www.pwc.de Surviving the Retail Apocalypse
What to learn from “Clicks-to-bricks”
Table of Contents
Table of Figures...... 3
A “Clicks-to-bricks”: surviving the retail apocalypse...... 4
B Digital consumers want fast shopping and delivery, and sustainable products...... 6
C Digital stores: from sourcing to customer touchpoints...... 9 1 Digitise your operations...... 10 2 Physical stores as the gateway to interactive brand experiences...... 12 3 Differentiate your brand by stopping traditional online marketing...... 14 4 Customer touchpoints are getting connected...... 15 5 Say goodbye to long checkout queues...... 17 6 New delivery methods address urbanisation...... 18
D Is your IT fit for the future?...... 20 1 Data is the new asset...... 21 2 Embrace openness with APIs...... 21 3 The cloud makes your services flexible, scalable and available...... 22 4 Event-driven architectures enable real-time interaction...... 22
E From future to reality: the digital store in practice...... 23 1 Your journey...... 24 2 Return on experience – case studies...... 26
F Digital stores in 2025...... 27
Contacts...... 30
Table of Figures
Fig. 1 Technologically mature Chinese consumers pioneer in online purchases, European behaviour is comparable to the worldwide average...... 7
Fig. 2 More Europeans buy online daily than in-store...... 8
Fig. 3 European consumers seek convenient in-store navigation, upskilled sales associates and easy payment...... 12
Fig. 4 Free returns, quick delivery and an announcement of the delivery date during the checkout are the most important features for delivery processes in Europe...... 18
Fig. 5 Digital employee and customer touchpoints along a retailers value chain...... 25
Surviving the Retail Apocalypse 3 A “Clicks-to-bricks”: surviving the retail apocalypse
Attracted by the potential return on fast delivery, free returns and product investment, many brick-and-mortar availability. But traditional brick-and- retailers closed their physical stores mortar retailers faced challenges in favour of operating online. Reduced when they stepped into online rent and labour costs seemed to be business. For example, their complex powerful arguments for taking this supply chains and manual processes step, as online-only players showed made it difficult to compete with how profitable business models could the highly automated operations of meet rising consumer expectations for online-only companies.
4 Surviving the Retail Apocalypse One of the consequences of this This year’s Global Consumer Insights strategy of closing physical stores Survey reveals new consumer in prime locations was that rental expectations that go beyond demand rates decreased and property owners for fast delivery and high product offered more flexible short-term availability. For example, increased leases. This gave online-only retailers awareness of environmental issues is a chance to respond to challenges changing shopping behaviour among related to the fact that consumers European consumers. At the same trust online stores less because they time, retailers require higher quality cannot check product quality before data that is managed by more effective buying – and because of concerns digital systems. about online fraud. Many online-only players opened pop-up stores to Combining new technologies and convince consumers of their service innovative business models can levels and product quality, and the help retailers meet rising consumer term “clicks-to-bricks” was born. expectations and compete over the long term. The first step in digitising By enabling consumers to touch stores is reducing fixed costs, because products and by building experiences this frees up budget that can be used around their brands, “clicks-to-bricks” for investment. retailers saw sales and customer engagement rates increase, while The following chapters discuss ways for return rates were far lower than during retailers to streamline their operations, their online-only era. This showed that make costs more flexible and meet the the physical store is not dead – but expectations of modern consumers, while the rules of brick-and-mortar retail also exploring how retail is expected to had changed forever. change between now and 2025.
Surviving the Retail Apocalypse 5 B Digital consumers want fast shopping and delivery as well as sustainable products
Today, online shopping offers role of stores, but does not make consumers everything they want. stores any less necessary. Consumers They can order every imaginable want stores to provide the things product from anywhere in the world online shops cannot offer – including via a huge range of interfaces and face-to-face customer service and a have it delivered within just a few chance to see and touch the products. days. Online purchases are becoming And as environmental awareness rises, more convenient from one year local products with less packaging and to the next, and some articles are a more eco-friendly supply chain are now bought online on a daily basis gaining popularity. (eg, train tickets). This changes the
6 Surviving the Retail Apocalypse Digital consumers want fast shopping and delivery, and sustainable products
Most Europeans buy online at the technologically mature Chinese least once a month market. The high frequency of Chinese More Europeans shop online every online shopping may be related to the day using a tablet, PC, mobile phone, popularity of the app WeChat, which wearable device or smart home includes mobile payment services in voice assistant than those who shop its broad ecosystem. Other features in stores. European consumers’ of WeChat include various messaging online shopping behaviour is in line options, city services and heat maps with the global average, but behind that show crowded areas.
Fig. 1 Technologically mature Chinese consumers pioneer in online purchases, European behaviour is comparable to the worldwide average
8% 5% 5% Daily 9% 14% 6% 29% 26% 39% Weekly 27% 54% 27% 41% 40% 40% Monthly 37% 28% 39% 20% 25% A few times 15% a year 24% 4% 25% 2% 3% 1% Once a year 3% 0% 3%
Germany US Europe China UK Worldwide
On average, how often do you buy products online?
