applications.

Figure 3: Mobile Commerce Initiatives to Improve the In-‐Store Customer Experience North America, March 2014

Source: Boston Retail Partners



March 24, 2014

How Technology Is Changing Shopping…Again • The purchasing experience: E-‐commerce and social media have changed consumer behavior and

put more leverage into the hands of shoppers. Today, consumers not only have access to a wider range of stores in the online and offline worlds, they also have information and tools for price discovery and comparison shopping. Retailers that successfully adopt disruptive technologies will stand the greatest chance of meeting their demands.

Figure 4: How the Funnel Became a Loop

Source: ClickZ

Consumer choices that were unimaginable 10 years ago are at our fingertips. As a result, the classic purchasing funnel has been replaced by a more complex journey, as Figure 4, above, shows. Online and in-‐store, consumers research, consider, shop, reconsider, consult their social circles (re-‐research), shop some more, and then buy. There are diversions galore that pull consumers from their original path. Sometimes, the initial need is left unfulfilled as other needs and desires take precedent and become top of mind.

Today, shoppers shift between online and offline worlds as they research and consider purchases. They might purchase online or decide to complete the transaction in person (via click-‐and-‐collect) to make sure the item is just right and avoid delay and delivery charges. Shoppers who research online and buy in the store are said to be “webrooming” (see below). Those who go to a store to research and consider purchases and then go home to buy online are “showrooming.”

Figure 5: Showrooming vs. Webrooming

Source: Inc42. Magazine



March 24, 2014

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Household Appliances

Clothing and Footwear

Books, Music, Movies and Video Games

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Furniture and Home Goods

DIY/Home Improvement

Health & Beauty

Jewelry/Watches

Sports Equipment/Outdoor

Toys

2014 2013

• Webrooming is the new normal: Only a few years ago, some traditional retailers feared that their stores were becoming simply showrooms for online shoppers. What has evolved is more complex, but also potentially beneficial for retailers. While showrooming (researching in-‐store but buying online) continues to grow, recent studies indicate that it is far less common than its opposite, webrooming—researching online and purchasing in-‐store. The amount of research consumers perform online before buying in a store has increased dramatically across all product categories since 2013, according to PWC. It also found that Web-‐to-‐store sales made up a significant share of the total purchases for household appliances (36%), consumer electronics (35%) and home-‐improvement products (32%). The smallest Web-‐to-‐store conversion was for grocery: just 15%.

Figure 6: Percent of Shoppers Who Do NOT Research Before Buying

• Subscription buying: Making unexciting, frequent purchases easier are Amazon’s Subscribe & Save service, Diapers.com and Target’s subscription grocery service.

• Click-‐and-‐collect: Overcoming the longstanding internet-‐shopping hurdle of home delivery – with its potential costs and inconveniences to shoppers. Click-‐and-‐collect is an attractive alternative and an opportunity for retailers. It’s also a potential threat: in 2014, we saw a number of online pure plays open brick-‐and-‐mortar locations and pop-‐up shops to offer click-‐and-‐collect convenience and extend their reach to new customers. Birchbox, Rent the Runway and Warby Parker are just a few of the new “unpure” pure plays in e-‐tailing. And there’s a great deal of speculation over when, not if, Amazon will open retail locations.

Source: PricewaterhouseCoopers, US Retail Survey, February 2015



March 24, 2014

The Store of the Future We think the disruptive technology trends we outline in this report could come together in the store of the future—a new retail model that is starting to emerge. It will be a wired, sensor-‐laden shopping environment—a digitally enabled, experiential store with new self-‐serve options as well as new levels of customer service. Here are some of the most important capabilities:

• In-‐store offers. When a shopper enters the store, a sensor could identify them via the location data from their smartphone (at some point, this could be done using cameras and facial-‐recognition software). The system can then call up data about the shopper, including online-‐browsing data, to “push” a list of suggested purchases to the customer, make cross-‐selling suggestions and issue e-‐coupons.

• Self-‐service options. New in-‐store technologies will give shoppers new ways to find what they want in store. For example, smartphone apps or in-‐store kiosks can advise customers on product availability and in-‐store location for their chosen items. And, in clothing stores, “magic mirrors” can show customers colors and size options or suggest complementary accessories or footwear.

• Clienteling. The store of the future may not need as many associates on the floor, but the ones who are there will have new powers. With tablet computers and apps that tap into data on the cloud, associates can have full customer relationship management (CRM) systems in their hands. They can call up a shopper’s profile, make cross-‐selling suggestions, answer the shopper’s questions, display merchandise, check availability and transact a sale.

• Automated inventory. Internet-‐of-‐Things technology makes possible new approaches to inventory management. By using sensors to weigh or measure inventory, stores can see exactly when replenishment is needed. At some point, RFID tagging of individual stock items will make inventory management even more precise. Advanced inventory systems can not only prevent costly stock-‐outs, but also help fine-‐tune ordering and reduce inventory carrying costs and markdowns.

