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A major transition for established brick-and-mortar retailers and consumer-packaged-goods companies is underway whether they like it or not. The transition has to do with the fact that digital transformation and software are permeating every level of business, from warehouse management systems to the supply chain on the blockchain.
While brick-and-mortar retailers are not ready for the change, new consumer product companies are taking advantage of the opportunity by not only undercutting the incumbents’ market share but also creating more valuable products for consumers. New companies are offering higher quality and lower prices because the middleman has been cut out of the equation. Equipped with larger profit margins, new brands are reinvesting their profit in R&D at a much higher rate than CPG companies, where R&D is virtually stagnant or nonexistent.
According to YCharts, during Q1 of 2018, online/e-commerce sales (mobile and desktop) were 9.46% of total retail sales and growing at an annualized growth rate of over 14%. Online sales are projected to grow from roughly $360 billion in 2016 to over $638 billion by 2022.
As with many consumer movements, the retail revolution is not alone in being driven by consumers. Starting with Amazon, the revolution took off with the advent of the iPhone and mobile devices. Consumers are comfortable shopping online as well as on mobile devices, and according to Business Insider, m-commerce will reach $284 billion, or 45% of the total U.S. e-commerce market, by 2020.
This is the opportunity that smaller, nimbler companies are seizing: They are going to market with better quality products at lower prices while incorporating more intuitive, technology-driven user experiences. Their direct-to-consumer model allows them to use software-as-a-service to save money in operations and at the same time enables them to tell a better brand story by understanding their consumers on a deeper level.
Warby Parker is doing it for glasses and Dollar Shave Club for shaving products. However, digital innovation does not stop with just a few successes, and there are even smaller brands looking to shake up retail. Goodr, for example, is aiming to disrupt the sunglass market with a quality product at a fraction of the cost. Kodiak Cakes — though not a new brand — is riding the health and wellness trend and providing a protein-packed alternative to the highly processed pancake mix aisle in your local supermarket chain.
Introducing technology into the overall consumer experience by bridging online shopping with data-driven, in-store experiences is key for existing retailers. According to a recent Capgemini study, “Consumers wish to use technology to help them engage with the store at every step of the shopping journey.” The concern arises when the same study mentions that “many retailers are not implementing the digital initiatives that consumers want, achieving significant scale, or delivering a return.” It goes on to note that “a minority of digital leaders … have implemented relevant digital initiatives in the majority of their stores and realized significant benefits.”
With retail struggling, it’s mind-boggling that more companies are not focusing on this opportunity.
The market for consumer goods is massive, standing at a cool $18 trillion in the United States alone, representing almost one-third of the world’s consumer market. And since many traditional retailers have seemingly not focused on digital in their customer experience, the opportunity for new brands to forge ahead is boundless.
In order to keep up, traditional brick-and-mortar companies have started to take advantage of technology tools to improve the retail experience — tools such as:
• Beacons that reach and personalize content for shoppers while they’re in a store.
• Interactive kiosks that allow shoppers to quickly find what they’re looking for, discover new areas of the store and immediately purchase items.
• Mobile point-of-sale (mPOS) devices such as Apple Pay.
• Enhanced workforce management systems to automate solutions for employees, thereby making them more available to provide personal attention to customers.
• Smart shelf technology to digitally track inventory and determine theft.
• Virtual reality tools that allow customers to try on clothes and make alterations.
Go-to retailers of the future will be the new companies that invest in the overwhelming consumer demand for digital in order to transform the customer experience. In this new digital retail world, success will be reliant on continuing to reinvest in new research technology, always seeking to stay an edge ahead of consumer needs.