Surviving the Retail Apocalypse 7 Digital consumers want fast shopping and delivery, and sustainable products
while 34% look for products with Fig. 2 More Europeans buy online daily than in-store environmentally friendly packaging 8% 5% 5% 6% and 31% avoid plastic. Only 2% of 5% 5% 5% 11% 8% 20% consumers in China stated that they 9% 14% 17% 11% 15% are not interested in sustainability, 12% 10% 21% compared to 12% in Europe and 23% 9% 13% 13% 12% in the US. 11% 19% 10% 6% 11% 26% 24% Consumers believe governments 7% 5% 13% 9% 14% and retailers share responsibility for 6% 6% reducing waste: legislation should 9% 14% 20% 40% ban some products, while retailers 33% 24% should boost eco-friendliness along 19% 17% 13% 7% the entire value chain. Sustainability Daily Weekly Monthly A few times Once a Never has changed from being nice-to-have a year year to being a must-have criterion that significantly influences the purchasing In-store Online via mobile phone or smartphone decision. Catalogue/magazine Smart home voice assistants, ie, hubs, eg, Amazon Echo, TV shopping Google Home, Samsung SmartThings Europeans are less willing to pay for delivery Online via PC Wearable devices Many retailers used free home delivery Online via tablet to gain a competitive edge when they How often do you buy products (eg, clothes, books, electronics) using the following shopping entered the online market. As a result, channels? consumers in Europe now expect free home delivery as standard and 23% are not willing to pay for delivery. Microtrips gain popularity Sustainability is becoming part of Only 13% of European respondents Microtrips are defined as visits to a product and service quality would pay for delivery within three to store that take less than five minutes – In line with the global trend, European five working days, compared to 32% reflecting the rising consumer tendency consumers increasingly favour items of Chinese respondents and 20% of to do grocery shopping quickly. 5% of with less packaging (41%) and avoid Americans. 24% of Europeans are Europeans surveyed stated that they the use of plastic wherever possible willing to pay for same-day delivery, make microtrips more than once daily, (42%). Packaging-free stores are but increasing numbers of consumers 18% once a day and 30% two or three challenging traditional supermarkets are rejecting this service because times a week. American consumers to rethink their packaging strategies. parcel delivery services are clogging showed a similar pattern, while Chinese A third of consumers prefer products up city centre spaces and residential shoppers led in daily trips. with environmentally friendly areas.2 Retailers will have to find ways packaging over plastic-wrapped of retaining online customers while Microtrips reduce the average value of alternatives, and the same proportion reducing the number of packages a consumer’s visit to a store as they of consumers choose products with a they send. Services like Amazon Day, buy fewer items. If the cost per visit traceable and transparent origin. through which all orders placed within remains the same, margins decrease. one week are delivered together, For this reason, extensive checkout German consumers are willing to pay could make receiving packages processes should be avoided to cut an average extra €2.34 for eco-friendly easier for customers and cut costs labour costs and impress microtrip delivery.1 35% of consumers from the for retailers at the same time.3 enthusiasts. US buy items with less packaging,
1 Cf. PwC (2018): Wege aus dem Paketdilemma, www.pwc.de/de/transport-und-logistik/pwc-paketpreisstudie-2018.pdf. 2 Cf. PwC (2018): Wege aus dem Paketdilemma, www.pwc.de/de/transport-und-logistik/pwc-paketpreisstudie-2018.pdf. 3 Cf. Amazon (2019): Amazon Day, www.amazon.com/amazonday.
8 Surviving the Retail Apocalypse C Digital stores: from sourcing to customer touchpoints
Digitised customer experiences that must have robust and fast IT systems merge online shopping and physical with high-quality data. Without store interactions rely on digital real-time inventory information, for operations and employee enablement. example, it is not possible to state how To offer services like same-day quickly an order can be fulfilled. delivery or an endless shelf, retailers
Surviving the Retail Apocalypse 9 1 Digitise your operations
Manual labour is still one of the biggest the optimal day to place an order so reflect the warehouse architecture can cost drivers for retailers. Automation that it arrives on the shop floor exactly ensure safe flight operations, while can empower the workforce to when needed. Optimising procurement drones equipped with radio-frequency focus on value-creating processes, processes reduces average inventory identification (RFID) transponders and/ while machines carry out repetitive age and improves inventory turnover, or visual sensors can enable automatic tasks with high precision. Emerging which optimises cash-to-cash cycles. inventory processes by scanning items technologies like artificial intelligence Retailers should carefully consider with passive RFID tags or printed (AI), robotic process automation (RPA) which key performance indicators codes (eg, barcodes or QR codes). and drones open up new opportunities (KPIs) are important for their decision- Companies can use drones that are to automate tasks, collect data and making and which data is already connected to supply chain systems support employees. available, because precise predictions in real time to prevent losing track of require high-quality real-time data. items during busy periods. AI-driven forecasting optimises inventory turnover and cash-to- Drones and RFID facilitate Mobile devices for business use cash cycles inventory cost tracking and can upskill store employees Data is a key asset for modern retailers improve inventory accuracy Store management tasks can be and being able to use it effectively Automated warehouse processes divided into tasks for handling is now a core competence. The role increase cost efficiency, while reducing products and tasks related to of data has shifted from post-event mistakes and costs related to manual customer service. Handling products reporting to prescriptive analytics handling, as well as contributing to may include receiving new stock, that recommend the best course of greater transparency. While the floor of placing it on shelves and returning action in a given situation and provide a warehouse is typically full of traffic, unsold items – and there are major guidance about alternative options. drones can use the space above opportunities for technology to support AI-based analytics platforms use real- the floor to deliver, count and locate these tasks. Every minute of manual time supply chain data to calculate products. Pre-defined flight plans that labour saved pays off twice: handling
10 Surviving the Retail Apocalypse Digital stores: from sourcing to customer touchpoints
costs per item decrease and the sales access to services like same-day force gains valuable time for interacting delivery. Shelves that are equipped with customers. Equipping employees with cameras can track customers’ with mobile devices or enabling their product choices if their video stream is personal devices to use smart store combined with other in-store cameras software connects them with sensors images. Push notifications on mobile monitoring the store. This empowers devices can be used to make store them to coordinate and communicate employees aware when shelves need about tasks like processing new stock, to be restocked. filling shelves, preparing orders and printing missing price tags, and can Combining dynamic pricing and even be used to create a mobile point ESL can improve margins of sale (POS). Communication between Dynamic pricing software employees can enable knowledge recommends prices that maximise sharing through on-demand video KPIs like total gross margin by training that develops skills for evaluating pre-determined factors managing a smart, digital store. such as minimum margins or maximum prices. Amazon changes Smart shelves automate real-time product prices 2.5 million times a day, inventory tracking which means the average product Smart shelves equipped with price changes every ten minutes.4 electronic shelf labels (ESLs) allow This has boosted profits by 25%.5 retailers to quickly adapt prices across The impact of dynamic pricing relies the store and help to align in-store and on using artificial intelligence to enable online prices. Cost- and time-intensive forecasting based on demand and manual price tag updates that were on analysing competitors’ pricing part of the daily routine now take only strategies, inventory levels and other a few clicks – reducing manual effort factors. A PwC study6 analysing the and creating a new source of quality acceptance of dynamic pricing showed data about the pricing strategy. that customers accept a 10–20% price difference. 67% accept non-daily Digital price tags can also display price changes while around a third of additional product information interviewees accept daily or hourly or include other features like QR changes. Retailers should embrace codes that enable more interactive consumer acceptance of non-daily experiences. This might include price changes to optimise their pricing telling the story of a product’s journey strategy based on real-time data from along the supply chain or providing along the entire value chain.
