An industry in turmoil
The news that the retail industry has been in trouble has not been news for quite some time. The collapse and closure of numerous brick-and-mortar retail stores across the world, especially those of large chains, started after the financial crash of 2008. However, perhaps the more significant factor in its decline was the rise of eCommerce. This new online shopping revolution entered the mainstream in 2009 with the commercial release of 4G devices that enabled people to use the internet to shop anytime and anywhere. The days of customers being limited to stores in their vicinity and having to travel to them to shop and return goods were over. Now the consumer had choices. Choices what to buy, where to buy it, when to buy it, on what device to buy it – and, crucially, where it should be delivered.
For those retailers whose business model was solely predicated on expecting the customer to come to their physical stores, regardless of the inconvenience, the end was nigh. Adapt or die was the challenge – a challenge many failed to accept, let alone overcome. Household names such as Blockbuster, ToysRUs and HMV were destroyed by their inability to adapt to the digital age. Big box department stores were particularly hard hit, with JC Penny, Sears, Debenhams, Woolworths all falling into bankruptcy and becoming memories of a past shopping paradigm. And as they fell, so did the malls that housed them. Global retailers ended up closing all but the most profitable stores, and, as a result, high streets have become sad, depressing places. The future for bricks-and-mortar stores looked bleak.
Then the disaster that is COVID-19 hit, and now the streets and stores are emptier than ever.
An Industry in Transition
2020 has been devastating for physical retailers. In a world where the population has been told to stay-at-home, wear masks and avoid physical contact, the idea of going out shopping for fun seems perverse. Shopping has become a necessity that people try to avoid rather than embrace. Many clothing retailers have had to close their changing rooms, removing the 'try before you buy' benefit that buying apparel from a physical store had over online retailers.
Yet while physical stores suffered, online retailers have had a boom, for a world stuck at home is a world that shops online. In 2019 retail e-commerce sales had already reached $3.53 trillion worldwide. They are now projected to nearly double to $6.54 trillion by 2022. Amazon, the world's largest online retailer, had experienced a decade of continual growth, posting revenues of $280.5 billion in 2019. COVID-19 simply accelerated that growth. In Q2 2020, Amazon's revenue was $88.9 billion, 40% higher than the previous year. COVID’s transformative impact on retail stretches far beyond temporarily increasing eCommerce sales – it has caused a radical shift in human behaviours, as shown in Table 1.
COVID Behavioural Change
Population forced to use online shopping vs physical, and food delivery vs restaurants
E-commerce boom, change of business models for food establishments to delivery
Aversion to handling physical cash due to germ transmission
Contactless payment is mandatory in many places. Laggards embrace this technology.
On-demand access to goods and services
Increase in 1-hour delivery offerings
Prefer locally produced goods and services
Demand for fresh local produce - farm shops, butchers, bakers etc.
Working from home the new norm. Telepresence / remote working boom.
More home delivery, less popping into shops at lunchtime or after work.
Social distancing / avoid large gatherings
Decline in group-based activities – shopping malls / cinema / theatres
Table 1: COVID behavioural change and outcome.
I have previously covered COVID’s impact on eCommerce in the article 'Is COVID-19 ecommerce's tipping point?', which is worth exploring to understand the impact of some of these shifts. The entire retail industry – and the supply chain that supports it – is about to be transformed. For behind the scenes, a wave of disruptive technologies has been developed, awaiting the opportunity to cross the chasm into the mainstream. And the pandemic has provided the mother of all opportunities.
An Industry Transformed
Let's start at home. Not content with winning the race to create the world's biggest online marketplace, Amazon continues to try to remove every possible consumer inconvenience. So what is more convenient than buying all of your goods from a single store online? What about if you didn't have to go online? What about if you just said out loud what you wanted, and it arrived within hours? Which is exactly what Amazon had in mind when they launched the Amazon Echo back in 2015. Powered by an intelligent virtual voice assistant called Alexa, the Echo – and the variety of other Alexa embedded products - enables Amazon Prime users to place items into their shopping cart simply by verbally asking Alexa to do so. Once the order is complete, then they can check out and it is automatically processed and delivered.
Amazon's range of Alexa embedded devices.
