The Third Era of Digital Retaildavidroth.com/thirdera.pdf · retail sector. We observed that we...

The Third Era of Digital Retail

David Roth and Jon Bird

WHERE HUMAN RHY THMS MEET ALGORITHMS

But we're sure that the biggest change is yet to come, and it's coming soon.

We're on the brink of an entirely new era of digital retail, and the difference between "then" and "now" will be completely unlike what we've seen so far.

Why? Is it because of the continuing rapid advances in technology? Well yes, but that's not the only reason.

It's true that we now have access to unprecedented computing power, near-limitless data, Artificial Intelligence (AI) to make sense of it all, plus, through visual and voice computing interfaces, the ability to absorb and process information in a way that once was purely the domain of humans. All that will only increase.

In addition though, these different technologies are now being combined in

entirely new ways that create something far greater than the sum of the component parts.

By connecting technologies and ideas in new and interesting ways, retailers and brands can develop new products, services and business models that challenge conventional assumptions. (We call this notion "Mixology", and we explore it further in the "What to do about it" section of this report. You'll be delighted to know that if you get that far in the report, there is a drink waiting for you. More on that later too.)

The scale of change taking place within the retail industry is utterly phenomenal. Things that just a couple of years ago we thought impossible - or couldn’t even have imagined - are fast becoming reality.

[ T H E T H I R D ER A O F D I G I TA L R E TA I L ]

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Our vision of where things are going is not just based on a hunch, nor is it simply a retail version of Moore’s Law, which states that computing power gets exponentially faster and cheaper over time. Our premise is built on a series of futurecasting projects involving some of the brightest minds – and newest technology applications – in the world.

Our view of the future actually begins in the past, back in 2014, before the first days of Apple Watches and Oculus Rift headsets. Even Instagram and Snapchat were relatively new.

WPP worked with Intel Labs to define the ways in which technology was changing the retail sector. We observed that we were in a Second Era of Digital Retail, and we looked at how wearables, smart shelves, drones and robots would change the way

people shop, and the way stores do business. At the cutting edge of retail, our predictions have largely become reality already.

Now, in 2018, we’re looking another four years out. And the view to 2022 looks very different to where we are today.

In essence, we’re anticipating a future that will be much more digital than today, but one that will look less digital and feel far more human. And that’s great news for carbon-based lifeforms – people!

How different can it be?

We’re predicting not just evolution, but revolution.

Our point of view is that the nascent Third Era of Digital Retail will be less about phones, devices and screens, and more about a seamless, intuitive, human experience.

This will be a time in which screens recede and product experts step up to take their place, augmented by instant access to data. The keyboard will begin to be replaced by the voice – fewer “taps” and “clicks”, more “OK Google” and “Alexa” (although it’s very likely that these specific wake words will disappear too). Bricks and mortar will be “smart” and responsive. Visual computing – software that can see and interpret the surrounding environment – will take off, turbo-charged by AI. All up, technology will be less visible – but far more empowering. For consumers, retail will be frictionless and effortless – and almost indistinguishable from magic.

In this new era, we believe that the retail revolution will come full circle, back to a time when service was personal and products personalized, but in a contemporary way.

Welcome to the Third Era of Digital Retail

Can’t we just adapt as we go?

The scale of the change coming our way means that making minor tactical adjustments or course corrections on the go just won’t cut it.The Third Era of Digital Retail will bring us shops that don’t look like shops, experiences we don’t now associate with shopping, and new competitors for people’s time and money that are only just being developed.

In this new era, everyone can be a retailer, and every surface a store. There will be new competitors from outside the sector as well, reimagining what retail can be.

Thriving in such challenging conditions requires entirely different combinations of skills and the courage and creativity to rethink entire business models - not just adapt them.


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In short, we’ve used a combination of human understanding and Artificial Intelligence to help us predict an increasingly AI-enabled future.

We hope you enjoy the pages ahead, and find the inspiration and motivation to take a leap into the Third Era of Digital Retail.

Between now and 2022, brands and retailers can do more than respond to the new future; they can create it.

(Oh, our “four-cast” also falls in line with the cadence of FIFA World Cups – the one in 2022 will be in Qatar, by the way.)

Isn’t it all guesswork?

No, our work is a blend of informed intuition and science, which is what we think the future of retail itself will be.

We’ve worked closely with some of the world’s leading technology companies and watched what’s coming out of the most advanced markets, particularly China. We’ve then taken our base hypothesis and sought out the opinions of talented people from the global WPP network through in-depth interviews. Finally, we’ve augmented our desktop and qualitative research with new, tech-driven testing techniques to help us bring the emerging landscape into sharper focus.


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" S h o p p i n g w i l l b e ' h i d d e n ' i n 2 0 22 . M o re a u t o m a t e d

a n d m o re i n t e g r a t e d i n o u r e v e r y d a y l i v e s ."

Jason Ferrera, Group Creative Director, VML

Jon BirdExecutive DirectorGlobal Retail & Shopper MarketingVML

David RothCEOThe Store WPP, EMEA and [email protected]: davidrothlondonBlog: www.davidroth.com

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Why look at 2022?

Four years (officially a “quadrennium”, but we prefer the term “four-cast”) is a time frame in which retailers and brands can make plans and change the way their businesses are run, in a swift but unhurried way. They can start to implement the future, now.

This horizon is the right balance between near and long-term change. It’s far enough out for the world to be different, but not so far ahead that it feels like predicting the impossible.