4 Cf. Business Insider (2018): Amazon changes prices on its products about every 10 minutes – here’s how and why they do it, www.businessinsider.de/ amazon-price-changes-2018-8?r=US&IR=T. 5 Cf. DZone (2016): How Amazon Uses Its Own Cloud to Process Vast, Multidimensional Datasets, https://dzone.com/articles/big-data-analytics- delivering-business-value-at-am. 6 Cf. PwC (2018): Customer Experience im deutschen Handel – Bezahlmethoden & Preisgestaltung, www.pwc.de/de/pressemitteilungen/2018/kunden- akzeptieren-dynamische-preise-unter-bestimmten-voraussetzungen.html.
Surviving the Retail Apocalypse 11 Digital stores: from sourcing to customer touchpoints
2 Physical stores as the gateway to interactive brand experiences
European consumers changed their now see stores as places where the a store, while 40% of East European attitude to physical stores when they focus is on experiencing products consumers would welcome more became able to buy whatever they and brands, as well as providing entertaining experiences enabled wanted from any producer at any time value-adding services. A third of West by store design. Designing stores as online. While they previously expected European consumers would appreciate social hubs forces retailers to rethink a broad product range in stores, they having food and beverage services in traditional store layouts and KPIs.
Fig. 3 European consumers seek convenient in-store navigation, upskilled sales associates and easy payment
Ability to quickly and conveniently 18% navigate the store
Sales associates with a deep knowledge 14% of the product range
Quick and easy payment methods 11% (including mobile and contactless payment)
In-store Wi-Fi with fast, simple login 8%
A fun experience via the store design 7% or atmosphere
Customisation of products in-store 6%
Availability of food and beverage services 5% (restaurants/coffee bar) in-store
Child-friendly area 5%
Personalised offers sent to my mobile 5% device when in-store
Use of technology to assist the shopping experience (tablet/mobile checkout, 5% self-service kiosk/scanners)
Exclusive services, eg, personal 4% shoppers and stylists
Inviting lounge/rest area 4%
Specialised customer events 4%
Virtual experience of products and services through augmented reality technology (eg, smart trial 4% “interactive” mirrors, VR headsets, 3D experiences)
Which of these attributes would significantly improve your in-store shopping experience?
12 Surviving the Retail Apocalypse Digital stores: from sourcing to customer touchpoints
Smart in-store displays turn walls Outside the store, smart displays sale, which enables employees to into dynamic storytellers with demographic facial recognition include the checkout experience Store decoration is a time-consuming can reach people at all stages of the within their interaction with the task because product ranges change buying cycle. Proximity sensors that customer. Upgrading employees’ frequently. However, consumers detect pedestrians as they get closer devices to mobile points of sale also want store designs that open up fun can enable displays to switch between reduces checkout lines and in-store experiences. They are used to seeing campaigns and provide interactive sales cut-offs by creating a continuous curated online content that reflects information. flow from customer advice through to their personal interests – and digital mobile payment. displays make in-store decoration as As privacy concerns about facial convenient as publishing a campaign recognition increase, retailers have to Stores without inventory offer the on social media. New content can communicate the introduction of smart broadest product range be rolled out across multiple stores displays carefully by explaining how Using space to store stock within within just a few minutes. As stores data is used and stored. Of course, shops in premium locations is get smaller, displays guide consumers retailers must always comply with becoming a thing of the past because through the wider product range data protection regulations like the stores are evolving to become social that is available online. They offer General Data Protection Regulation hubs, expected delivery times are social-media-powered experiences: (GDPR). Facial recognition displays decreasing and new sustainable for example, displaying social media can deter customers if not explained delivery options are taking over the posts from customers and relevant satisfactorily. market. Stores with endless aisle influencers in-store can spark other concepts only exhibit a selection of customers’ interest in the latest trends. Mobile clienteling solutions their product range or have each item Customers may tag brands in their connect online and in-store available in just one size. Customers posts because they want to be featured customer service buy items in the store and receive on the display, which strengthens Personalised in-store service arises them through a delivery service. retailers’ social media reach. from well-designed employee This enables retailers to avoid losing experiences. Giving store employees customers who would normally visit a In combination with Internet of access to customers’ online and offline competitor’s store if a product is not Things (IoT) components, in-store shopping history and preferences can available. displays enhance interaction even improve information flows. This does in small spaces. Displays can adapt not necessarily require personal data There are now fewer barriers to content by recognising some of the about customers: general demographic endless aisle concepts because 53% customer’s items using RFID or near- information gathered by employees will of customers are already likely to field communication (NFC), or they usually work just as well. place an order online if a product is can analyse their audience through not available in the store (and if free demographic facial recognition. 51% of European consumers stated shipment is offered). This strengthens AI-driven campaign management that they value sales associates with the relationship between customers systems create customised content by a deep knowledge of the product and brands because space is used arranging pre-defined building blocks. range. Mobile devices with product for individualised services and Smart mirrors in fitting rooms can also recognition functions can provide sales opportunities to touch and feel the recognise customers via their loyalty teams with this knowledge and help product. Endless aisle concepts can card and show personalised content employees answer detailed customer also give employees more time to like product recommendations based questions successfully. Customers focus on customer engagement. on the individual customer’s shopping with additional requests for information history. Convenient mobile checkout are able to book an appointment with options in the fitting room can create a an employee in-store. Mobile devices fluent offline-to-online experience. can be turned into mobile points of
Surviving the Retail Apocalypse 13 Digital stores: from sourcing to customer touchpoints
However, fitting rooms may still be 3 Differentiate your brand by stopping traditional needed to help customers select the online marketing correct size. This can reduce return rates, which are still a major cost driver In the past, online advertising was chatting to a retailer just like you for online retailers in Europe. Free an innovative and lucrative marketing would with a friend. A fifth of organic shipping and returns has encouraged channel. Today, traditional online Instagram Stories from brands see European consumers to return online advertising is often disrupted by ad at least one direct message from orders. The majority of German and blockers or goes unnoticed because a consumer.11 Instagram is leading Dutch consumers stated that they of other ads vying for customers’ the competition for the highest had returned an item bought online attention. Consumers now expect engagement rate, with an overall within the last year, in common with personalised content. average engagement rate per post of 7 around 40% of South Europeans. 1.6%.12 Facebook scores much lower, Online fashion retailers may even Social media is now a key channel with an engagement rate of 0.09% 8 suffer return rates of more than 50%. for customer service per post. Corporate social media Reducing return rates can improve The relevance of commercial social posts and timely answers to customer profitability, while also making retailers channels is increasing as potential questions in the comment section of more sustainable by cutting the customers spend an average of a post go viral more often than other number of parcels sent and reducing 148 minutes per day on social media content. There are even media articles pre-consumer waste. The growing platforms – particularly YouTube and that feature lists of companies that importance of sustainability should Facebook. Gen Z and Millennials consumers should follow on social encourage retailers to rethink their spend around 315 minutes each day media because of their delightful, approach to returns. Amazon, for socialising online through YouTube conversational and quirky posts.13 example, experienced major problems (102–150 minutes) and Instagram after the media revealed that as- (69–72 minutes).10 B2C online A third of Germans under the age new and returned goods were being interactions increasingly include of 30 stated that positive customer 9 destroyed. ratings on social media and platforms like Amazon persuade them to buy branded products.14 Retailers must invest in a social media strategy to clearly communicate their values, create engaging content, provide customer care and start looking at it as just another channel to drive customer engagement. More and more retailers are taking this path by starting with social listening activities and integrating chatbots to react to common requests quickly.