The Echo launched a whole new market for smart speaker's, and other tech companies such as Google quickly brought out a competitive product called Google Home to stop Amazon from dominating the market. But Google is just a tech company, and not a retailer, so while the Home plays music and answers questions, you couldn't order your groceries through it. Hence the 2019 partnership with Walmart. Now, Google Home customers can simply say "Ok Google, talk to Walmart" and they can also add items to their grocery cart by saying out loud what they want and how many they want. The system also knows what you normally buy, so if you say 'add washing powder' for example, it will know what brand to order.
Smart speakers have created a new demand channel. As Alexa and Google Assistant are now embedded into a whole host of other devices such as your phones and your car, this means that the moment you remember that you need something, you can order it simply by saying it out loud. 146.9 million smart speakers were sold by the end of 2019, a number that has increased significantly since the start of COVID pandemic.[i] Amazon has captured 70% of this market in the US (Google Home has 24%),[ii] and their Alexa devices are now available in over 40 countries, including most of Europe.
What can be easier than saying out loud what you want? What about if you don't need to do anything at all? Back in 2015, Amazon also launched another service called Dash Replenishment. This is an expansion of their Internet of Things investment, allowing manufacturers to add this Alexa powered capability to their devices so that they can automatically order replacement parts when needed. For example, Brother, HP and Epson have Dash Replenishment printers can automatically reorder ink, Brita water filters can reorder replacement filters, and Samsung and Whirlpool washing machines can order detergent by tracking the number of washes that have been completed, etc.
Reinventing the Warehouse
Regardless of whether the order came from an online click, vocal command or machine instruction, the items need to reach you at home, work or whatever delivery address you've specified. This is added enormous complexity - and cost - to the 'last mile', causing retailers to reconsider their supply network looking for ways to reduce the costs while dramatically improving speed, efficiency and accuracy. Amazon's 2012 acquisition of Kiva robotics changed the warehouse paradigm from the picker travelling to the inventory, to the inventory travelling to the picker. Amazon now has over 200,000 Kiva bots working in their US fulfilment centres. Grocers such as Ocado, Walmart and Kroger have also redesigned their warehouses to utilise a cube style Automated Storage and Retrieval System (ASRS) that is controlled by powerful algorithms that control the placement, positioning of goods both horizontally and vertically. Goods are then picked by a swarm of robots that whizz along the grid at the top of the cube, recharging themselves when needed, allowing for multiple orders to be processed and picked at the same time, 24/7.
ASRS example. Image: Autostore.
These modular ASRS systems are incredibly scalable and space efficient. They can therefore be used in huge fulfilment centres, or small, urban spaces. ASRS providers such as Swisslog have even demonstrated how their ASRS system – called Autostore - could be integrated into malls or even large shops to replace the old, chaotic backrooms and storage areas, enabling bricks-and-mortar stores to also function as a fulfilment centre for online orders.
Robotic companies such as Fabric have also realised that these systems can be installed in urban places such as underground car parks. As people increasingly utilise transportation as a service, these car parks – ideally located in city and town centres – will become increasingly disused. They can therefore be repurposed using ASRS technology into urban fulfilment centres, helping to ensure same hour deliveries to ever more impatient consumers. Deliveries that will soon also be undertaken by machines.
Reinventing the Last Mile
Delivering goods to people's houses is an expensive affair at the best of times. It becomes incredibly expensive if you have to deliver within 24 hours, especially when companies such as Amazon continue to rachet up the pressure by offering this service for free. At the moment many companies – Amazon included – are trying to keep costs under control through not only automating their warehouses but also through utilising the gig economy so they only pay people for the deliveries they make, saving employee costs such as pensions, holidays and healthcare. This is only a temporary solution however, and therefore these are only temporary jobs. The long-term plan is to automate the last mile as much as possible, using a series of different solutions such as road robots and drones.
Starship Technologies' delivery robots have been a familiar site in some British towns for a while now, as well as across university campuses in the US. These small self-driving six-wheeled robots can carry items such as parcels, groceries and fast food to customers within a 4-mile radius and are now in use in over 100 cities and 20 countries. Supermarkets such as Co-op and fast food delivery services such as JustEat have been early adopters of this capability. Amazon unsurprisingly has also adopted road robots, developing an almost identical version it calls the Amazon Scout, which is being used in California, Florida and Tennessee.[iii]
Starship Delivery Robot and Amazon's Scout Delivery Robot.
