The Intelligent Consumer: Future of Retail
Our retail reality is changing. This shift started well before COVID-19, but the pandemic has highlighted both the opportunities presented by new technologies and the threats to those who are unable to adapt. Leveraging our coverage of public and private equities, we identified the ways technological advances are meaningfully moving the retail environment. This goes well beyond the shift from brick-and-mortar to ecommerce. From frictionless checkout, to robotic picking and virtual shopping–the physical retail experience will be drastically different in the future.
Imagine a world without front-of-the-store checkout counters where you walk through retail store doors, select items and then simply walk out without waiting in lines or pulling out your wallet. With advancements in imaging/sensor technology and the proliferation of mobile wallets, this is no longer hypothetical. Pilot stores are rolling out this new technology. Upon entering the store, customers scan a unique account barcode while thousands of cameras and sensors identify the items being selected and subsequently charge a linked e-wallet as these customers exit. In the current environment where there is perceived risk in every person-to-person encounter, there is value in these low-contact models. Furthermore, lower labor and potentially lower shrinkage costs should allow retailers that can effectively launch these stores to gain a competitive advantage.
Within the food retail space, robotic startups in collaboration with leading retailers are exploring a hybrid service/in-person model. During the pandemic, more and more customers have grown accustomed to others picking up their pre-ordered cart. However, customers still generally prefer to personally select their own fresh produce. In these hybrid service/in-person stores, customers can enter the store and enjoy a coffee while they use an app or kiosk to select center-of-the-store items (e.g., canned goods, frozen foods, health and personal care products). They then pick their meat and produce in person while robotic picking does the rest. In this new method of grocery shopping, the center of the store is essentially shifted to the back where robotic picking takes place. This technology enables a store to shrink square footage to an efficient 17 thousand square feet, while still offering the vast selection of a superstore. The reduced footprint, along with lower labor, can decrease store operating costs materially. This model has implications for consumer packaged goods manufacturers as well. As customers may be unlikely to scroll through multiple screens to select a common item, it essentially brings first-page dynamics to physical stores, advantaging leading brands and private labels.
Augmented reality is changing the way companies market and personalize the retail experience, particularly within beauty and fashion. With current limitations surrounding the opening of physical stores and restrictions around product testers, technology is even more important. Virtual try-on technologies are allowing consumers to test new looks while simultaneously allowing companies to gain greater insights into consumer preferences. In addition, marrying these technologies with various social media platforms allows companies to better personalize the mobile shopping experience and improve product discovery. One cosmetics company was able to purchase a virtual try-on technology enterprise to help customers test hair colors and foundation tones. Since the start of the pandemic, the company has found that the average amount of time customers spent on this app has risen dramatically.
The retail landscape is shifting quickly. The COVID-19 pandemic has accelerated some technological advances and underscored the value of others. We see certain companies rapidly evolving to meet the needs of today’s intelligent consumer, and by incorporating these advances, they are also enhancing their own value propositions. Other retailers have clearly been slow to adapt. We believe that positioning portfolios to capture companies at the forefront of intelligent shopping trends should provide the opportunity to underpin longer term returns.
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