7 Cf. Statista (2019): The Return of the Package, www.statista.com/chart/16615/e-commerce-product-return-rate-in-europe/. 8 Cf. Reuters (2018): RPT UPDATE 2-Zalando seeks to counter return problems, smaller orders as sales slow, www.reuters.com/article/zalando-results/ rpt-update-2-zalando-seeks-to-counter-return-problems-smaller-orders-as-sales-slow-idUSL8N1XH1MT. 9 Cf. Wirtschaftswoche (2018): Amazon destroys massive quantities of returned and as-new goods, www.wiwo.de/unternehmen/handel/online-retailer- amazon-destroys-massive-quantities-of-returned-and-as-new-goods/22662746.html. 10 Cf. PwC (2018): Zwischen Entertainer und Werber – Wie Influencer unser Kaufverhalten beeinflussen, www.pwc.de/de/handel-und-konsumguter/pwc- zwischen-entertainer-und-werber.pdf. 11 Cf. PwC (2018): Infographic: The changing world of social media, www.digitalpulse.pwc.com.au/infographic-social-media-trends-2018/. 12 Cf. Rival IQ (2019): 2019 Social Media Industry Benchmark Report, www.rivaliq.com/blog/2019-social-media-benchmark-report/. 13 Cf. Forbes (2014): 20 Companies You Should Be Following On Social Media, www.forbes.com/sites/ilyapozin/2014/03/06/20-companies-you-should- be-following-on-social-media/#9f4348564f20. 14 Cf. PwC (2017): Wie Markentreue entsteht – und was sie gefährdet, www.pwc.de/de/handel-und-konsumguter/pwc-studie-markenvertrauen.pdf.
14 Surviving the Retail Apocalypse Digital stores: from sourcing to customer touchpoints
Influencers are trusted sources for 4 Customer touchpoints are getting connected fashion and technology advice15 Influencers provide guidance that Customers’ smart devices are the While map-based navigation can be consumers trust because they have key platform for digital touchpoints integrated into shopping carts, baskets gained a sense of authenticity by The number of connected devices or information kiosks, apps make it keeping their followers up-to-date on per person is expected to reach possible to replace standard maps their day-to-day lives – similar to a 6.58 in 202016 – and mobile devices with augmented reality navigation. This close friend. They are most trusted on are having more and more influence opens up opportunities to customise topics related to beauty, technology on consumers. For this reason, the service by calculating the fastest or travelling. In particular, “stories” these devices are the key enabler for route after a customer uploads their are popular among influencers and other technologies aiming to make shopping list into the app. Retailers followers because they create a more personalised customer services might expect their cross-selling intimate relationship between content available to a large user group by strategy to suffer, but the app can creators and content consumers, creating new touchpoints. Enhanced also display personalised promotions often by showing a day in the life of product recommendation engines and supplementary products after the the influencer. Factors that motivate use artificial intelligence to suggest shopping list has been uploaded. people to follow influencers include products based on the customer’s entertainment value, inspiration and preferences and shopping history, Retailers would also benefit from recommendations. Consumers in before assisting customer service insights into customer behaviour Gen Z are more likely to buy a product teams in responding to customer patterns that could help to optimise when a recommendation is offered requests. Retailers cannot stop customer support activities. For together with a special promotion, and consumers from comparing products example, collecting metrics like this encourages them to overcome the and prices online. Instead, they must conversion rates and average hurdle of registering for a new online actively include online ratings and purchase values in real time enables shop. 48% of Germans can imagine additional product information in the stores to optimise the positioning of purchasing products promoted by in-store customer journey, for example, promotions. influencers and a third have already through location-based notifications bought a recommended product. that offer additional information about Mature Wi-Fi-based in-store tracking On average, male consumers spend a product or by displaying ratings on systems use data from customer more money on items promoted by electronic shelf labels. smartphones to track behaviour influencers than female consumers patterns anonymously – in line with (around €130 versus €70). Cooperation In-store navigation benefits data privacy laws like GDPR. By asking with influencers gives retailers customers and retailers for permission during the Wi-Fi login, access to the daily routine of young 56% of European consumers behaviour patterns can be stored consumers and can develop profound stated that the ability to quickly and and saved with a unique ID for each brand trust. conveniently navigate the store would customer. In-app collected metrics improve their in-store shopping provide retailers with insights into experience. Do-it-yourself stores, the most scanned and researched supermarkets and other retailers with products to refine the product broad product ranges face challenges recommendation engine. Integrated when directing customers to the right visible light communication (VLC) product. In-store navigation systems technology sends light signals that are use maps or augmented reality (AR) invisible to humans to smartphones interfaces to support customers. and can track a customer’s location with an accuracy of 30cm.