These robots obviously reduce the cost of delivery dramatically, being both electric and driver-free. The last element has gained increased importance in these pandemic times, for people are now much more accepting of receiving goods through non-biological methods than previously.
Not everyone lives with 4 kms of a fulfilment centre or supermarket, so the challenge still exists as to how you automate these longer journeys. One idea is the mothership concept, where vans (currently driven by humans, but soon to be autonomous) are loaded with the delivery robots and then driven to a spot the scheduling algorithms determine as being the optimal stop-off point, so that the robots can travel to the designated houses. Daimler partnered with Starship Technologies on this back in 2016, investing 16.5 million euros in the robotic company to co-develop their Robovan concept, with Europe being the first intended market.
Another car manufacturer – Ford – has partnered with Agility Robots to also create a similar system, this time with a two-legged robot called Digit that actually carries the goods up to the door. Digit has a number of advantages over the road robots, most notably the fact that it can climb stairs, enabling it to deliver goods to flats and apartments.
Digit robot by Agility Robotics
The air has also been seen as a way to rapidly deliver goods to customers, avoiding traffic and able to travel in straight lines. Amazon was the first to announce their plans to use drones to deliver items to customers back in 2013 and have been working hard on this concept since then. Other companies also saw the potential for drone-based logistics, and companies such as Google and DHL have been developing their own solutions. The major bottleneck appears to be safety legislation, but in 2019 Google received approval to operate its fleet of 'Wing' delivery drones from the Federal Aviation Administration (FAA), and in August 2020 Amazon also received FAA approval for its Prime Air drones. It is therefore likely that we will start to see drones delivering goods in the US next year, and in Europe by 2022. Again, COVID has helped shift people's opinion on drones, due to the need to support a more home-based consumer base and provide a non-biological method of delivery.
Reimagining the Supermarket
Despite all of these innovations that are centred around the eCommerce experience, there is no one who believes that we will see an end to physical shopping anytime soon. Bricks-and-mortar stores are still here to stay, but the shopping experience that they provide is also being radically transformed through technology. Unsurprisingly, Amazon has been at the centre of this transition, again looking to shift people's paradigms by solving problems and inconveniences that people previously thought were an unchangeable part of the shopping experience. Nearly everyone agrees that the worst part of shopping is the bit at the end, where you have to queue, unpack and scan your goods – either self-scan or via a cashier – and then repack them into your own bags. At busy periods this can be a painfully long ordeal, and you often see people in a hurry give up and just leave. But what if you didn't have to do this? What if you could just pick your goods from the shelf and walk out the door? It wasn't a question the consumer was asking, but it was one that Amazon asked – and solved.
The launch of Amazon's Go stores was similar to the launch of the Echo – people were amazed at the creation of something that no-one was asking for because they didn't know it was possible. Amazon utilises what it calls 'just walk out' technology that consists of computer vision, sensor fusion and deep learning technology. As soon as you arrive and scan in at the entrance you are tracked, and the system automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart. When you are finished shopping, you simply leave the store and your Amazon account is automatically charged. The concept was initially trialled with employees in Seattle, and then rolled out across the US in 2019. Amazon plans to open 3000 Go stores across the US by 2022 and has already identified locations for Go stores in the UK and Germany.
As the technology advanced, so did Amazon’s aspirations. In 2020 Amazon launched Amazon Go Grocery in Seattle, which is a full-sized 10,4000 square foot supermarket. To allow for bigger volume purchases, Go Grocery stores also include Alexa embedded shopping carts called the 'Dash Carts' that are embedded with cameras, sensors and a scale to automatically record all items placed in the trolley, keep a tally, and then automatically charge the customer's Amazon account when they leave the supermarket.
