The Case for Frictionless Commerce as the Future for Most Retailers
A recent article on Total Retail by Mark Ryski titled Why Amazon Go is a ‘No-Go’ for Most Retailers caught my attention. Ryski’s article postulated that grab-and-go technologies would be too expensive and complex to implement for most retailers, and used Whole Foods’ footprint (average of 39,000 square feet) as an example. The issue I have with Ryski’s position is that average retail stores are smaller footprint, such as convenience stores, restaurants, clothing shops, etc.
I shared my perspective on the subject (at a high level) with Ryski and he responded, stating that, “My key argument is that with current technology, it's a challenge … but I agree that future technology will make this practical and affordable for many retailers.” Per this clarification, I agree with Ryski.
This article postulates a series of points which support my perspective: Frictionless commerce will gain mass market adoption by retailers in the not-too-distant future.
What's the Typical Retail Store Size?
The intent of this article is not to analyze the square footage of brick-and-mortar stores. However, to support my position, it's necessary to consider the size of a typical retail store. I researched the topic and wasn't able to find this data publicly, so I’ve created my own proxy. Considering average size of a retail store across eight major retail categories, I estimate the typical retail store is 7,900 square feet.
The Precedent for the Rapid Proliferation of Technology
Ryski’s article noted that the 1,800-square foot Amazon Go store has hundreds of sensors, cameras, and scanners, and that this store likely cost Amazon a fortune to build. Ryski said that “the technology overhead alone would exclude virtually every brick-and-mortar retailer from an Amazon Go-esque deployment at scale.” Are hardware technologies expensive today? Some, yes. Will the cost decrease drastically given time? Yes. Will that create opportunity for massive disruption? Yes!
I believe it will be fiscally feasible for the typical mid- to large-tier retailer with an average store footprint of 7,900 square feet (+/- a few thousand square feet) to invest in grab-and-go technology over the coming five years to 10 years. In order for retailers to prepare for this now, the first step is to invest in the infrastructure for digital commerce. More on this in a moment.
Author, entrepreneur and futurist Tony Seba demonstrated that so-called "experts" who predict the future of technology disruption are often very wrong, stating "In 1985, AT&T hired McKinsey & Co to forecast cell phone adoption by the year 2000. McKinsey projected that in 15 years, there would be 900,000 cell phone subscribers. The actual number was 109,000,000." Not a small mistake; a factor of 120x.
Seba continued, "it’s usually the experts or industry insiders who dismiss disruptive opportunities." For example:
- “There’s no chance that the iPhone is going to get any significant market share. No chance … ” Steve Ballmer, CEO, Microsoft, 2007
- “A great brand. A great balance sheet, cash flow. This is a very smart time to be in the picture business.” Daniel Carp, CEO, Kodak, 2000
Trends Pointing Toward Frictionless Commerce
What trends are pointing toward the adoption of frictionless commerce in the near term?
- Biometric authentication is ushering in more seamless, secure payments that provide consumers with more personalized options for how they pay.
- Artificial intelligence/machine learning and computer vision technology can recognize consumers, their purchase histories, product preferences, etc.
- Mobile commerce applications are beginning to encapsulate the entire retail consumer experience (e.g., mobile payments, order ahead, curbside pickup, order for delivery, split a check, etc., all seamlessly integrated with loyalty programs and store operations).
- Connected car applications (typically found on a car’s infotainment system) can now communicate directly with retail stores for pay-at-pump at gas stations as well as order ahead.
- Scan-and-go (mobile checkout) technology will continue to grow, setting a precedent and new expectation on the part of the consumer that they can get in and out faster without having to wait in lines.
- There’s more …
Retailer demand for frictionless commerce sensors and cameras will create a boom fueled by the existing global manufacturing supply chain and, over time, will drastically drive down the cost of manufacturing and logistics, thereby driving down end cost to retailers.
Last but absolutely not least, companies like Stuzo are already providing retailers with the infrastructure for connected digital commerce. This powerful middleware provides a single point of interface, enabling all frictionless commerce technologies (biometric devices, AI systems, store sensors, cameras, etc.) to communicate instantaneously with store site systems (point of sale, inventory management) and payment processors.
Consumer Spending Drives Technology Adoption
In an article I recently wrote for NACS titled Mobile Steadily Takes Over Retail Commerce, I noted that by the year 2020, nearly 60 percent of U.S. consumers will be making purchases on mobile. This provides further compelling evidence that retailers must adapt to the wants and needs of the digital consumer.
Practical Advice for Retailers
Avoiding the inevitable is a surefire way of ending up like Blackberry, Blockbuster or Toys"R"Us. What should retailers be doing today? Here are some practical steps our retail clients are taking:
- Invest in adopting your own connected commerce application server — a single point of interface that can process digital transactions from any consumer endpoint/channel (e.g., mobile, web, wearables, IoT, biometric, or connected car).
- Understand that consumer brand preference can quickly shift to a retailer that offers a better overall commerce experience.
With that in mind, consider taking the following actions:
- Experiment with new ways to seamlessly blend the physical and digital commerce experience, such as mobile scan-and-go or order ahead (to make for a more convenient line-skipping experience).
- Offer consumers options to pay using their preferred type of digital tender and their preferred method (e.g., Apple Pay with their credit card via NFC, or Mobile Pay with an in-app wallet connected to their checking account).
- Design and adopt new loyalty mechanics and subscription models that go above and beyond simple savings or points by rewarding consumers for being loyal long-term customers and offering them choice in how they’re rewarded.
In Summary: Embrace Change
Change is the only constant, and progress is the only option. Retailers that brush off technology innovations as fads, or fail to recognize the potential downstream impact, such as Nokia, Kodak, Motorola, Blockbuster and, most recently, Toys"R"Us, end up getting massively disrupted and lose out on huge market opportunities. Or worse, they go extinct.
Aaron McLean is author of Controlling Comparison Shopping by Embracing the Behavior and is chief operating officer at Stuzo, a provider of personalized and predictive commerce solutions for retailers, powered by products, services and insights.
Related story: Controlling Comparison Shopping by Embracing the Behavior