15 Cf. PwC (2018): Zwischen Entertainer und Werber – Wie Influencer unser Kaufverhalten beeinflussen, www.pwc.de/de/handel-und-konsumguter/pwc- zwischen-entertainer-und-werber.pdf. 16 Cf. PwC (2016): Five Megatrends And Their Implications for Global Defense & Security, p. 18, www.pwc.com/gr/en/publications/assets/five- megatrends-and-their-implications-for-global-defense-and-security.pdf.
Surviving the Retail Apocalypse 15 Digital stores: from sourcing to customer touchpoints
Intelligent voice assistants provide AR and VR are enabling stores to give customers the opportunity to try a convenient shopping experience open faster than ever on clothing before buying or to decide Voice technology is integrated Endless aisle concepts with touchable whether a piece of furniture fits their into nearly every device – from showroom experiences are one option home – which would reduce return rates. smartphones through to wearable for moving away from unprofitable devices, cars, speakers, laptops and large stores with high amounts of Virtual reality (VR) headsets can take smart home speakers like Amazon stock. Partly or completely virtualised customers on a journey to a brand’s Echo or Google Home. 12% of stores are another option, where AR production site, or to the farm where European consumers own a smart glasses let customers experience the raw materials were sourced, or home assistant and 21% plan to buy different configuration possibilities even to the latest fashion show. It one. 31% of users research products within the store. Take the example enables storytelling that tightens the through their smart home assistant, of buying a new car: you sit in an customer-brand bond, regardless of while 24% use it to buy products. exhibition car and switch between the location or size of a store. 17% As a result, retailers must include the different console configuration of customers believe AR and VR voice assistants in their customer possibilities. The changes are shown improve their in-store experience, interface portfolio and identify product in real time, while you can still feel and AR and VR can also be used to information or services that offer the car seat and the steering wheel. add gamification components to the additional value through this channel. This would make it possible for shopping experience. a consumer to experience more Intelligent voice assistants already expensive or complex products with Using 3D printing to personalise compete with other shopping channels various configuration possibilities. products when it comes to daily shopping Alternatively, a completely virtualised A third of European consumers activities. 3% of Europeans stated that store might involve a customer would enjoy product personalisation they make purchases with their smart standing in an empty room while in-store. Prices for 3D printers and home assistants on a daily basis. This wearing AR glasses to experience related materials are decreasing as the means smart home assistants are different environments. technology matures, and customers used just as often for daily shopping as will soon have the opportunity to tablets and wearables. The main target Until stores are completely virtualised, choose from an increased range of audience for voice-assisted shopping AR offers smaller customer touchpoints personalised products on demand. is younger consumers, households that retailers can experiment with. 73% of retail business leaders believe with children and households with Products can be tested virtually 3D printing will increase customer an income of more than $100,000.17 through smart mirrors or apps, while satisfaction.18 However, creating large Retailers should begin experimenting product information and configuration items using 3D printing still takes with this touchpoint because habitual possibilities are displayed. Augmented a long time. Retailers should focus purchases like household goods are kiosks or mirror systems detect on adding a personalised flavour to expected to rise. products and show product-based products, for example, by creating content. Outside of the store, apps customised inserts for shoes.
17 Cf. PwC (2019): Prepare for the voice revolution, www.pwc.com/us/en/services/consulting/library/consumer-intelligence-series/voice-assistants.html. 18 Cf. Ricoh (2018): 7-in-10 retail leaders say 3D printing results in happier, more satisfied customers, www.ricoh-europe.com/news-events/news/7-in-10- retail-leaders-say-3d-printing-results-in-happier-more-satisfied-customers.html.
16 Surviving the Retail Apocalypse Digital stores: from sourcing to customer touchpoints
5 Say goodbye to long checkout queues
Due to the increasing amount of The category of mobile payment that microtrips, both consumers and is expected to grow fastest in Europe retailers are interested in reducing is in-person mobile payments – for time and effort during checkout. example, paying in a store using a Mobile payment via smart phones and bank’s app. German consumers prefer wearable devices is gaining popularity cash and online bank transfers, but because it is convenient – and it is use PayPal if they need to pay more opening up opportunities to create quickly. As a result, retailers should completely new, faster checkout expand the payment methods they processes. offer and analyse which methods their customers prefer. Mobile payment is on the rise – driven by the banking revolution Physical checkouts will disappear Customers increasingly value mobile from stores payment for frequent purchases like Checkout-free stores gained media train tickets, clothes and food, as attention after Amazon piloted its well as when eating and drinking in Amazon Go model. Customers simply restaurants. Mobile payment includes log into the retailer’s app and enter in-app purchases, as well as in-store the store by scanning a QR code, payments via QR codes. With the before choosing their favourite items growing trend for microtrips for grocery and leaving the store. Cameras and shopping, fast and easy payment is sensors provide the data for artificial even more important for supermarkets. intelligence to recognise each shopper However, around 75% of European and the products they select, and consumers stated concerns about then connect that data to the correct hacking and stolen mobile devices. In customer account. Customers get contrast, consumers are increasingly charged automatically when they leave willing to share personal and health- the store and receive a receipt through related data for discounts from their the app. Employees in the store insurance or personalised health tips.19 help customers with any technical This suggests that mobile payment issues, while also restocking shelves. might just need a little bit more time to Automated checkouts increase convince consumers. convenience and make space available for additional experiments – which is Customers with higher incomes particularly attractive for high-traffic expect self-checkout services, while retailers like supermarkets. Mobile 60% of Germans would enjoy self- POS technologies might be a better service checkouts or at least displays solution for product groups that involve showing the estimated waiting time. more consulting and personalisation.
19 Cf. PwC (2019): Mobile Payment Report 2019, p. 19, www.pwc.de/de/digitale-transformation/pwc-studie-mobile-payment-2019.pdf.