Amazon Dash Cart
Not having to queue and pay completely changes the shopping paradigm, and given the choice, customers will undoubtedly choose to use stores that allow you to avoid this part. Amazon knows this - and so do all of its competitors. Amazon's successful launch of this technology caused an immediate competitive response from other major grocers such as Walmart, Carrefour, Sainsburys and Tesco, who are all trailing solutions designed to enable the shopper to avoid the dreaded checkout queue. But most companies don't have the deep innovation pockets Amazon has – and Amazon knows this. So, in 2020 Amazon announced that this technology was now available to rent from Amazon, enabling other retailers – both large and small – to access this capability. It has also created what is sure to be a very profitable new business model for Amazon.
As well as eliminating the checkout (and the cashier), robots have also found their way into the store. A 2018 report identified that nearly $1 trillion USD was lost annually due to stores not having items on the shelves, something that Walmart is trying to resolve with its use of the Bossa Nova robotic shelf scanning sand inventory counting system that continuous checks to ensure that the right stock is in the right place at the right quantity. Any discrepancies are identified and flagged immediately so that a human worker can resolve the issue. Walmart has over 1000 of these robots currently in their US stores and are looking to roll them out to other countries as well. They also have floor scrubbing robots that can identify and clear up spills.
Bossa Nova robot operating in a Walmart store
The Cashless Revolution
The move from physical cash to digital and contactless payment has been ongoing for some years, but Amazon has just taken this to another level by releasing Amazon One, a biometric palm scanning device that enables you to access Go stores and pay for goods simply by waving your hand over a scanner. Whereas this might have been balked at pre-COVID, now the aversion to handing cash or touching number pads means that people are more likely to embrace the idea paying for goods in this way. Biometric payment systems are already well established in places such as China, where systems such as 'Smile to Pay' allow you to purchase and pay for goods through facial recognition. Soon your face or your hand will be your own debit card; something you're unlikely to accidently lose or leave at home.
Amazon One Palm Recognition, and Alipay's 'Smile to Pay' facial recognition payment system
Biometric technology can be used anywhere people queue to pay for goods, such as fast food restaurants, cinemas and drive-throughs, meaning that the days of queuing to pay for goods, and fumbling around for change, will rapidly become a thing of the past; another experience we will tell our disbelieving children and grandchildren about.
Retailers have been quick to understand that this technology provides more opportunity than simply removing the checkout. Not having to pay for cashiers fundamentally changing the profitability of certain locations and how long they can stay open for. As Marit van Egmond, brand president for Dutch retailer Albert Heijn explains; "This latest concept not only makes shopping very easy; due to its autonomous nature, this 'plug and play' store can be placed at locations where there is a (temporary) need for a small store, from offices or university campuses to residential areas under construction that do not yet have shopping facilities. A second advantage is that the store can always be open, which is useful for people who are on the road very early or very late."[iv]
One of the rarely mentioned advantages is the reduction in shoplifting, because the system knows who you are, and the omnipresent vision sensors and surveillance technology knows when you pick up an item. You can hide it up your jumper if you like, but the moment you walk out of the store you're still being charged. Given that stock shrinkage through theft costs the US and European retail trade over $60 billion in 2019 (1.44% of sales), when combined with the labour cost savings, this technology will pay for itself very quickly indeed.
Table 2: Shrinkage and retail crime costs in US and Europe 2019. Source: Centre for Retail Research.[v]
Reinventing the Whole Experience
To see how these technologies will combine to transform retail we only need to go to China. Alibaba and JD.com, China's two largest retailers, have completely reinvented shopping by merging physical and online shopping to create a whole new, highly personalised retail experience to create something they call ‘New Retail’ or ‘Boundary-less retail’.
Alibaba's New Retail vision can be seen in its 'designed from the ground up' Hema supermarket stores that provide a shopping experience powered by your mobile phone. Customers can view detailed product information as they walk around the store by scanning QR codes, and they recieve personal discounts and offers to their phones as they walk around the store. Customers can also "try on" apparel and make-up virtually with Augmented Reality (AR), without having to queue for fitting rooms or search for samples - a boon in a time when many changing rooms are shut and trying on clothes is frowned upon. This creates a tactile, immersive and interactive grocery shopping experience. Hema focuses on ultra-fresh food and provides on-site chefs that will cook food for customers to try on the spot, and if you like it, will cook a meal for you using your groceries. The supermarket also serves as a logistics centre and will deliver the customers groceries and cooked meal within 30 minutes if they live within a 3km radius of a Hema Supermarket.