THE SECOND ERA OF DIGITAL RETAIL STARTED IN 2007, with the launch of the iPhone, and kicked into gear a decade of tremendous growth in computing power, a corresponding drop in processing prices, the rise of the cloud, and the birth of the “Internet of Things” (IoT) and “omnichannel” shopping. Mobile devices freed the shopper, and connectivity was the goal for the retailer. Brands and retailers began experimenting with new technologies such as robotics and drones. In physical retail, the Apple Store redefined what shopping was about – experience, interaction, and service. The old XL scale of retail was replaced with CX - Customer Experience.


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The story of the journey of retail over the three eras:

THE FIRST ERA OF DIGITAL RETAIL BEGAN IN 1995, with Amazon and eBay launching online in the US. This age was all about the internet as a research and shopping tool, and was largely anchored to the desktop, accessed via phone connections. (Remember that dial-up sound?) This shift to online, while slow to begin with, shook up a physical retail world that at the time came in one size: extra large (XL). The early and mid-90s were all about the “category killer”. Stores and malls were big, and getting even bigger. Retailers aimed to generate a “wow” factor with the largest array of product possible in a physical location. All that was to change.

THE THIRD ERA OF DIGITAL RETAIL will be marked by the rise of data analytics and the increasing sophistication of AI. We’ve already progressed from XL to CX, and now CX is moving to ME – not an acronym, but "me", the individual. Retail will become truly personal and the customer experience will take a much more intuitive, human form. The Third Era of Digital Retail is gathering momentum now, and retailers and manufacturers alike need to start swimming fast if they are to be ready to surf this wave of change.

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All about size - Category Killer

All about Customer Experience

All about "Me" - Personalization

Third era? What were the first two?

The Third Era of Digital Retail

How it adds up

[ T H E T H I R D ER A O F D I G I TA L R E TA I L ] CO N T EN T S

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Computing is becoming more powerful, but less obtrusive

Technology is becoming less visible, but can “see” more

Voice, visual computing and AI are being linked in formidable new ways

Anyone can be a retailer, and any surface a store

Retailers and brands must connect technologies and ideas to reinvent what retail can be (see "Mixology")

Business structures need not just linking but entire rethinking, uniting teams with a breadth and diversity of technological and human skills

RETAILING WILL BE MORE DIGITAL,

BUT WILL FEEL MORE HUMAN

WHERE HUMAN RHY THMS MEET ALGORITHMS

[ T H E T H I R D ER A O F D I G I TA L R E TA I L ] CO N T EN T S

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[ A HUMAN FUTURE ]Nascent technology can help us decode the shape of things to come. Human intuition and Artificial Intelligence are combined in a piece of WPP-exclusive retail research that focuses the View to 2022.

[ HUMANIZING TECHNOLOGY ]Look up from your screens and usher in a new wave of technology that makes retailing – and life – feel more human. We explore how Voice, Vision and Virtual Neurons will make digital retail seem more natural.

[ BEING HUMAN: BECOME A 'MIXOLOGIST' ]Prepare for the Third Era today by thinking differently about what retailing is and what it can be. Introducing the idea of “Mixology” and some guidelines for success with a focus on innovative retailers who are showing what’s possible now.

Ten ways you can get started on the Third Era of Digital Retail

[ A HUMAN FRAMEWORK ]The new world of retail works like a connected system. Introducing the Face, Bones and Brains of modern retailing – a useful way to reframe your thinking about experience, infrastructure and data intelligence, and how it all connects.

What To Do About It How To Make The Magic Happen

Where We’re Headed

[ Contents ]

[ Where We're Headed ]

[ A Human Future ]After forming a hypothesis and testing it via qualitative interviews, we used Artificial Intelligence-based research to help us decode an AI-influenced world to come.

We partnered on the research with a company called Unanimous AI. We used the same technology – Swarm AI® - that won “Best-in-Show” for

Unanimous AI at the 2018 SXSW Innovation Awards. This research solution builds on the old adage that two heads are better than one.

A Swarm is sometimes referred to as an artificial “Hive Mind”. The concept is that scores of people can connect, share their foresight, and “think together” in a way that is more powerful

and useful than the sum of the individual parts of the process. Think of a swarm of bees or a flock of birds, and what they can achieve collectively by sharing their intelligence. This is the same principle in action.

For our View to 2022, we brought together around 130 senior people from WPP companies such as VML, FITCH, SET

Creative, Geometry Global and Barrows, representing a wide variety of roles and skills: planners, creatives, analysts, customer engagement professionals, business leaders and digital experts.

A series of in-depth interviews helped shape the questions for the Swarm AI® sessions, which then utilized an online interactive


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Where We’re Headed[ A HUMAN FUTURE ]

To get a realistic view of the future, WPP and VML commissioned a joint research project that draws on the best human minds of today, and combines it with what’s fast becoming the technology of tomorrow.

[ The View to 2022 ]

process to collectively identify the key features of the future of retail. We ran two Swarm AI® sessions: one involving experts from the US and Europe, and the second for those in the Asia-Pacific region.

The Swarm AI® process, in just two 30-minute sessions, created

In terms of the detailed findings, the results of the North America, Europe and South Africa Swarm were in many ways consistent with those of the Asia-Pacific Swarm. Both predicted strong growth in e-commerce, and a decrease in the amount of shopping that

a super-expert – a “brain of brains”, if you like – that drew on the input generated by every individual.

Participants in the Swarms responded to a series of questions using a magnet icon to drag a virtual puck towards their preferred answer among several


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Our hypothesis (proved out via research) is that the Third Era of Digital Retail will be more digital (but appear less so), and feel more human.

For more information on Unanimous AI and detail about how the Swarm AI® process works, see page 60.

Top Findings From The Future

will take place in physical stores (although less dramatic than you might expect).