Surviving the Retail Apocalypse 17 Digital stores: from sourcing to customer touchpoints
6 New delivery methods address urbanisation
Today, European consumers are less Fig. 4 Free returns, quick delivery and an announcement of the delivery willing to pay for delivery because date during the checkout are the most important features for delivery major e-commerce companies have processes in Europe offered free shipping for many years. 23% stated that they do not want to pay for delivery, while 7% are only willing to pay for delivery within a Availability of free returns 74% specific time window of one to two hours and the same percentage would pay to receive a delivery less than Getting the product as 70% three hours after ordering. European quickly as possible consumers also stated a preference for quick delivery times when asked to name the most important factor for Knowing the delivery date at the 70% online delivery. While the availability point of order of free returns is important to 74%, getting the product as quickly as Having visibility of the product possible and knowing the specific throughout the delivery process 60% delivery date when placing an order including being able to track the were important to 70%. delivery driver
Option to return items to a store 59%
Having the ability to select the most appropriate delivery method at the 56% point of order (eg, click and collect, home delivery, collection locker, etc.)
Being able to select a one-hour time 55% window at the point of order
Receiving updates on the 54% status of my return
Ability to reserve online for 53% collection in-store
Being able to change the delivery point after the order 50% has been placed
18 Surviving the Retail Apocalypse Will in-the-air delivery replace on- Autonomous last-mile delivery on the-street delivery? the ground Big tech players like Amazon and Delivery robots offer a last-mile Google, as well as start-ups and delivery solution on the ground. logistics companies, are already In common with drones, delivery piloting drone delivery. Drones are robots are promoted for being more being developed that can fly for longer, sustainable. They are also cheaper cover further distances and carry because they involve less manual heavier items. Currently, drones can work. Concepts for delivery robots fly for 90 minutes, covering a range include large electric vehicles that of 30km with a payload of 30kg. bring groups of smaller delivery robots Drones enable fast and automated to a neighbourhood. Amazon Scout, parcel delivery, while tracking creates for example, is about the size of a transparency about the arrival small fridge and moves as fast as time. Since the estimated potential a pedestrian.21 Delivery robots are cost per mile for delivery is around also being piloted by food delivery $0.05,20 drones have a high potential companies like Dominos and PepsiCo in regions that are difficult to access to speed up deliveries. Currently, and could also support retailers in robots deliver autonomously but are the last mile of delivery. However, continuously monitored by humans. new delivery technologies generate As autonomous driving matures, considerable challenges for urban delivery robots will do the same design: for example, drop-off stations because of their shared sensor have to be developed for consumers technology stack. to collect packages in populous areas and several questions about Drones and robots both enable fast, security, safety and regulation must cheap and sustainable delivery – and be answered. Today, drones are not can meet customers’ expectations for allowed to fly in crowded areas due to speed. Despite challenges related to safety concerns. safety, regulation and infrastructure, autonomous delivery concepts will have an impact on the future of last- mile delivery.
20 Cf. Business Insider (2018): Amazon and UPS are betting big on drone delivery, www.businessinsider.de/amazon-and-ups-are-betting-big-on-drone- delivery-2018-3?r=US&IR=T. 21 Cf. The Verge (2019): Amazon has made its own autonomous six-wheeled delivery robot, www.theverge.com/2019/1/23/18194566/amazon-scout- autonomous-six-wheeled-delivery-robot.
Surviving the Retail Apocalypse 19 D Is your IT fit for the future?
Digital touchpoints require backend to reflect new market or customer systems that are able to provide requirements. Retailers need IT that comprehensive information in real ensures all business-critical systems time. The applications that most are upgraded while enabling new, retailers currently run are often too digital-driven requirements from their slow when processing and distributing sales and marketing teams. information, and are difficult to adapt
20 Surviving the Retail Apocalypse Is your IT fit for the future?
1 Data is the new asset
Data requirements are changing as a producers, as well as by new consumer Digital product twins are a digital result of changing consumer behaviour, interfaces. As a result, data from replica of a physical asset that emerging technologies and growing various sources has to be processed represent its data, relationships and digital ecosystems. Consumer insights and made accessible to a range of behaviour. In retail, digital product are more detailed than ever. Customers interfaces in a scalable manner. twins make products digitally expect personalised content and customisable across customer product traceability. Emerging Product information management touchpoints – for example through technologies like in-store sensors (PIM) systems create a single source 3D models or product descriptions that leverage artificial intelligence can of truth for all product-related data from voice assistants. Overall, digital be used to produce a stream of data along a retailer’s value chain. The PIM product twins make it possible to that has to be processed in seconds. system collects and maintains product seamlessly connect the physical Retailers’ ecosystems are becoming data and coordinates its efficient and digital worlds through more digital and data is being collected distribution to various channels personalised customer experiences. along the entire value chain. The including resellers or voice customer ecosystem is being enriched by new interfaces.
2 Embrace openness with APIs
As new software features are released APIs also allow safe access to data to adapt to rapidly developing market and functionality for the digital and customer expectations, retailers ecosystem. This is because they allow need service infrastructure that is collaborations with standard systems scalable, flexible and resistant to errors. like enterprise resource planning (ERP) Software development processes systems over internal APIs, as well are increasingly agile, with a strong as connections to voice assistants, focus on customer expectations and smartphone apps or VR glasses the fast creation of running features. through product APIs. Using defined Architectures that run all functions in B2B APIs makes it easier to introduce one application are hard to modify and new business partners and developers have a higher risk of generating errors during a new collaboration. Third when changed. Microservices that are parties, like open source developers, each responsible for just one function can be invited to build innovations provide their services through a defined around retailers’ APIs in a secure interface called an API. This makes it way. Sharing internally developed possible to provide loosely coupled services through APIs strengthens the services that can evolve and be scaled retailer’s reputation in the open source up or down independently, enabling community and stresses their interest small changes with minimal risk. in collaboration.
Surviving the Retail Apocalypse 21 3 The cloud makes your services flexible, scalable and available
Microservices go hand in hand the infrastructure while the retailer’s with cloud technology. Bringing team can focus on the product itself. microservices to the cloud As real-time data flows become enables retailers to flexibly adapt more important, high availability is to growing volumes of customer a key success factor for digitised requests and increasing numbers companies. With customers and of devices requesting access to governments placing increased focus their data or services. Compared on data security and compliance, to hosting applications on their cloud providers offer certified services own and monitoring resources that meet global standards for security continuously, cloud providers serve and privacy.
4 Event-driven architectures enable real-time interaction
In a future where even the smallest event-driven: smart store devices devices are connected to the internet, will produce and publish messages periodic status messages are a waste for status changes, such as a new of resources – because the status customer entering the store. The will not have changed in 99 out of retailer’s backend will read the 100 cases. Periodic status messages messages and decide on the action also fail to support real-time events to take in real time. Messages are then because of the delay between when distributed over streaming platforms the event happens and when the like Apache Kafka to ensure a reliable message is sent. For this reason, transmission and durable storage of the architecture of the future will be records.
