The Future of Retail

Despite higher commodities prices, increasing fuel costs, weak labor markets and the variability of capital markets, retail will prevail, as organizations and consumers learn to thrive and succeed in this constrained world. Retail will continue to experience a dramatic shift in the socioeconomic environment around it, and the retail industry will be governed by the following overarching themes moving forward:

  • Traditional consumer segmentation is dead, requiring that retailers focus on understanding individual customer psycho-graphics.

  • Destination and location will be less relevant; anytime and anywhere shopping will be the new mantra.

  • Customer attention will be scarce, forcing retailers to battle over consumers.

  • Constrained economics will ensure that cost and efficiency will be central to almost all retail strategies.

In line with the overall themes driving the industry, we will continue to see the emergence of multichannel marketing as the key enabler driving customer engagement and experience. This will result in significant shifts from pure brick and mortar selling to online marketplaces, especially mobile, in addition to storefronts. This may be the most imminent trend primarily because:

  • The average U.S. household spent at least $700 more on gasoline in 2011 than 2010, increasing vehicle fuel expenses by at least 28 percent. We believe that in a constrained world, consumers will seek to curtail this spending by reducing shopping trips and transitioning to an online shopping environment.

  • In 2011 the Internet played a role as either a research tool or sales channel in more than 45 percent of U.S. retail sales.

  • Multiple studies have shown that a cross channel shopper drives a 20 percent incremental shopping basket increase at the store, leading us to conclude that retailers also will drive a shift to online.

Retailers that successfully use an online channel are not merely deploying it in a separate silo; they are leveraging it to engage their customers online and carry that engagement through to the store. This allows the retailer to maximize the potential of social media through innovative tools and technologies that enable the profiling of customers. It helps the retailer to understand what consumers demand with their online shopping experience, and the retailer can use this information to tailor price, assortment and service to individual customer preference. It also means enhancing mobility technologies to the point where barriers are removed and products are available wherever and whenever the customer demands.

Over the past few years, there has been an explosion of data and data sources. 2011 brought the emergence of using unstructured data sources, and the need for tools, technologies and approaches that can analyze extremely large data sets using “Big Data” approaches. In 2012 and the years to come, the ability to use analytics to drive insight and real time decision making will be another significant trend. Retailers will use analytics:

  1. As a way to drive business efficiency and cost reduction.
  2. As a tool to increase standardization and consistency across their business.
  3. As an enabler to adapt in real time/near real time by using sense and respond capabilities.
  4. At the highest end of the pyramid, retailers will use analytics for the ability to listen to consumers, as well as see the business and economic environment around them. They will be able to rapidly deploy insights to create disruptive innovations.

Retailers will also adapt to the constrained economy by internationalizing their markets. By moving applications to The Cloud and utilizing pricing structures such as pay as you go, retailers are dramatically reducing the cost of entry into new foreign markets. This enables them to distribute the always present risk of one economy starting to falter.

As the ever increasing shift to the digital economy continues in 2012, the economies of scale that previously delivered a significant advantage to large retailers are starting to have less of an impact. Mid size and small retailers have been able to neutralize the impact of scale due to the agility and distribution efficiency they can leverage through the online environment. Retailers that can capitalize on these technologies can position themselves for growth even in a weak economy. It’s a formula for success in 2012, and most likely the rest of the coming decade.

Srini Pallia is the senior VP and head for the Strategic Business Unit of Wipro Technologies, serving clients in retail, CPG, transportation and government verticals. He is responsible for strategy, sales, operations and P&L of the unit.