Digital retail transformation continues to be on my mind. This follows increased engagement with retailers on multiple continents and observing how they are embracing technology to create immersive experiences that drive more profitable operational efficiencies. From their lessons, the questions that I continue to contemplate include:
- Will the future of retail be phygital or omnichannel?
- How will current trends from next generation shoppers such as Gen Z change retail in the next 10 years?
- What emerging technologies must make progress to deliver a more profitable future of retail?
The Retail Boss nicely summarized the key differences between phygital and omnichannel retail strategies. "Phygital and omnichannel strategies both aim to enhance customer experiences but differ in their approaches. Phygital focuses on merging physical and digital worlds to create immersive, personalized experiences, often leveraging technologies like QR codes and augmented reality. On the other hand, omnichannel integrates various communication channels to provide a seamless and consistent brand experience across all touchpoints, such as physical stores, websites, and mobile apps. While phygital emphasizes the fusion of online and offline interactions, omnichannel prioritizes a unified customer journey across multiple platforms."
As Morningstar reported, "Generation Z, the first truly digital-native cohort, is rewriting the rules of engagement in the retail sector with their preferences and behaviors. Born into a world where the internet, smartphones, and social media are ubiquitous, zoomers' influence is shifting the retail paradigm from predominantly in-store interactions to a complex, integrated model that blends online and offline experiences seamlessly. Their comfort with technology and demand for instant, on-demand access to products and services are driving retailers to reimagine how they connect with consumers."
Technology will continue to disrupt retail business models. The industry's future requires increased digital strategies to turn consumers into brand ambassadors. Concurrently, the entire retail ecosystem and especially the physical store, must increase its digital stickiness through tech empowered store associates as equal brand ambassadors.
Future Consumers Technology Preferences
A mainstay chart that has been added to my "Disruptive Future of Retail" keynote presentation focuses on the new technologies that consumers want introduced into the retail model.
Note the preferences from the younger Millennials and Gen Z for greater virtual experiences in fitting rooms, livestream shopping, contactless checkout, social media commerce, and even shopping with cryptocurrency and in the metaverse. Note also that 70% of Millennials, 65% of Gen Z, and even 61% of Gen X, are all willing to give up more personal information for discounts or perks.
Over the next 10 years, technology will continue to disrupt and differentiate brands that thrive to greater success. Artificial intelligence will throttle changes, create new business opportunities, open new markets, strengthen consumer loyalty, and further blur the differences between phygital and omnichannel strategies.
In 10 years, the retail model will be fully be unified across all shopping channels. Digital technologies will increase their presence in physical stores. Consumers will instantly be able to find the products they seek inside a physical store using smartphones connected to RFID enabled consumer products.
The Privacy Conundrum
Consumer and store associates as brand ambassadors, along with immersive customer experiences, are the future of retail. Getting there will require that we solve the conundrum between privacy and the increased sharing of personal information.
The recently published World Economic Forum (WEF) 'Top Ten Emerging Technologies of 2024', confirms that privacy is top of mind for all industries. In the report, privacy enhancing technologies at global scale was listed as number 2 with AI pioneering new frontiers of knowledge being number 1.
According to the WEF, think 'synthetic data' as the emerging technology to address privacy concerns. "(Synthetic) data replicate(s) the patterns and trends in sensitive datasets but do not contain specific information that could be linked to individuals or compromise organizations or governments. Powered by advances in AI, synthetic data removes many of the restrictions to working with sensitive data and opens new possibilities in global data sharing."
Retail is not yet a top focus industry in the funding of the development of privacy enhancing technologies.
While younger generations are more open to sharing personal information for more retail rewards, there are risks in taking this approach for granted. The greater the amount of data collected, the greater is the risk of brand damaging cyber incidents. According to one recent report, 69% of retail businesses were hit with ransomware in 2023. The average cost of a retail breach was $2.96 million and the industry accounted for 6% of all data breaches, up from 5% the previous year. Retail in 2023 was ranked 8th as the most targeted cyber-attacked industry, up from 10th the previous year.
Opt-in strategies to consumer data sharing are a starting point. The retail industry needs to step it up in focusing on consumer privacy and explore more aggressively AI-influenced synthetic data as one of the potential approaches.
Retail Shrink and Younger Consumers Generations
Debate persists on multiple fronts as to whether retail shrink is a real problem for the industry. The Atlantic called it murky, while Business Insider wrote that 'Retail Theft has Become a Scapegoat.'
As an insider currently working with many global retailers in attacking the problem, I can confirm that retail shrink is real. As IHL Group pointed out in 2023, "theft by both employees and consumers, is the second biggest source of inventory issues, accounting for $379 billion in total losses. Consumer theft costs nearly $203 billion, while employees steal about $175 billion globally."
What is more interesting is how younger generations are approaching the problem of retail theft. Let's look again at a chart from my 'Disruptive Future of Retail' keynote.
Younger generations prefer and are even demanding more frictionless retail technologies such as self-checkout. Note the much higher tendency of Gen Zers and Millennials in purposely taking an item at self-checkout without scanning it.
The alternatives being adopted by many retailers to deter the increased shrink by locking up products in their stores is not sustainable, especially if you consider how retail will evolve over the next 10 years. The solution to this problem is a combination of new technologies, increased penalties, legal frameworks around controversial technologies, and stronger partnerships between retailers, law enforcement, industry groups, solution providers, and government entities.
Retail Revolution of the Next Ten Years
Morningstar envisions the following by 2035 as Gen Z becomes the largest shopping group:
- Immersive virtual shopping: Through virtual reality (VR), shoppers in 2035 could navigate a digital store as realistically as they would a physical one.
- Hyper-personalization with AI: AI could be leveraged to create deeply personalized shopping experiences.
- Instant product customization and delivery: Future technologies could enable customers to customize products in real time.
- Interactive and automated retail spaces: Physical retail spaces might still exist but would operate differently. They could serve as interactive showrooms where customers meet for social shopping experiences, participate in events, and interact with products that they have pre-selected through their digital interfaces.
Within 10 years, phygital and omnichannel will merge as concepts. Frictionless commerce will increase. Privacy and retail shrink will get greater attention and solutions. We are all consumers. Where retail goes next is up to all of us to innovate and execute a brighter future for the industry.