22 Surviving the Retail Apocalypse E From future to reality: the digital store in practice
Surviving the Retail Apocalypse 23 From future to reality: the digital store in practice
1 Your journey
Emerging technologies offer retailers software and products. While every an opportunity to adapt to constantly retailer’s journey is different, following rising customer expectations and these four steps will make sure you are faster-than-ever release cycles for new fit for the future:22
1. Make space for investment through more flexible cost structures. Lower fixed costs and increased profitability mean more flexibility to invest in real-time, innovative solutions.
2. Reinvest in differentiating capabilities. Concentrate on three to six capabilities that you do better than anyone else on the market. Invest in those and stay close to best practices for other capabilities to limit complexity. These unique factors enable you to compete effectively and create more flexible store models with stronger customer experiences.
3. Create digital customer touchpoints. Online-only companies cultivate a frictionless online-to-offline experience with fast delivery and 24/7 digital customer service. Bring digital experiences into your stores with app- based in-store navigation, in-app loyalty cards or mobile payment. Start by piloting new solutions in selected stores and do not hesitate to roll out innovative experiences after they have proven their value.
4. Develop new business models in a partner ecosystem. Enter into smart collaborative opportunities to turn two unprofitable stores into a profitable co-located concept – or to introduce new customer service or return concepts.
Technology is a game-changer when have enough resources to launch all it comes to automating manual potential digitisation initiatives. If there processes – from the warehouse is a business case for automation, do floor to the back office. Cutting costs, not let analysis of costs, benefits and improving quality and replacing risks become a sticking point because manual tasks is relevant for internal digitisation offers an impressive return processes (eg, using RFID and drones on investment.23 Most importantly, for inventory management) and begin experimenting with digital interfaces with customers and other employee and customer touchpoints outside parties (eg, mobile payment). now: experience in digital store It is important to prioritise and commit technologies offers you the insights to initiatives that are essential for you need to bring your future business your growth because you may not model to life.
22 Cf. Ron Kinghorn, PwC Consumer Markets Advisory Leader US, Mexico, Japan & China (2019): 4 Exercises for Retailers to Get in Fighting Shape, www.linkedin.com/pulse/4-exercises-retailers-get-fighting-shape-ron-kinghorn/. 23 Cf. PwC Strategy& (2017): Fit for Growth, A Guide to Strategic Cost Cutting, Restructuring, and Renewal, p. 34, www.strategyand.pwc.com/media/file/ Fit-for-Growth-mini-book.pdf.
24 Surviving the Retail Apocalypse From future to reality: the digital store in practice
Fig. 5 Digital employee and customer touchpoints along a retailers value chain
Digital customer touchpoints Store decorations Mobile devices Smart in-store displays Apps provide a platform for digital Upgrade walls to digital storytellers services and in-store touchpoints that dynamically adjust to customers and collections In-store navigation Enable fast, personalised shopping Delivery Mobile clienteling solutions Empower store associates to provide AR/VR Drone delivery highly personalised services and Digital fitting and customer journey Autonomous drones in-aisle mPOS extension on the way to a completely enable delivery to barely virtual store accessible regions Endless aisles Stores as a showroom for products 3D printing Delivery robots with fast delivery of every item in Tailor-made products manufactured Last-mile delivery on the every size just in time ground for suburbs
Sourcing, inventory and store Marketing Payments operations Social media Checkout-free stores AI-driven forecasting Next level customer service and Convenient and fast pay-as-you-go Optimise inventory turnovers and brand image presentation checkouts via a retailer’s app cash to cash cycle times Influencer marketing Payment solutions Drones and RFID Reach out to influencers followed In-app or mobile payments in the Control inventory costs and by your target group to connect store speed up the checkout process leverage inventory accuracy online and offline social touchpoints
Mobile store management Upskill employees and upscale store task management efficiency
Smart shelves Automate real-time inventory tracking and enable automated checkouts
ESL and dynamic pricing Improve margins and facilitate pricing operations
Surviving the Retail Apocalypse 25 From future to reality: the digital store in practice
2 Return on experience – case studies
dm Lego Migros German retail chain dm, which sells Toy manufacturer Lego uses AR Switzerland’s largest retail chain drives cosmetics, household products and VR technology to gamify the digitisation of grocery shopping in and health food, showed how in-store buying process and create stores and online, with a quarter of quickly influencer marketing can be experiences for people at home. Swiss consumers registered for its effective. It invited popular YouTube During the London Fashion Week, online shop. A product information and social media influencers to Lego sold products in a completely management system that holds data for create beauty boxes featuring their empty pop-up store that only had more than 900,000 products supplies favourite beauty products – and the Snapcodes displayed on plinths. These the digital Migros environment. campaign sold out online within an codes redirected users to Snapchat, The customer app enables product hour.24 After this success, dm has where the customers experienced an searches by text, scan or image expanded its range to include boxes augmented reality fashion store. Via a recognition. Every customer can access for different target groups like pet “shop now” button, users were able to 12 different online shops with just lovers or health food addicts. By buy limited-edition apparel.27 one single account. Delivery methods showing YouTubers opening the boxes include car-trunk delivery, as well as (known as unboxing) in their online Lego also launched an app called delivery by bike or electric car. The shop, dm made itself more attractive Hidden Side that used AR to Migros loyalty card collects online to YouTubers, which led to more strengthen the link from its stores to and offline data, provides customer YouTube unboxing videos featuring dm people’s homes by combining physical rewards and enables mobile payments products.25 toys with AR on the smartphone. in the store via the app. Migros meets The physical world influences the rising consumer expectations related dm also invested in digitised augmented world, inspiring children to sustainability through a dashboard capabilities in the store by equipping to discover new functionalities of the that shows the customer how many every store employee with a bricks. It included games like “catch environmentally friendly products she smartphone to facilitate scanning the ghosts” that merged the real and or he has purchased.29 The company empty shelves or printing missing digital world. Additional characters is also currently piloting an app that labels. A digital learning platform and games were added after the aims to accelerate grocery shopping helped employees begin working launch to engage the children with by enabling customers to shop for with their new digital assistant. new ideas even after playing with a products that they bought within the Chat apps make communication Lego set for a long time.28 last year30 between employees faster and more spontaneous, making it easier to share knowledge. The smartphone also supports employees through in-aisle services like customer card registration and online orders that are shipped to the store for free. A product scanner provides employees with details about product use and ingredients so they can answer customer questions in more detail.26