Both Swarms also expected a rise in the use of voice as a shopping tool, along with greater take-up of mobile payment services, and extensive deployment of Artificial Intelligence.

Optimism about the outlook for shoppers, brands and retailers in the East. The West is optimistic for shoppers, but more cautious for brands and retailers.

Artificial Intelligence is forecast to have a huge impact on retailing in the next four years

Mobile payment for “everything” will become reality.

Product experts and style consultants are the humans in retail least likely to be replaced by technology

Shoppers’ biggest concern about technology will be protection of personal information from data hackers

Tech-based companies will drive the greatest change in retail between now and 2022

Governments are expected to start regulating the dominant online retailers

Key findings across the Swarms include:

choices. In real time, they could see which way other contributors were pulling. An algorithm made sense of all the movement to create consensus. The point of the exercise was to achieve a degree of clarity that singular in-depth interviews alone cannot generate: to focus the thoughts of many people into a collective vision.

Asia-Pacific (APAC)

[ TH E E A ST ]

North America, Europe & South Africa

[ TH E W E ST ]

Respondents in Asia-Pacific (the East) expect e-commerce to grow much more aggressively than do our experts in North America, Europe and South Africa (the West).

Respondents in the East see mobile being a much bigger part of e-commerce – largely because it is already happening that way in these markets.

While our experts in the West expect Amazon to play a growing role in retail, in the East, its influence is tipped to diminish. In the East, Alibaba – already the sector heavyweight in the region – is expected to intensify its influence. Again, this largely reflects the difference in the status quo between regions. JD.com, another strong Chinese e-tail pioneer in China, also performs well.

You may well argue that in 2022, the whole concept of “channels to market” will disappear, but these figures show the trajectory of the shift to online.

Essentially, instances of buying via mobile will at least triple; we know that this form of purchasing is ubiquitous in urban China already.

Given that Statista estimates 10.1% of global retail sales were made via e-commerce in 2017, what will that percentage be in 2022?

Given that PwC says 14% of global consumers surveyed* used their mobile or smartphone for daily or weekly purchases in 2017, what percentage of shoppers will be doing this in 2022?


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[ What’s ahead? ]

The major points of divergence between the two Swarms were:

Here’s how our Swarm groups responded to big questions about the future of retail...

60%[ The E ast ]

33%[ The West ]

80%[ The E ast ]

37%[ The West ]

The flywheel effect will continue to accelerate for Amazon over the next four years, at least in the US and Europe. In APAC, a much stronger role is seen for Alibaba, rather than Amazon.

According to PwC, 56% of global consumers surveyed* reported shopping with Amazon in 2017. What % will shop with Amazon in 2022?

40%[ The E ast ]

71%[ The West ]

The relative positions of Amazon and Alibaba reflect their current footprint.

*The PwC survey covered 6 continents and 29 territories, including 24,471 respondents. Source: PwC “Total Retail 2017 Report” entitled “10 retailer investments for an uncertain future” - https://www.pwc.com/gx/en/industries/assets/total-retail-2017.pdf.

Which companies will have the most impact on the future of retail? (In order of perceived priority)

[ The E ast ]

[ The West ]

These stats show the trend towards “conversational commerce”.

According to a 2017 Cap Gemini study across the US, UK, France and Germany, 35% of users of voice assistants (e.g., Google Assistant, Amazon Alexa, Siri, etc.) reported buying products via voice in 2017. What will that be in 2022?

50%[ The E ast ]

58%[ The West ]

What is most important for brands to be doing now in order to prepare for 2022?

What should retailers focus on now to be best positioned for 2022?

Improve understanding of shoppers

Speed of fulfillment through every channel

Unique customer experiences[ The E ast ]

[ BOTH ]

[ The West ]

Physical retail will not die out. Stores – particularly grocery stores – will still be important, but relatively less so than today, and more of the trade will be “click and collect”.

Given that PwC found 70% of global consumers surveyed* said they still preferred to make their grocery purchases in a physical store in 2017, what will that be in 2022?

60%[ The E ast ]

60%[ The West ]

Humanizing Technologies To browse, shop and entertain themselves

using today’s tech, people must have their eyes on a screen and their fingers tapping. This carries through to stores – digital kiosks and “endless aisles”. Sales associates too are “screen-bound” – both in checking stock and also disappearing into their own world on their smartphones during down-times.

We’re convinced this is unsustainable.

Everybody’s doing it now because there’s no real alternative, but it’s completely at odds with the way human beings want every other

aspect of their lives to be: simple, seamless, and natural.

What’s exciting is that technology is being applied in new ways that are starting to look and feel more human. And what’s distinctive about these developments is that the tech itself is often hidden. It’s becoming an enabler of activity, rather than the activity itself.

This humanization of technology is one of the hallmarks of the Third Era of Digital Retail.

And in the Third Era, there are three key ways in which technology will make retail feel more human again: it will be dominated by Voice, Vision, and Virtual neurons.

In our thinking and our research, all three themes emerged as important ways of giving shoppers a more intuitive, natural and ultimately more personal experience of retail.

To take these themes one at a time …


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Where We’re Headed[ HUMANIZING TECHNOLOGIES ]

The technology that consumers and sales associates spend significant time with now is, in many ways, dehumanizing. As they look down at their screens, they’re blocking out the people and the world around them.

How Voice, Vision and Virtual Neurons Add the Human Touch


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Sources: NPR and Edison Research, Juniper Research, Ovum, Cap Gemini, Mary Meeker

[ Voice ]FA

ST F

AC

TS One in six Americans

now own a smart speaker, with the number set to rise to over 50% by 2022.