• Online/offline fulfillment. The brick-‐and-‐mortar store of the future will need to provide the type of order fulfillment that shoppers increasingly expect. This implies new investment for in-‐store capacity to complete online orders (click-‐and-‐collect), accept returns and ship.

• Mobile payments. The checkout counter may never disappear, but the lines might. Near-‐field communications (NFC) require only a touch to complete the transaction. Emerging mobile payment methods complete transactions by communicating with the shopper’s cellphone. And in future, sensors could scan all the items in a shopper’s cart and then the system would total the bill, process any coupons and charge the shopper’s mobile payment account—so the shopper could literally walk out to the parking lot without stopping.

In the store of the future, technology can change a shopper’s visit from a transaction-‐oriented experience to a relationship-‐building experience, through an environment that provides an improved level of service and greater connection with their needs and preferences.

Hurdles for Retailers Consumer demands will continue to grow and retailers who don’t respond risk falling behind; those that can master the new technologies have a chance to gain share, increase loyalty and perhaps even improve margins.

Some retailers already appear aware of their shortcomings: only 24% of retailers surveyed by Boston Retail Partners in December 2014 said they had systems that worked well for “buy-‐online-‐pick-‐up-‐in-‐store” and just 29% said they had good systems for accepting returns across channels. Retailers said where they most needed improvement was in gaining inventory visibility across channels and enabling shoppers to buy or reserve an item on one channel and pick it up or have it shipped from another. Mobile coupons, smartphone apps, personalization and a mobile wallet were on the long list of features that retailers plan to add within the next three years.



March 24, 2014

Meanwhile, the metrics used to determine retail success are in flux. Same-‐store sales, sales per square foot and store fleet size do not have the same relationship to revenue and profits that they had just five years ago. Ship-‐from-‐store and pickup in-‐store have increased the complexity (and sometimes cost) for many larger retail chains.

Webrooming poses new challenges for retailers, too. It could mean fewer impulse buys and fewer opportunities to upsell. But cross-‐channel shopping is here to stay, so retailers need to figure out how to work this trend to their advantage – for instance by enrolling shoppers in CRM programs and through data-‐driven cross-‐selling.

Barriers to Technology Adoption Despite the enthusiasm shown by some shoppers for all things digital, others still worry about security and privacy implications. Consumer perceptions of mobile payments are still hazy, according to a recent Retale survey, and shoppers are especially wary about using mobile for purchases above $50, mainly because of privacy concerns, fear of data breaches and possible financial loss.

Meanwhile, the gap between consumer openness to mobile payment and retailers’ in-‐store capabilities is wide. Across 20 countries surveyed by Accenture in November 2013, 71% of consumers said they were interested in paying by phone in stores, but only 9% of retailers had mobile wallet capabilities at the time.

In-‐store technology needs to be as user friendly as anything available online. Today, it isn’t always easy for shoppers who want to use in-‐store digital systems to do so. To show their location and receive texts and data via beacons, consumers may need to give several layers of permission, turn on Bluetooth, accept location services on the relevant app, and opt in to receive notifications.

Finally, there are costs and capabilities. All the digital gizmos and the networks to connect them cost money. Retailers need low-‐cost sensors and tagging systems. They also need low-‐cost and secure wireless communications networks. To make the most of the data that they are collecting, retailers need to have top-‐notch data analytics capabilities—and managers who are savvy about turning data into strategic decisions.

Conclusion The good news for traditional retailers is that stores retain a critical role in the consumer’s path to purchase, even in this digital era. Shoppers still want an in-‐store experience—to be surprised and delighted, to touch the goods, to see what other shoppers are looking at. They want all the convenience they get online and they like the convenience that click-‐and-‐collect offers. When it comes to the more cutting-‐edge technologies, data applications and payment methods, some still have reservations. Retailers have a chance to evolve digitally enabled and data-‐driven business models – if they act now.

Deborah Weinswig, CPA Executive Director – Head Global Retail & Technology Fung Business Intelligence Centre New York: 646 839 7017 Hong Kong: +852 6119 1779 [email protected] Marie Driscoll, CFA [email protected] John Harmon, CFA [email protected] Amy Hedrick [email protected] Aragorn Ho [email protected] John Mercer [email protected] Stephanie Reilly [email protected] Lan Rosengard [email protected] Jing Wang [email protected] HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470 NEW YORK: 1359 Broadway, 18th Floor New York, NY 10018 Tel: 646 839 7017 LONDON: 242-‐246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 FBICGROUP.COM

Sensors and MEMS Mobile Apps Cloud Computing Beacons · 2015-03-26 · March 24, 2014 ! Sensors and...

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