With sales in excess of $6 trillion in 2019, the retail industry is one of the most important segments of the economy in the United States. The impact of COVID-19 has been devastating to the retail industry, resulting in most retailers having to close their stores and furlough or lay off their employees. Many retail analysts and economists are asking is what’s next for retail.
What Customers Want
Jeff Bezos, the founder of Amazon, makes the argument that certain things in retail will never change. For example, customers will always want low prices, fast delivery and a vast selection of products to buy from. The success of Amazon proves that Bezos knows what he’s talking about. However, I predict that Amazon and other major online retailers will soon run into the same issue: the limits of technology.
Fast delivery is achieved by utilizing different methods for transporting a product. For example, Amazon’s goal is to introduce the use of drones to speed up deliveries to customers. For argument’s sake, let’s say that in 2021, Amazon has unrestricted ability to use as many drones as it wishes. Will the speed of deliveries increase? Yes. However, the more important question might be: What’s next? What will Amazon and other big retail companies introduce in 2022 or 2025 to increase the speed of deliveries? Unless they can find a transportation solution that is faster than using drones, they most likely will not be able to increase speed past a certain point.
The same example can be used for increasing the assortment of products offered for sale on a retailer’s platform. It’s conceivable that a retailer could list one billion individual products for sale on its website. However, can it list 1.5 billion? What about 2 billion, and so on? At some point, e-commerce organizations will discover that they could offer all available products, but continuing to add products does little to add value to the customer and, in my experience, only increases costs and complexity.
With a background in design thinking and reimagining how we bring retail products to market, I know how important it is to continually question what the consumer will want out of a retailer. I expect that in a few years, retail executives will be faced with the reality that there is not much more that they can do to increase value to customers through speed or assortment.
Virtual Retail: The Next Big Thing
COVID-19 is arguably one of the most disruptive events ever to impact the retail industry. Thousands of retail stores remain closed, and millions of retail workers have been furloughed or laid off. Grocery retailers continue to suffer a shortage of products, resulting in bare shelves.
The current climate also having an impact on consumer behavior. Instead of wanting to shop inside a store or visit a mall (behaviors that were already decreasing prior to the pandemic), consumers are embracing shopping online at home. Grocery retailers have experienced double-digit increases in demand for online grocery ordering and delivery, for example.
This crisis’ impact on the retail industry could be severe, with many large and small retailers going out of business due to the lack of customers in their stores. What will remain is a new normal that creates possibilities for a new model for shopping and opportunities for new retail entrants to compete against bigger retailers.
What I envision is that consumers will trade speed for convenience and a shopping experience they can enjoy from the comfort of their own home. Under the surface, however, I believe consumers will still want to shop in a store, or at least they will want the feeling of shopping in-store. Consumers will want to roam aisles. They will want to seek out bargains and pick up and examine products off a shelf. Price and assortment will also remain important to consumers.
But if consumers eschew physical retail stores, won’t that eliminate any possibility of creating a model whereby customers shop inside a store? No. And here’s why.
I believe that the next big thing in retail will be the use of virtual reality (VR) to give consumers the opportunity to virtually shop from the comfort of their home, while providing them with an ultra-realistic retail experience.
In tests that I have been involved in related to this topic, I have been amazed at how realistic shopping inside a virtual store is and can understand why consumers will likely embrace the technology. Do you want to shop for jewelry and see how a bracelet, necklace, ring or watch will look? VR can provide the experience. Are you interested in shopping for groceries but want to roam specific aisles looking for deals? VR can provide the experience. Are you interested in shopping for shoes and apparel but want to try on dozens of outfits and shoes? VR can provide the experience.
For example, Facebook owns the VR company Oculus, which has the potential to create an integrated VR and social media shopping experience. Google has an extensive VR capability and could invest in a virtual shopping experience for customers.
The challenge that Facebook, Google, Apple or any other company that enters the VR shopping space will encounter is the lack of fulfillment capabilities. A plausible solution, due to the cash piles and high stock prices of the companies I mentioned, is that these organizations could look to acquire shipping companies such as FedEx.
What I find most interesting about this topic is that it opens the door for companies that don’t currently have a large presence in retail to create a new retail model and disrupt the status quo of Amazon, Walmart and other large retail leaders.
What’s the future of retail? I believe its virtual reality. If VR retail becomes a reality, retail executives are going to have to answer this question: What do we do now?