Google voice recognition accuracy improved 20% from 2013 to 2017, when it was at 95% - the threshold for human accuracy.

Spending via voice will increase as much as sixfold for voice assistant users in the next three years.

Virtual digital assistants will outnumber the world population by 2021.

Smart speakers are rapidly becoming part of our homes, and voice assistants part of our lives. And why? Because they allow people to behave in a more natural, human way.

With voice, there’s no need to stop what you’re doing, take out a device, log in and start typing. Smart speakers and voice assistants let users speak in the way they'd converse with a person. Voice recognition is now so good that users no longer have to speak like robots to be understood, and that’s leading millions of people to feel comfortable talking to an inanimate object that talks back to them in increasingly sophisticated ways. By 2020, 30 percent of all web browsing is expected to be done without a screen.

Why is this a big deal? Because it’s not just another way for consumers to do the same thing they would have done with a keyboard and screen. For brands and retailers, it’s a massive opportunity; voice is not just a new input method.

Smart speakers and voice assistants can offer a true one-to-one interface between an individual and a brand in a way that actually feels personal.

For brands and retailers, this is an opportunity to reach customers at different stages of their decision-making journey – including long before they’re even contemplating a purchase – and to leverage the data and behavioral analytics these devices and interactions generate.

This is a game-changer for brand loyalty. If you want to “add coffee to my next delivery” via voice, your default supplier and brand stand to gain significantly. In this era, brands that offer the right services, content, personalization and value can become a personal companion – almost human! The flip side, of course, is that those brands that aren’t locked into people’s preferences are cut out. For them, the cost of missing out in a voice-activated retail world will be tremendous and long-lasting.

To raise visibility – brands that optimize for voice search will be found, talked to, shopped and re-visited.

To build a brand – this is a new way to surprise, delight and engage with shoppers at every stage of the purchase journey. Conversation is a tool of engagement.

To sell – yes, this still matters! Becoming the preferred brand on a voice-activated platform provides huge potential.

THERE ARE THREE

OPPORTUNITIES WITH VOICE:

[ BIG ]


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[ Vision ]Visual computing interfaces will be an increasingly important part of the way people converse with brands and retailers. We’re talking here about people being able to see what’s being discussed, AND about technology being able to “see” who it’s talking to and what someone is looking for.

Sometimes, voice just isn’t powerful enough to get consumers what they want. Just as in human-to-human conversations, there are times you simply want to say “look at this”, that’s the case with technology as well.

It’s just like they did in the old days of the general store, but at scale. Cameras linked to Artificial Intelligence tools can tell a lot about a person they’ve never encountered before – age, gender and even current mood – and adjust their conversation and suggestions accordingly.

Smart mirrors in stores can help take the hassle out of trying on clothing by allowing it to be done virtually. Massimo Dutti’s “flagship mas technologica” store in Valencia features interactive mirrors and virtual fitting rooms, cutting out some of the very human pain points in shopping for clothes, in a way that doesn’t feel intrusive.

Visual search is helping shoppers find what they want when words are simply not enough. No longer do you have to try to describe an item you want, you can simply snap a picture of something you like. UK-based ASOS is offering visual search, and its mobile app uses Artificial Intelligence to learn from each transaction, then adapts and improves the shopping journey for the next person.

Augmented Reality (AR) allows shoppers to see how products will look on them or in their homes, and reduces the need for unwanted items to be returned. Sephora, IKEA and Dulux are among the brands already using AR to make decision-making easier for shoppers. Starbucks in Shanghai uses AR provided by Alibaba Tech to create a unique in-store experience – an AR-enhanced tour of its Roastery.

Facial-recognition cameras and other biometric tools will enable shopkeepers to magically know your name and deduce what you want.


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[ Virtual Neurons ]AI can guide consumers through the maze of choice towards their personal preferences in a way that feels not only effortless but also fun. It can link what it knows about an individual, from previous purchases to facial expressions, with bigger data sets such as the week’s weather forecast, popular TV shows in the area and events in the news.

AI and connected “things” – like cars and fridges – are already making purchases show up at people’s doors before they’ve realized they’re running low.

Technology is fast acquiring a level of processing capability that until recently was unique to humans. Artificial Intelligence can do some of the “thinking” that used to fall to consumers and store associates, making shopping easier and less of a chore.

When brands win a consumer’s permission to automatically re-order when stocks are almost depleted , it has won loyalty of a quality that’s rarely been seen before and which will be far less reliant on price promotions. And, just as importantly, when a brand makes itself the automatic choice, it locks the competition out of that consumer’s life. This is a world in which brand-switching will be so much harder to effect; consumers will need stronger motivation than ever to change their default settings. (Or they may do so automatically. Digital assistants could put in place algorithms – if washing powder Brand X is X% cheaper or more than my normal brand, switch to it.)

[ PL

EA

SE

MIN

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GA

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Transactional and automated for regular routine “low consideration” purchases (think toilet paper or laundry detergent). Everything happens online and the logistics are invisible to shoppers. Speed is the critical determinant and products arrive on your doorstep “like magic”.

Experiential and interactive for less regular “high consideration” discretionary purchases (think luxury). In-store plays a big part, and it is highly visible to shoppers. Perhaps we will see in some categories the rise of a “slow shopping” movement (akin to the “slow food” movement), linked to the pure pleasure of physical shopping, combined with a commitment to community and the environment. Note: It can be that shoppers start with a #2 approach, but once a decision has been made, future fulfilment is automated. Nordstrom’s Trunk Club is an example of this approach.

