AI in Retail: Beyond The Hype and Into Reality for Store Operations.
The Top 10 AI use cases that Retail Operators at every level told us would transform their daily work. AI for Retail Operations is...
Up until the last decade, 99% of all retail transactions would happen in a store. These fitted into one of two models:
But two major shifts have disrupted this simple model. Omnichannel has changed the game for convenience – 80% of Americans now use multiple fulfillment methods. And the rise of digital has taken the discovery process digital, with 87% of shoppers researching online before purchase.
What has this meant for stores?
If we are to believe most commentary, a store should be all things to all people, enabling customers to buy where they want, when they want, and how they want. A store needs to maximize both convenience and experience, while facilitating all the new fulfillment options available.
Such a philosophy is clearly wrong. Retail, like any business, is about choices. Retailers must start thinking about the new choices they need to make now at the store level. The more they ask of their stores, the more complex the stores become. And complexity adds cost. So where is the balance between the store that is all things to all people, and the store that makes viable business sense?
Beyond buying versus shopping: a new framework for store complexity. Complexity is a word that surrounds retail today, yet it is focused on a couple of areas. The first is complexity of fulfillment. As mentioned, this has been exacerbated by the rise of omnichannel. More specifically its the rise of omnifulfillment, an offering to give the convenience-seeking customer multiple pathways for making purchases. (BOPIS, BORIS, delivery picks, etc.).
The second is complexity of service. This is about the need for better in-store experiences, better training, and better customer interactions to meet the demands of the experience-seeking customer.
Understanding these two complexity dimensions gives us four broad store categories, each with a different purpose and different KPIs to drive success. Below is a description of each store type, followed by a table summarising their key priorities (Table 1).
For Marketplace retailers, excellent service is the ultimate goal. The idea is to attract, guide discovery, and build relationships. Of course, this can all be augmented with digital but the physical store is at the heart. Experience metrics are core: the ability to attract new and repeat customers, to upsell and cross sell them. Examples are apparel, durable goods, and luxury.
When complexity is at its greatest, how do you operate? The demise of department stores, most appropriate for a situation like this, shows how hard this is to get right. Consumers have high bars for experience, service, and fulfillment, and balancing all of them appropriately versus the more focused store types will always be challenging. Examples are department stores, electronics, and general merchandise.
The Shop is most similar to the buying experience of old, a simple unit which customers visit to purchase with intent, or even a dark store handling collections only. They are both ‘Intent Stores’. Consequently, convenience metrics are of primary importance to ensure availability, ease of finding, good presentation, and a frictionless in-store fulfillment process. Examples are convenience stores, local grocers, off-shelf apparel, and dark stores.
What is the perfect setup of a store with multiple fulfillment options? Some retailers are creating separate areas of the store for delivery and BOPIS, others are putting stock-pickers on the shop floor. Each is seeking the same aim: to optimize the amount of orders that can come out of this single location, no matter how or where they are purchased. This requires a primary focus on accuracy (to ensure all customers and other providers can be satisfied) and efficiency (to ensure a profitable labor and capital model). Examples are large form at grocery, and home.
|Role||Physical location for shopping and being inspired||Physical location for 360° customer experience and fulfillment||Physical location for buying/servicing goods||Physical location for multifulfillment|
|Key areas of importance for sales||- New visitors|
- Repeat visitors
|- New visitors|
- Repeat visitors
- Stock & order accuracy
|Key ares of importance for labor||Productivity = sales per FTE||Productivity = total revenue/labor hours||Productivity = sales/labor hours||Productivity = orders/labor hour|
Historically, retailers would choose a certain type of store and perhaps flex attributes such as size and product mix for differing areas, but the overall purpose of most stores in the portfolio remained the same based on a consistent brand strategy.
In conversations with retailers, one of the things we are finding is that many are now considering a portfolio approach. They are realizing certain stores are better as showrooms, others are best suited to being warehouses, etc. This is allowing retailers to think more broadly about the different physical needs of each store and set up their whole network more appropriately.
It is also allowing them to experiment more. Dicks Sporting Goods and Starbucks have shown their ability to open showrooms with House of Sport and Reserve Roasteries. Retailers like Apple and Ulta have partnered with Target to create hub-style shop-in-shops.
A decade ago, as newspapers were talking about the retail apocalypse, the store was seen as a core issue for retailers to resolve. Unfashionable and unloved, a shrinking need was predicted as the world became eCommerce-centric.
But far from replacing the stores, changes in the landscape have instead added greater dimensions to it, enriching physical retail locations to further serve and fulfill customers. For anyone in or interested in the industry, this makes store strategy and operations an even more interesting challenge to navigate.