Seven Signs of Disruption to Watch in 2017

By: Rod Sides, Vice Chairman, US Retail, Wholesale and Distribution leader, Deloitte LLP

Rod Sides, Vice Chairman, US Retail, Wholesale and Distribution leader, Deloitte LLP

Many traditional retail operations continue to be disrupted by technologies that remove barriers to entry for agile players. Challenged by evolving market fragmentation, pragmatic adoption of technology can present retailers with opportunities to innovate as well as to develop new profit models. Global market forces combined with an increasing proliferation of retail channels, along with commoditization of products and pricing, have resulted in elevated expectations on the part of many consumers. Preparing for business model disruption is the new normal. To retain customers’ loyalty and win new business along with greater share of the consumers’ wallets, retailers need to consider:

• Attracting purchasers into physical stores with improved loyalty programs and experiential engagement experiences
• Offering unique or highly differentiated product and service offerings while ensuring in-stock inventory levels
• Achieving operational excellence in addressing customer service and support requests

"Agility and flexibility are apt to be required for retailers to thrive in 2017 and beyond"

Disruption is the new normal

Many of us are living in an uncertain, complex, and ambiguous world of constant disruption—and the rate of change is accelerating. Social, technological, environmental, political, and economic trends have converged to create disruptive forces that are shaping many consumers’ behaviors and preferences, including how, when, and where they make purchases. It’s easy to see the disruption that has toppled many leading retailers after it occurs. Spotting disruption before it occurs is difficult.

Agility and flexibility are apt to be required for retailers to thrive in 2017 and beyond. In the race to deliver customer value, 90-day assessment programs have given way to an accelerated pace of “fail fast, learn quickly, move forward” and succeed early by delivering minimum viable products. Established players may be at greater risk of losing market share to retail disruptors who are held to different standards and better able to exploit organizational and operational agility.

Nimble players may take market share from big box retailers

Some of retail’s biggest competition no longer arrives from the big-box down the street, but from a large number of smaller, nimble players who are stealing share from larger, more traditional retailers. 9 New economics are expected to drive unprecedented volatility and competition in the market place throughout 2017. Increased market fragmentation is not just a digital phenomenon, as other non-traditional competitors will possibly continue to steal share as well. Certain apparel and cosmetics brands have built a strong foot hold in the US market seamlessly connecting the physical and online shopping experience. Businesses should consider:

• Retail sales typically track GDP growth—so category share may be highly poachable rather than greatly expandable
• Differentiation should likely focus on product uniqueness first and customer experience second
• Expansion and growth is expected to come from emerging global markets, non-traditional channels and partnerships
• Diminishing importance of stand-alone brick and mortar stores is expected give way to experiential engagement, mobile, social network, and on-demand commerce channels
• Market share winners will possibly deliver both product uniqueness and enhanced customer experiences while reducing operating costs

Product uniqueness can be at price, promotion, and placement

Retailers should continue to remain laser-focused on getting the basics right by providing distinctive, high-quality, and trusted products to consumers at the right price. No technology strategy, including sophisticated customer engagement (CRM), digital marketing software, or well-designed apps and websites can act as a substitute for inaccurate merchandising decisions or poor product offerings. While providing customers with great digital and in-store experiences is important, ultimately, retailers should strive to have customers more excited about owning a specific product rather than the channel it was purchased from. In short, retailers should strive to produce, market, and deliver on their brand promise by:

• Supplying distinctive and superior products, product extensions and services
• Creating excitement, desire and demand via digital assets and distribution channels
• Remembering that nearly everyone discounts, so price, trade promotions and placement is secondary to producing exceptional products

On-demand retail can feed instant gratification

When it comes to getting the deals and products they seek, many consumers’ expectations continue to increase. Offering attractive shipping, coupon or trade promotions have become the norm among many retailers looking to drive sales in a competitive market place. Everything from pet dental chews and baby diapers to prescription medications are available for programmed delivery via online subscription-based services. Using just a few taps and swipes, many shoppers now expect products delivered to their door in record time, at a competitive cost, often with free shipping and returns. The desires for instant gratification with zero friction has altered many consumer mind sets forever—consider:

• Flash sales— capitalize on consumers’ desire for instant gratification by offering dramatically lower prices for short periods of time from an online virtual location
• Pop-up stores—fuel impulse shopping by expanding traditional brands’ in-store experiences at newer locations on a seasonal basis
• Virtual markets—co-located in high-traffic areas heighten the convenience of buying groceries in places customers frequent daily such subway stations, parks, and public spaces

Introducing technology into the shopping experience continues to shift the economic benefit of a retail transaction away from the retailer and toward the consumer.

Consumers expected to adopt AI

The promise of emerging technology has never been greater. Ever-evolving enabling technologies including AI, social commerce, the Internet of Things (IoT) and virtual reality all have the potential to transform the customer retail experience and day-to-day operations like never before. While the opportunities may seem endless, retailers should refrain from allowing the explosion of emerging shiny penny technologies to take precedence over the foundational elements of successful retailing.

While it may take a few years for technologies such as augmented reality, cognitive intelligence, or machine learning to disrupt retail, a significant impact from AI may be a lot closer than some might expect. AI is at an evolutionary tipping point and already much more embedded in our daily lives than most people think. Consumers currently encounter elements of purposely designed AI in their daily lives by using voice-activated virtual assistants such as Amazon Alexa, Microsoft Cortana, or Siri voice recognition software 14 to find restaurants, provide directions, play music, or make suggestions for life style changes.

For retailers in 2017 and beyond, AI also holds great promise for stream-lining business processes and improving customer service—all while reducing operating costs.

Social networks may disrupt online

As companies continue to invest heavily into providing direct-to-consumer transactions, social networks are expected to evolve from branding, customer service, and marketing channels into retail channels. Similar to Amazon’s One-Click purchase button, certain social networks are positioned to function as an additional commerce “front door” for shoppers by enabling them to make a purchase via one click from within their social network.

For consumers, any one of these social networks can quickly transform into a shopping session via purchase from a retail partner. Networks should consider incorporating third-party payment technology such as Amazon Payments, Apple Pay mobile payment solution, 15, and Google Wallet to reduce customer effort by enabling consumers to complete a purchase and check-out process without leaving their social network.

Retail channel fragmentation and disruption may offer opportunity

The most successful retailers may be defined by their attitude and approach to disruptive forces. New players and business models, rising customer expectations, shifts in spending, changing cultural norms and increased market fragmentation will all likely shape retail’s future landscape.

Retailing is more than brick and mortar, click and mortar, and point and click. Channel proliferation is a catalytic wakeup call for retailers to envision new profit-sharing models and partnerships in order realize greater profits. Retailers nimble enough to adapt and innovate their way through the inevitable changes ahead are expected to continue to grow and thrive in perhaps new and unexpected ways.