The issue is that much of today’s retail falls somewhere in the middle. It’s neither highly frictionless or amazingly engaging and that won’t work in the future. There’s too much competition to either make shopping more convenient or more immersive.

We’re moving towards a time in which there’ll be increasingly two approaches to shopping:

This Time It's Personal For regular routine purchases, shoppers

just want the job done quickly or, even better, automatically. When it’s a more special purchase, there’s a desire to turn the process of shopping into a memorable experience – ideally with a “ just right for me” product at the end of it.

AI can help identify that “ just right” item from a huge selection that would be

overwhelming for a human. It can also guide brands towards offering just the right one-off product for an individual. It then learns from who considers what and who ends up buying, and improves its suggestions as it goes.

And when consumers have questions, AI-trained assistants can be there with the right answers.


[ 3 0 ]


Source: Forrester

[ FAST FACTS ]

Customized products:

> sell at a 40-50% price premium > conversion rates are double> account for 50% of revenue on e-commerce sites

Through customer service that understands their needs quickly and responds appropriately – or enables a human being to respond.

Helping brands curate – and create – products, services and promotions tailored to the individual. The ability to better understand what a customer is looking for, their feelings and their motivations, enables brands and retailers to personalize their responses.

By using known preferences to build loyalty and repeat purchase. When people’s preferences are understood and anticipated, they tend to spend more, come back more often, and become brand advocates.

Artificial Intelligence can help in three ways to make consumers feel human again:

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[ What To Do About It ]

To this end, we’re presenting a new framework we initially explored in our History of Retail in 100 Objects book which has evolved for discussions about the development of retail – one that shifts the focus away from store formats and supply chain structures, which are no longer the heart of what retailing should be about.

We see retailing as a little like a human body, in which different parts each perform specialist functions, in unison.

The most important components of this fast-developing life form are: the face, the bones, and the brains of retail.


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What to Do About It[ A HUMAN FR AMEWORK ]

The evolving retail sector can be confusing and complex. As we move into the Third Era of Digital Retail, it’s therefore helpful to think of retailing as a combination of complex systems that work together to achieve mutually desired outcomes.

[ Why Retail Needs a Full-Body Workout ][ A Human Framework ]


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All the customer-facing experiential elements of a retail brand are what can be considered its face – so that means stores, web sites, apps, pick-up points and call centers. Ideally, the face helps maximize the customer experience in a way that helps shoppers get what they want, easily and with pleasure.

If someone’s “mission shopping” – looking for something specific, like bread and milk, or shoes to match their new dress – the face of a retail brand will help shoppers find what they want and get it efficiently.

If the motivation for shopping is less specific and is more about "the experience", then the face of the brand will help make that trip (whether online or in the physical world) more enjoyable.

[ Face ] [ Bones ] [ Brains ]Sales associates are a key element of a retail brand’s face. But there are other important elements that each play an important role in the overall impression a brand makes. These include merchandising, signage, and other look-and-feel elements of a store (not just “sight”, but also “sound” – music, “scent” – smell; all the senses.)

Future advances in this area might include interactive brand experiences, virtual shopping assistants, and spectacular holographic displays. Just as important will be who a brand partners with – an essential part of “Mixology” – see later in this report.

The face is also the place that data is gathered on the shopper and fed to the brain.

As in the human body, the bones of a retail brand are the supporting structure - all the elements that sit behind the face to feed the retail experience.

Today these include components like fixtures and fittings, the supply chain, inventory management systems, loyalty card and reward systems, and point-of-sale terminals. Future advances in the bones of the store might include smart infrastructure, indoor location tracking, 3D printers, robots, delivery drones, autonomous cars, facial-recognition cameras and automated and reconfigurable store fixtures.

Out of sight but essential to the smooth running of a retail brand is its brain. All the data analytics and intelligence deployed through every stage of the retail process come from this brain. This intelligence helps retailers to drive operational efficiency and better understand their customers. This knowledge is then used to deliver a personalized set of experiences, offers, pricing, services and products. The brand itself is also part of the brain of retail – it is the intellectual capital which can be leveraged.

It helps retailers and brands think differently about ways that they can differentiate their proposition, and gain competitive advantage through the deployment of technology that transforms the face, bones and brains of retail.

These include technology designed to:


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The “face, bones, and brains” analogy is a valuable way to reframe the conversation on the future of retail. It offers a helpful way to let go of old notions that are tied to increasingly redundant retail formats. And it’s a productive way of assessing ideas for future innovation and deployments. Move Your

BodyPersonalize the shopping experience. Deliver customized products.

Create new business models and revenue streams.

Enable retailers to embrace the sharing economy with new commerce models.

Create interactive experiences in the store that make shopping more efficient, more fun, or more personal.

Free up sales associates in the store to deliver better customer service by automating non-value-added activities that can be mechanized or handled by algorithms.

Augment and improve sales associates’ selling capability using wearable technology and assistive AI.

Generate the maximum profit from each customer over time by using targeted dynamic pricing that varies by location, by customer, by minute, and by product.


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Amplify your investments by feeding The Brain

It’s worth noting that investment in the brains of retail can be considered a multiplier of the other two elements. Improving the brains can make the bones and the face of the store much more intelligent and thus more effective.

For example, dynamic pricing at the shelf won’t truly hit the mark unless it’s backed up by cutting-edge analytics and comprehensive customer data held in the brain. Personalized experiences won’t be very personal unless the brains can direct and choreograph them. And supply chains will only be as streamlined and efficient as the quality of the insights distilled

from operational data allow them to be. Without a fully functioning retail brain—a brain fed by vast amounts of data and powered by sophisticated analytics software— investments in the retailers’ face and bones won’t yield maximum returns.

