Hastening the Inevitable:
How the Crisis Moves Retail Toward Digital
A "checkout free" experience, like Amazon Go, offers consumers the steps of selection and payment with minimal human contact.
If we didn't expect digital to transform retail, we certainly do now.
Over the past few decades, some retailers have embraced programs like eCommerce and digital marketing more readily than others, but the industry as a whole has essentially only flirted with digital. Perhaps some thought this transformation would occur gradually – generationally, even, across the Western world, where most retail remains "legacy" in its format and capabilities. These expectations have been upended by COVID-19. Digital Transformation is now a multi-certified LinkedIn meme.
Retail technology is, accordingly, a second stage if not a main stage player in our global crisis. Consumers, busy and distracted, respond best to those technologies which reduce steps or simplify their lives in some way. Online ordering, delivery, and curbside pickup – a few digitally-empowered retail services that have seen utilization spike during quarantine – all possess this "reductive" quality.
Large, Western retailers have nonetheless spent the past several decades lagging behind their younger, digitally native competitors, whose consumers have adopted digital services and channels more readily. These consumers are attractive: younger, less price sensitive, and addressable through the efficiency of digital marketing. They have always been worth fighting for, and now there will be many more of them.
When you're used to shopping a certain way, there needs to be a good reason for you to change your behavior. The quest of the marketer is to influence this change, and the practice is an extremely difficult one. Well, there's nothing quite like a global crisis and new set of rules to do what many dollars and messages cannot: rapidly and significantly change consumer behavior. With quarantined households flocking to curbs and websites in droves, legacy retail now gets to play an unexpected (but highly welcome, for those thinking ahead) game of catch-up.
More and more retail in the East, and some newer brands in the West, might be thought of as "digitally native". Some time ago, different versions of the clip above were sent around, showcasing just how transformative an automobile purchase can be in China. Non-native retail may have been caught in varying degrees of unpreparedness by the pandemic, but the good news is that many of digital transformation's supporting technologies are rather well prepared to capture the behavioral shifts instigated by our temporary set of rules.
Non-native retail may have been caught in varying degrees of unpreparedness by the pandemic, but the good news is that many of digital transformation's supporting technologies are rather well prepared to capture the behavioral shifts instigated by our temporary set of rules.
It's also true that with fears, biases and preferences, many of these consumer changes toward digital will persist. What sticks? What grows? As it relates to the technology that supports retail, what are some safe bets in our new normal? The impacts will be wide, the changes ongoing, and I am no sage, but here are a few conversation starters:
A huge winner, almost without question. Among others, Apple and Google have spent a lot of time thinking about how to remove friction from on-premise transactions (including the perfunctory "human friction" that may soon be seen as unnecessary or taboo). Why take your card out and hand it to a stranger when you can simply tap? The value proposition of contactless payment is, again, buoyed by behavioral reductiveness. Before the crisis, the higher-contact alternative of swiping wasn't terribly painful, and thus "tapping" as a digital phenomenon hasn't yet seen widespread adoption across, say, everyone with a smartphone. The value equation changes once retail reopens, and when it does, some of NFC's last remaining retailer holdouts (e.g., the home improvement chains and some grocers have been slower to support) are likelier to embrace it. The tapping floodgates will open. Will consumers flock?
Well, the technophiles behind contactless have been thinking quite broadly about its applications for years, and on-premise "tapping" will support usage patterns beyond just payment: we very well may tap to learn more, to subscribe, to say "I'm ready now" or "I'm here," and so on. Consumers who go through the very straightforward processes to set up Apple Pay and Google Pay for these types of on-premise applications will also discover the convenience of having a payment method saved right on their device's operating system (where, for convenience's sake, I'd argue it belongs). This removes the unnecessary step of repeatedly adding payment at the application level (e.g., into all your favorite brand's apps, or each time you checkout online) and further removes hurdles from downstream eCommerce transactions. Win, win.
