Today’s retail executives face many of the same age-old challenges their predecessors confronted – e.g. how to grow sales, provide exceptional customer service, improve on-shelf-availability, enhance labor scheduling, and the like. (Not to mention, “how to make a buck along the way”!) What’s different nowadays is that traditional brick and mortar retail is under incredible pressure as sales continue to shift to eCommerce and newer, tech-enabled competitors. Retail store closures have outpaced store openings in recent years and foot traffic is down at malls and stand-alone store formats.
That’s why it’s now imperative that retailers and CPG brands deliver the seamless, omni-channel shopping experience customers are demanding. Convenience is paramount. Customers want to check via phone whether an item is in stock, quickly swing by the store, rapidly find the item in the correct location and self-checkout. That’s forcing retailers to figure out how to deliver a fast, friction-less and integrated shopping experience across a range of operating models – in-store, BOPIS and delivery.
The good news is that a wide range of tech- and AI-enabled solutions now offer hope for answers. The challenge is in evaluating all of the options and choosing solutions that delight shoppers – in a cost-effective way. Navigating through the complex set of technologies and tradeoffs has become make-or-break for the futures of these organizations and the careers of the industry executives that lead them.
Four Steps to Building the Store of the Future
Kroger CEO Rodney McMullen exemplifies a new breed of retail executive who is putting customer satisfaction at the core of his “from physical to omni-channel” strategy. McMullen recently told shareholders, “We are rapidly expanding our capabilities to be relevant, available and accessible to our customers in both digital and physical environments.” Retailers and brand executives are starting to adopt the language of their tech peers, using phrases like “use-case,” “tech-stack,” and “digital transformation.”
But defining – with the participation of the brand manufacturers – the physical, technological and staffing models for the store of the future is proving pretty difficult given a complex and fragmented ecosystem. All of the major retail consulting firms have established offers centered on helping make sense of it all.
In our view, leveraging today’s tech to build the store of the future should involve a few keys steps:
- Focus on specific use cases and identify the “value-driving levers” such as customer satisfaction or profitability improvement
- Pilot, pilot, pilot – i.e., test solutions in a real-world environment with an eye towards tangible results and setting up broader deployments for success
- Establish an objective, fact-based evaluation system to know if the change is achieving its expected goals
- Factor in capital efficiency and scalability – ideally with costs shared between retailers and brand manufacturers
Let’s consider the use case of stockouts on the retail shelf – a silent profit killer for both retailers and the brand manufacturers who supply the products. At any given time, roughly one in 12 products is missing from the shelf. In fact, the numbers are as high as one in five for certain categories of products and promotions. This translates to several points of lost revenue, slicing into already-too-thin profit margins.
Despite automation of many parts of store operations and delivery, when it comes to monitoring the shelf, automation and tech have largely failed. RFID tagging (and untagging) each item is too cumbersome. Fixed cameras are a crapshoot in terms of placement and inevitably have the wrong angle to identify shelf items and shelf problems such as faceovers or pushed-back products. Ground-based robots, though sometimes cute, have to be sumo-wrestler-size in order to see the shelves and they get in the way of – or scare – shoppers. (It also doesn’t help that each robot costs more to deploy and operate than a new Maserati.) Inventory systems and cash register (POS) estimates for on-shelf-availability can miss the mark by up to 50%.
And so many revert back to well-worn manual methods. Store workers ‘walk the floor’ in an attempt to spot gaps on the shelf. Brand manufacturers deploy armies of part-time contractors who literally eyeball shelves for missing items and misplacements. All by hand, all error prone, and, at the end of the day, missing up to 40% of the problem.
The Promise of Computer Vision and AI
One of the most promising new areas is the use of computer vision coupled with artificial intelligence to train the computer to understand what it sees. Cutting-edge AI approaches can see, interpret and learn as a person would through their experiences. With appropriate training, this technology can visually recognize each individual product on the shelf, learn automatically what should be where from repeatedly scanning, then report stockouts, mis-placed items and even pro-actively alert to low stock or overstock situations. This is more accurate than people walking the floor and ‘gunning the holes.’ And, frankly, it can be an eye-opener in finding profit-killing hidden stockouts such as faceovers.
Deploying the right technology, in the right way, can return multiple percentage points of profit margin – a really big contribution to a hungry retailer supply chain. What’s more, it can deliver in spades the very reason why customers want to shop or pick up at the store.
Ask the Key Questions and Take the Key Steps
Choosing the right technology requires asking the right questions. How accurate are the computer’s conclusions? Can the technology work for all the necessary products and store and shelf formats? Can the solution scale through all locations without breaking the bank? Does the technology operate around people? Does it need to? How does this impact your store operations? And finally, does the solution empower your people to do their jobs better and spend more time with the customer, rather than on tedious internally focused details?
Combine the answers with the key steps described earlier. Pilot the changes, knowing how to measure success – not boiling the ocean but doing a focused set of stores and narrow operations to monitor carefully for impact. Figuring it out with the key stakeholders on board is the best chance for spreading the success.
The good news is that today’s technology can give retailers and brands solutions to many of their most pernicious problems. The retailers that actively embrace the more advanced solutions will put themselves in a position of competitive advantage – better customer-facing technology, a more cost-effective operating model, or both. Retailers that aggressively pursue these opportunities will likely win, and the high-value partnerships that drive the differentiation will prove critical.
With the right technology, the store of the future can be a reality, today.
Richard Schwartz is President and CEO of Pensa Systems. David Ritter was formerly Partner and Leader of Retail-Store Operations Practice at McKinsey and Company.