Technology will remake the face, the bones, and the brains of retail. Specifically, computing capability will come at costs, physical sizes, and performance levels that will quickly disrupt retail.

Historically, retail brands have focused IT spending on the “bones” of retail: manufacturer-facing efforts designed to optimize the supply chain,

ways. Wearable computing will help shop assistants to deliver much better customer service. Giant data centers will amplify the effectiveness of both the “bones” and “face” of retail by connecting them to the “brains”: analytics and intelligence at every stage of retailing in ways that multiply the effectiveness of the bones and face.

These added “smarts” will help retailers to drive operational efficiency, better understand their customers, and deliver personalized experiences, personalized offers, dynamic pricing, and customized products and services.

manage inventory, and handle secure transactions.

In response to new shopper expectations, they will need to rebalance their IT spend to include customer- facing technologies that improve the “face” of retail: technology to improve the shopper experience, to make “mission shopping” more efficient, and “experience shopping” more enjoyable.

Computers that, thanks to visual computing and AI, can see, hear and understand the world around them will enable brands and retailers to hold new types of interactions with shoppers, and tell stories in new The face, bones and brains

of retail work in combination.

The Face The Bones The Brains

Fa + x =Bo Br Retail Success in the Third Era

The risks of not achieving synchronicity between the face, bones and brains of retail are tremendous.

This is about more than uniting data and making it accessible across departments, although that’s an important part of it.


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We’ve all seen businesses in which the left hand doesn’t seem to know what the right hand is doing.

In the complex business of retail, in which all the various parts of the "body" have to work seamlessly together, avoiding this situation is an especially large challenge.

[ Time For A Full-Body Workout ]Retail businesses need to shake up their structures to allow new combinations of skills to come together. Old lines of demarcation need to be dissolved so that, for instance, specialists in merchandising and analytics are working together, in real time, to determine the best decisions for the business right at that moment.

In the Third Era of Digital Retail, there is no time to pass projects along a chain of production, with separate teams each adding their expertise one after the other.

Specialists from different fields need to combine their knowledge and their data, not layer it.The prevalence of data in the

sector takes nothing away from the urgency with which internal structures need to be shaken up. While in the past, business decisions were perhaps 95 percent intuition and 5 percent data, and now should be 50:50 or even 60:40, the human element remains essential. To swing too far towards letting the data

making decisions would be as dangerous as not listening to the data at all.

The Third Era of Digital Retail is all about being human, and in this new era, the art of great retailing will require fresh combinations of human strengths – in real time.

They need to smash silos and bring together diverse groups of people and partners to both conceive to both conceive and deliver the future.

They also need to look beyond their traditional categories – and, indeed, outside the retail sector entirely – to understand the ways in which they can bring value and meaning to people’s lives.

Consumers today look at the convenience of Uber and the speed of JD.com delivery (now 100% same day, guaranteed) and make these the benchmarks for excellence in every aspect of their lives.

Now businesses need to do the same: look across categories and industries for the most exciting deployments of ideas and technology, and consider new ways in which they can be applied to retail.


[ 4 4 ] [ 45 ]

Moving with the times now takes more than simply “going with the flow”. To thrive in the Third Era of Digital Retail, brands and retailers need to be proactively rethinking everything: what they do, why and how they do it, and what else they can make possible…and give it all a human twist.

BECOME A 'MIXOLOGIST'When an ace bartender takes just a handful of ingredients and creates a cocktail, they come up with something that’s so much more than the sum of its parts. It’s like a genius chef who combines elements of different dishes to come up with something new, unique – and wonderful.

We’re urging businesses to look all around them for technology

[ Time to Mix it Up ]and ideas that excite or make life easier for consumers, then to bring them together in fresh combinations.

This requires a step away from traditional thinking, and a willingness to challenge the whole concept of what we traditionally have considered retailing. It requires professionals to become ‘Mixologists’.

What to Do About It[ BEING HUMAN: BECOME A 'MIXOLOGIST' ]

[ Being Human ]

First, take an autonomous vehicle, give it racks, shelves and mirrors, and equip it with data on individual consumers’ preferences and habits. Then send it round, autonomously, to visit the customer at their convenience, with a specially curated collection of goods for them to consider.


[ 46 ] [ 47 ]

To bring to life the concept of Mixology, you may care to test out this cocktail recipe*.

The ingredients

25ml SKYY Passion Fruit vodka25ml Absolut Vanilia50ml passion fruit purée50ml orange juice2 spoons caster sugar1⁄2 a passion fruit to garnish25ml prosecco

The method

First, fill a Martini glass with crushed ice to chill and place to one side.

Next, put the caster sugar into a Boston Shaker glass and add in the passion fruit puree and orange juice.

Pour in the SKYY and Absolut, and then stir.

Fill the Boston Shaker glass with cubed ice then place the tin on and shake.

Empty the ice from your Martini glass and strain in the drink, then garnish with the passion fruit.

The provocatively named "Pornstar Martini" was the most visited cocktail on "Difford's Guide for Discerning Drinkers" for the third year running in 2017. Mix it up, sip it thoughtfully, and conjure up ideas for the Third Era of Digital Retail

Just as you'd mix a cocktail, integrate diverse elements and shake it up! Here's how:

[ How would Mixology work in retail? ] For Scientific Purposes Only...

[ World's Best Cocktail ]Next, combine the basics of a vending machine with those of a fitting room. Facial or voice recognition knows who’s opening the door, lets them try on the items that appeal, and simply walk out with what they like. Automatic check-out knows what they’ve taken and what’s still in stock.