On-premise "tapping" will support usage patterns beyond just payment: we very well may tap to learn more, to subscribe, to say "I'm ready now" or "I'm here," and so on.
The deeper and more experientially pervasive cousin of contactless has a future that may get brighter a lot sooner, too. Why swipe when you can tap? Why tap when you can simply walk? Checkout-Free was going to be our future anyway, perhaps on some distant timeline, but this future could come much faster as a result of Novel Coronavirus. Whereas before Amazon Go was something like retail's version of a model home for tech bloggers and futurists, we can say without dispute that it meets the test of having an exceedingly strong, behaviorally reductive value proposition – just walk in, grab your stuff, and walk out.
The extensive capital outlays required to retrofit legacy retail with cameras, AI and turnstile-like devices will remain a hurdle, but as for any consumer concerns over privacy surrounding this experience, Maslow tells us that the psychological need for privacy is subordinate to need the basic need for health. Some new store openings may, accordingly, choose to leapfrog "tapping" use cases, and I'm not sure I see native digital retail persisting much longer without frictionless checkout solutions becoming a baselined feature of a new consumer experience. The only thing better than getting your hands on toilet paper is walking right out the door with it.
In a world in which we are less inclined to congregate, knowing the location of others becomes more important, both socially and commercially. I would expect a boon to folks that are designing our leading location services technologies, including, for example, the mobile SDKs that empower experiences like curbside and doorside pickup to be more seamless for both consumers and retailers. Dan Estrada, Chief Strategy Officer at Radius Networks, said: "Creating a frictionless, efficient curbside or doorside pickup experience is more important than ever for restaurants and retailers. With FlyBuy, we've built tech that accurately predicts the customer's ETA, so staff can have an order ready as soon as that customer arrives, cutting wait time down significantly and enhancing the customer experience. Brands should be thinking about not just short-term stop-gaps to help get through COVID-19, but longer-term ways to create customer and staff efficiencies, as curbside and BOPIS (Buy Online Pickup In Store) become a deeper part of the fabric of consumer behavior."
I'm personally of the mindset that the jury is out on curbside as a widely adopted use case going forward; retail has found transitioning to curbside relatively easy during the crisis (nothing has been easy), but that's because most are managing significantly reduced (if any) in-store traffic at the same time. When retail reopens, I think some retailers will struggle to support both channels in parallel operationally, unless consumers truly stick to the new, curbside channel at critical mass. It will be fascinating to watch curbside order volumes in the weeks after things reopen. Curbside or not, location services technologies are a huge input to exactly the type of sophisticated, reductive consumer experiences that will become more prevalent as convenience trumps privacy.
The Great Delivery Shakeout
In the restaurant space, COVID-19 has changed the game, and while we're ordering a lot more delivery these days from our friends at UberEats, DoorDash and the like, it would be dangerous to view the crisis as a panacea for the current disequilibrium of third-party marketplace ordering and delivery, where venture dollars have been over-aggressively chasing share and artificially depressing delivery fees. I've had dozens of conversations with industry over the past few weeks, and can't think of many where my counterpart didn't mention that retailers are waking up like never before to the necessity of owned-channel eCommerce (i.e., fulfilling orders of all types through their own apps and websites).
This does not, by any means, spell doom for the marketplaces – far from it, and they are here to stay, now more than ever – but I do believe the crisis hastens the inevitable consolidation activity that this market has been pregnant with for some time. It also may force the aggregators to reorient more capital toward customer retention, as opposed to the laser focus some players have had on signing up every mom-and-pop they can, even if weak consumer experiences result.
It's a tough balance, but one that brands should aim to strike. Some perspective from Noah Glass, Founder and CEO of Olo: "It's imperative for brands and retailers to separate delivery enablement from indirect consumer marketplaces that also provide delivery services. While it's true that marketplaces have a captive base of loyal consumers who prefer using these channels, brands should be careful not to direct their loyal customers to marketplaces simply for purposes of fulfillment via delivery."