24 Cf. Horizont (2016): So souverän beherrscht DM das Spiel mit dem Influencer Marketing, www.horizont.net/marketing/nachrichten/Schachtelglueck- So-souveraen-beherrscht-DM-das-Spiel-mit-dem-Influencer-Marketing-144330. 25 Cf. dm-drogerie markt GmbH + Co. KG (2019), www.dm.de/neu/lieblinge/. 26 Cf. Etailment (2019): Wie smart dm Drogeriemarkt inzwischen in den Filialen ist, https://etailment.de/news/stories/digitalisierungsoffensive-dm%20 drogeriemarkt-smartphones-mitarbeiter-21935. 27 Cf. Forbes (2019): LEGO And Snapchat Just Opened A Clothing Store With No Clothes In It, www.forbes.com/sites/lelalondon/2019/02/13/lego-and- snapchat-just-opened-a-clothing-store-with-no-clothes-in-it/#626fa4b37435. 28 Cf. The LEGO Group (2019): Lego Group Introduces Lego® Hidden Side™, Combining Building With Augmented Reality To Create A New Way To Play, www.lego.com/en-us/aboutus/news-room/2019/february/lego-hidden-side/. 29 Cf. Etailment (2018): So organisiert die Migros den vernetzten Handel, https://etailment.de/news/stories/migros%20digital-21144. 30 Cf. Etailment (2019): Testlauf my Migros: Der personalisierte Supermarkt für treue Kunden, https://etailment.de/news/stories/Migros-personalisiert- Supermarkt-cumulus-22110.
26 Surviving the Retail Apocalypse F Digital stores in 2025
Surviving the Retail Apocalypse 27 Digital stores in 2025
We believe that the role of the store in While some key technologies will the relationship between customers assist store employees, retailers will and retailers will be different in 2025, need to create a unique portfolio of but that the physical store will continue services to differentiate themselves to be a major pillar for a retailer’s from competitors. In 2025, stores customer engagement. will have to fit into smaller locations because of rising urbanisation in The ubiquitous connectivity provided by Europe.32 Digitised value chains will 5G will serve 1.4 billion connections.31 make all processes transparent. From 5G is a stepping stone for the IoT market design through to distribution, no and will have a significant impact on product will ever be untraced. In stores digital store operations and experiences. equipped with sensors and cameras, AI and machine learning will be part store employees will be notified when of nearly all applications in a retailer’s they need to refill a shelf – or robots environment, from prescriptive analytics will assist in stocking shelves. Empty for intelligent sourcing and procurement shelves will be a thing of the past. through to smart advertising panels Enriched with in-depth customer that personalise promoted items to fit relationship data, clienteling solutions a specific customer or reflect external can empower store employees to factors like the weather. Retailers will provide personalised services to shift from hypothesis-driven to real- thousands of people every day. Sizes time adjusted operations. AI will assist will be saved in the retailers’ clienteling them in anticipating and adapting to system to provide the perfect product, each customer’s needs – because no matter where the customer only personalised content will attract purchased it. By scanning products interest in a world characterised by with their smartphone, customers sensory overload. will receive information about the manufacturer, as well as the carbon The growing role played by data in footprint, nutritional information and companies’ strategic forecasts will online ratings. Plastic packaging will force the European Union to work on be strongly regulated and replaced extensive data protection regulations. by sustainable materials. Retailers These new regulations must not restrict will adopt endless aisle concepts to innovation, but should challenge create a showroom for their products. retailers to openly communicate any Products will evolve from mass- opt-ins whenever they use customer produced to tailored-on-demand or data for personalised services and to personalised products. Fast-moving gain insights from anonymised data in consumer goods retailers will remove cases where they do not gather opt-ins. checkouts from their retail spaces External factors like a decreasing to offer customers faster and more median age, urbanisation and the convenient shopping experiences. need for sustainability will challenge retailers’ development in Europe.
31 Cf. GSMA (2019): The Mobile Economy 2019, www.gsma.com/r/mobileeconomy/. 32 Cf. European Commission (2019): Developments and Forecasts on Continuing Urbanisation, https://ec.europa.eu/knowledge4policy/foresight/topic/ continuing-urbanisation/developments-and-forecasts-on-continuing-urbanisation_en.
28 Surviving the Retail Apocalypse Digital stores in 2025
Augmented and virtual reality will be In a world full of possibilities integrated into purchasing processes for customers, retailers can for more expensive or more flexibly achieve success by committing to configurable products to combine a partnerships. To get fit for future, hands-on experience with individualised retailers have to develop convenient, service. Voice assistants will be part flexible and personalised services of consumers’ daily lives because they that build on their key capabilities. are integrated into every device. As the As consumer awareness of climate median age drops, demand for delivery change rises, demand for sustainable options and convenience will increase products and services is increasing. and retailers should keep an eye on Urbanisation is introducing new sustainable and fast delivery methods challenges for delivery methods and that are cost-efficient. The wide diffusion making stores smaller. Nevertheless, of IoT devices will draw attention to emerging technologies will support e-waste. Retailers that invest in digital retailers in facing these challenges store components should consider the while strengthening their core lifecycle of IoT devices and any related capabilities and introducing new maintenance costs from the beginning. business models.
Surviving the Retail Apocalypse 29 Contacts
Contacts
Susanne Arnoldy Dr. Christian Wulff Dr. Stephanie Rumpff Partner Partner Senior Managerin Advisory Digital Leader at Retail and Consumer Leader Head of Industry Business PwC Germany at PwC Germany Development Europe Tel: +49 211 981-7412 Tel: +49 40 6378-1312 Tel: +49 211 981-2118 [email protected] [email protected] [email protected]
Ralf Böhle Laureen Sturhan Manager Associate Technology Consulting Technology Consulting Tel: +49 341 985-6238 Tel: +49 211 981-7826 [email protected] [email protected]
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