Finally, take the popularity of supermarket ready meals and link it to fast-food production systems, and algorithms showing tastes and preferences in local areas. Use this combination of technology to provide freshly cooked meals in a way that eliminates so much of the wastage that currently cuts into profit margins.

It’s not alchemy; it’s Business Mixology, and it’s the only way to stay ahead in the Third Era of Digital Retail.

* www.diffordsguide.com

What to Do About It[ BEING HUMAN: BECOME A 'MIXOLOGIST' ]

The method


[ 4 8 ] [ 49 ]


We’ve seen this before in retail. Think back to the first mobile check-out, which we first saw at the Chicago Apple store in 2006; now, that cash-desk-free experience is commonplace. Even the relatively new technology behind Amazon Go stores, promoting “ just walk out” shopping, is quickly catching on, especially in China.

The idea of seeing the future in the present seems especially apt now, as we prepare for the Third Era of Digital Retail.

That’s why we conduct Retail Immersion tours in key retail cities around the globe to help business leaders spot the emerging trends.

For some retail brands, the Third Era is not just the future, it’s beginning right now. Here are three picks from around the world showing the shape of things to come.

[ The Future's Here ]If you look hard enough

T h e s c i-f i a u t h o r W i l l i a m G i b s o n f a m o u s l y s a i d ,

“ T h e f u t u re i s a l re a d y h e re . I t ’s j u s t n ot v e r y e v e n l y d i s t r i b u t e d .”


[ 5 0 ] [ 51 ]

What to Do About It[ BEING HUMAN: EMBR ACING THE THIRD ER A ]

As well as great visual merchandising and stock that runs from Vans to Valentino, this new breed of store links the physical and digital worlds. There’s a Virtual Reality suit station where shoppers can see their choice of fabrics on an avatar and customize the design; orders placed via the mobile app can be collected as you pull up at the curbside after hours (even at 2am); and “Express Returns” are as simple as scanning your receipt and dropping items in a box.

The store is very much “high touch” as well as “high tech”. There’s Nordstrom signature blend coffee in the cafe downstairs, and cocktails and lobster rolls in the bar upstairs. A DJ pumps out the tunes, there’s art on the walls and plush carpet

Nordstrom Men’s, New York City

[ What’s New? ]

[ What Makes It Human? ]underfoot. It feels good. And they’ll even shine your shoes while you sip on a martini. Sales associates have “Intelligent Assistant” earpieces which allow them to better answer customer questions, without having to consult a screen.

Meanwhile in LA, Nordstrom has launched a neighborhood concept called Nordstrom Local that’s all about services, not product. You can return and pick up items, have clothes tailored or consult a personal stylist, but there is no inventory for sale.

“ I t ’s n ot t e c h n o l o g y

f o r t e c h n o l o g y ’s s a ke . A l l o f re t a i l

i s e x p e r i e n c e t h e s e d a y s .”Jamie Nordstrom, Company President


[ 52 ] [ 53 ]


The online retail giant Alibaba is rolling out Hema Supermarkets in China. These stores are leading examples of what Alibaba calls "New Retail", linking a slick online offering with unmatched offline experiences. Hema is powered by a mobile app. In-store, every product can be scanned with a mobilie phone to find out more information (provenance, ingredients, cooking instructions, recipe ideas, etc.). Payment is always cashless - just scan with your phone or with facial recognition and walk out the door. Consumers can also order groceries from the mobile app and inventory is updated in real time, based on what is actually available in their Hema store at that time.

When people hear that Hema is Alibaba’s homegrown new grocery concept, they expect a lot of flashy technology, robotics and automation. But what has made Hema so popular is that it doesn’t start with technology, it starts with the consumer experience. There is no technology for technology’s sake. It’s only leveraged to make a shopping experience more convenient, enjoyable, and efficient for consumers. And the in-store experience is great - like fresh seafood from all over the world in large tanks with clean water, and chefs who can cook your selection on demand how you like it.

Alibaba Hema, stores across China

[ What’s New? ]

[ What Makes It Human? ]“ We found that New Retai l doesn’ t only merge onl ine

with of f l ine, but also connect s day and night.”

Hou Yi , Hema CEO, on after-hours delivery


[ 54 ] [ 55 ]


Augmented Reality provided by Alibaba Tech permeates the Starbucks Roastery. Both the Roastery app and Alibaba’s Taobao app reveal the entire “bean to cup” story of Starbucks coffee as visitors point their phones at features around the store. There’s a gamification element: as people move around, they unlock virtual badges that enable them to earn a customized Roastery filter, which they can share on social media. This is all on top of the standard Starbucks offering: ordering via the app, personalized offers and rewards, and mobile payment.

The baristas who work there! Starbucks is big on its stores providing a “third place” between home and work, and on treating its staff well so they do the same for customers. In the Shanghai Roastery, there’s also

Starbucks Roastery, Shanghai

[ What’s New? ][ What Makes It Human? ]

the photogenic beauty of the store and its many copper elements, the musical sound green beans make during roasting, and the expertise of highly trained roasters. Artisan baristas serve at three coffee

bars presenting some of the rarest, small-lot coffees in the world, while in-house artisan bakers under the guidance of Milan’s Rocco Princi produce complementary baked treats.

“ We’re not in the cof fee business. It ’s what we sel l as a product but

we’re in the people business—hir ing hundreds of employees a

week, ser ving 60 mil l ion customers a week, it ’s al l human connection.”

Howard Schultz, Executive Chairman of Starbucks Coffee Company

How To Make The Magic Happen

Rebecca Minkhoff changing room mirror, New York City


[ 58 ] [ 59 ]

How To Make The Magic Happen

While you contemplate the greater challenges of Business Mixology, here are some essential first steps in preparing for the Third Era of Digital Retail.