Speaking of the venture community and staying within food, the phenomenon of ghost kitchens (also known as dark or virtual kitchens) will also get a much closer look. As a restauranteur, you can't get more contactless than not even having a front of house, and can certainly reduce contact overall by reorienting dine-in as a secondary focus of your business. Will some newer, digitally-native food brands chose to forego dine-in altogether? Will larger, virus-damaged brands reclaim lost footprint by consolidating several smaller "showroom" experiences into one larger industrial experience that services primarily takeout, delivery, and curbside? Might everyone think about off-premise food (and beverage) consumption a little differently going forward? Sounds like a safe bet to me. With ghost kitchens, which drastically reduce capital expenditures for restauranteurs by allowing them to focus on producing food, digital reach can become a lot less spooky.
"COVID-19 has wreaked havoc on industry, and restaurants are among the hardest hit. It's a super challenging time, and one that requires everyone to take a hard look at how they approach the market. In my opinion, brands that continue to think creatively about the use of lower-cost real estate, and how to engage customers in new digital channels, are giving themselves the advantages they need to sustain their business," said Atul Sood, Chief Business Officer at Kitchen United. "Dine-in isn't going away, it's a huge part of our culture. But carry-out, curbside and delivery are all here to stay, so we might as well be thinking about how to support them in a manner that's as low-cost as possible."
Digital Retention Marketing and Customer Data
Brands looking down at their customer databases will notice they have acquired more digitally addressable guests during the quarantine, and through sustained changes in consumer behavior thereafter. How will brands keep these valuable individuals coming back? How much importance will brands place on retention?
A generic shift toward retention-related technologies by rights should occur, and those retailers without strategies for segmentation, loyalty, eCRM, personalization, customer data science, and the other tools in the digital marketer's toolchest will frown sadly at their leaky buckets sometime in 2021, when their competitors do a better job of incentivizing frequency and steal consumer visitation. It also happens that the intersection of location services technology and digital retention marketing is rife with super heroic use cases – including context-sensitive and hyper-personalized mobile notifications that suggest, for example, you complete a purchase at the exact moment in time in space when it means most to you – that may once have felt "Big Brother" but may tomorrow feel "safer". In the quest for digital growth, seeing consumers adopt new channels like online and mobile ordering is a great first step, but truly only the beginning. What separates nascent retail brands from the powerhouses: understanding how to use underlying consumer data to deliver personalized experiences that drive lifetime value.
Zach Goldstein, Founder and CEO at Thanx, puts it this way: "COVID has accelerated an existing trend toward digitization in offline retail. Many brands are patting themselves on the back for accepting online orders, but that's become table stakes. Digital-enabled retail means embracing data; winners will steal marketshare by turning their CRM, data science, and personalization into a demand generation machine. Losers will marvel at the size of their email list and continue sending largely generic promotions that consumers tune out. Brands could get away with generic digital marketing when no one really had good data — now you'd get stomped."
"Brands could get away with generic digital marketing when no one really had good data — now you'd get stomped." @Zach Goldstein of Thanx
These are just a few of the many developments we might expect. Thematically, people will trade privacy for health and convenience, making already-strong value propositions such as contactless even stronger, and adoption curves that once looked pedestrian look much steeper. Moms and Dads may enable Apple Pay, and will probably be quite happy they did.
As Tim Armstrong, formerly of Google and now of DTX, recently described it on Scott Galloway's podcast (subscription strongly recommended), the great "consumer education of digital services" has been hastened: the average quarantined consumer is likely interacting with some technologies or services today they perhaps wouldn't have for a few years. In response, we can expect retailers to shift more resource toward the technologies, designs and processes that eliminate steps and reduce physical contact for consumers, whether they are on-premise or not.
Hastening an inevitable transformation has its advantages. When retail captures digitally addressable audiences at scale, it will have ripple effects felt in other industries (not the least of which: media). Those passionate about digital transformation and retail should take heart: as humanity slowly heals, we will also evolve, and what a thrill it will be to help shape that evolution.