The first Hema store opened in Shanghai in 2016, and now there are over 228 stores across China, with plans to open 2,000 by 2022. [vi] In May 2020, Alibaba also opened its first Hema village, a concept it is keen to expand. It is easy to see why. Hema stores record between 3-5x more revenue per square metre than its competitors achieve.[vii] The reason for this is clear – customers love the concept. Hema stores are so successful that many people have deliberately moved home specifically to live within Hema’s 3Km delivery radius, with properties near the store attracting a premium.
JD.com, China's biggest retailer, also has a similar vision, one it calls 'Boundaryless Retail'. Like Alibaba, the company envisions a retail experience devoid of barriers and powered by data, collaboration and innovation. It has embraced all of the aforementioned technologies, building fully automated fulfilment centres that supply stores and urban logistics centres via underground tube logistics, which then deliver to the customer using drones and road robots. JD.com has also realised, like Amazon, that there is good money to be made in opening up its technological capabilities to other companies. Merchants, luxury clothing companies and hotel chains have all partnered with JD.com’s so they can provide their customers with a boundaryless retail experience.
For half a decade I have been declaring that the future of the supply chain – and retail - is PAL – Personal, Automated and Local.
Personalised as companies increasingly use algorithms to track our movements, buying decisions and viewing habits in order to offer individualised items, discounts and deals. AI-powered tools such as AR will revolutionise retail industries such as apparel, alleviating the currently troublesome online customer experience caused by standardised sizing and cumbersome returns policies. For example, fashion start-up ARDORN’s innovative EeSpoke solution combines digital measuring systems and 3D avatars to mirror your exact size and enable a virtual try-on before buying, which combined with bespoke manufacturing ensures the clothes are the perfect fit, removing uncertainty, reducing returns and eliminating waste.
Automated though all of the tools discussed in this article, from ASRS warehouses, drones and road robots to service online orders, through to 24/7 'just walk out' stores that provides allows people to enter and pay for goods with just their hand or face.
And local, because the retailer and its supply chain will be centred around the consumer, and come to them, not the other way around. We are moving back to a world of local shopkeepers and stores but ones that are supported by some seriously powerful technological hardware. This will enable retailers to focus on providing more unique products, services and experiences rather than stock counting, shelf-filling and cash collecting.
Shopping is not dead – it’s just asleep. When it awakes, it’s going to be transformed.
Article published on behalf of P3 by futurologist:
[i] Ilker Koksal; ‘The Sales Of Smart Speakers Skyrocketed’, Forbes, March 10 2019 https://www.forbes.com/sites/ilkerkoksal/2020/03/10/the-sales-of-smart-speakers-skyrocketed/
[ii] Laren Fiener; ‘Apple’s smart speaker is struggling against rivals from Amazon and Google’, CNBC, 05 Feb 2019
[iii] Scott Simmie; ‘Amazon’s ‘Scout’ delivery robot rolls out in two more US states’ DroneDJ, 21 July 2020 https://dronedj.com/2020/07/21/amazons-scout-delivery-robot-rolls-out-in-two-more-us-states/
[iv] Fiona Briggs; ‘Ahold Delhaize pilots digital AH to go for a customer grab-and-go experience in The Netherlands’; Retail Times. 25 September 2019 https://www.retailtimes.co.uk/ahold-delhaize-pilots-digital-ah-to-go-store-for-customer-grab-and-go-experience-in-the-netherlands/
[v] Centre for Retail Research 2019. ‘Crime Comparisons. Retail Crime in the U.S., UK and Europe 2019’, https://www.retailresearch.org/crime-comparisons.html
[vi] Emily F; ‘Alibaba Builds Shanghai’s First High-Tech Hema Village; Produce Report, 18 May 2020 https://www.producereport.com/article/alibaba-builds-shanghais-first-high-tech-hema-village
[vii] Mark Andrews; ‘The Future of Shopping’, CKGSB Knowledge, 13 July 2020 https://knowledge.ckgsb.edu.cn/2020/07/13/retail/freshippo-future-shopping/