Find ways to work with the big online players, particularly Amazon and Alibaba. They’re likely to have a bigger slice of your target audience – and more data on their habits – than you do..

Partner with existing and emerging delivery providers to improve speed of fulfillment for consumers, with the aim of best-in-category convenience.

If immediate availability has been the main appeal of your physical store, develop new brand differentiators.

Rebalance the store and channel portfolio to improve proximity of the services people want to the people who want them.

Focus less on holding stock and enabling a transaction, and more on providing an experience. The right combination will vary according to country, city and target audience.

Unify the in-store and online shopping experience so it feels truly seamless for the customer.

This applies to communications as well as the commerce part of the interaction; enable a consistent, two-way conversation, using AI bots and machine learning where appropriate.

Understand the right mix of human and digital investment needed at each customer touch point to ensure you are able to meet or exceed customer expectations.

Examine existing processes and determine where humans add true value and where automation can remove manual, tedious, or low-value activities, freeing up in-store human experts to do what they do best.

Build your ability to capture data and make sense of it to increase loyalty, build brand connections, improve efficiency and increase profits.

At the same time, articulate to shoppers the value they get from allowing their behaviour to be tracked, and demonstrate how you’re protecting their data.

Integrate social networking throughout the entire shopper journey, from discovery to purchase and beyond.

Use it to help shoppers choose, make and share memories, and to deepen their emotional connection with your brand.

Customize products and experiences for an audience of one, using fun, easy-to-use interfaces that provide just enough choice without being overwhelming.

“Made for me” is something growing numbers of consumers want, whether it’s a pair of jeans, a car or just a burrito. It’s also a great way retailers can guard against commoditization and price slashing.

Look at ways that AI can help you anticipate consumers’ needs, personalize products and experiences, build loyalty, and improve behind-the-scenes efficiency.

If you’re not thinking about ways that artificial intelligence can improve your business, you’re falling behind already.

Adapt the products and services on offer according to the kind of shopping experience a customer wants at a particular time.

Are they stocking up on essentials or seeking inspiration for a special occasion? What they want from retailers will be very different in each case, as will the desired balance between efficiency and depth of experience and interaction.


[ 6 0 ] [ 61 ]

How We Did It

Swarm Intelligence has been used to predict everything from the Grammys, the Oscars and the Kentucky Derby to Time Person of the Year. Its developers, Unanimous AI, draw their inspiration from the way birds, bees, fish and even ants form swarms (or schools or colonies, as the case may be), and work together to conquer challenges that are beyond the capability of their individual members. While humans don’t naturally flock or swarm, the Swarm AI tool allows people to connect with each other from anywhere in the world, and

[ How the Swarm AI® Research was done ]

Swarm Thinking Explained

share their intelligence in real time to make decisions together. The results speak for themselves. Unanimous AI and Oxford University research shows that Swarm predictions of the results of 50 English Premier League games were 72 percent correct, compared to an average of 55 percent (not much better than a coin toss) for the individuals taking part when making their predictions individually. This degree of difference, they say, is the norm, not the exception.

[ Thanks to... ]FITCH

Geometry GlobalKantar

MediacomMindshare

OgilvySET Creative

VMLWunderman

Y&R

Acknowledgments and additional resources

BrandZ™ Industry InsightsReport

BrandZ™ Top 75 Most Valuable Global Retail Brands 2018

Changing consumer priorities and a rapidly shifting shopping landscape present the world's retail brands with unprecedented challenges. This exclusive WPP report looks at how the leading brands are adapting, and provides insights into key trends and analysis of emerging opportunities.

[ T H E T H I R D ER A O F D I G I TA L R E TA I L ] How We Did It

[ 62 ] [ 63 ]

Brand Stories from Brand Champions – Celebrating the Enduring Power of Iconic Brands, brings together personal stories about brands that have made a deep impression on some of the world’s most influential business leaders.

CEOs, decision-makers and game-changers in the world of retail have all shared their tales about why a particular brand is uniquely special to them.

The book includes stories about brands that have created life-long memories, led to marriage proposals, children, business inspiration…and have even eased the pain of crushed toes.

This is intensely human evidence of how investment in brands can create something far more valuable and enduring than spending on tangibles like plant and machinery.

www.onceuponabrandstory.com

They’re all brands that have – quite literally – transformed people’s lives.

Download the Full Report at www.wwpwrap.com/retail75.pdf

Please see the WPP/IBM report

SMART SHOPPING How Artificial Intelligence is transforming the retail conversation

RETAILING TO AN AUDIENCE OF ONE: HOW MASS CUSTOMIZATION MAKES THE PERSONAL POSSIBLE - AND PROFITABLE

While e-tailing has provided consumers with unparalleled convenience, it has lacked immersive, personal experiences.

Until now.

This report explains how personalization and customization can work for you, dispels some common myths, and demonstrates how the personal touch has been successfully deployed to sell products, maximize relationships and build margins in categories as diverse as chocolate and tuxedos, sports shoes, clothing and table linen.

in partnership with

Download the Full Report at www.wwpwrap.com/customization.pdf

Download the Full Report at www.wwpwrap.com/smart.pdf

Read more on AI AND RETAIL...

A by The Store WPP in partnership with IBM

Part of The Store WPP’s Thought Leadership series on innovation

SMART SHOPPINGHow Artificial Intelligence is transforming the retail conversation

Edited by David Roth, CEO, The Store WPP, EMEA & Asia and Karen Lomas, Director, IoT, Cognitive Solutions EU, IBM

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