As consumers increasingly make their purchases on the internet and physical stores shutter in record numbers, retailers desperate to increase foot traffic are fighting back. They are building stores of the future, a new format that provides consumers with a shopping experience they can’t get online. Deployed at scale, stores of the future have the potential to boost revenue significantly—in our experience, by 5% to 15% per store in just a few months.
Yet efforts to scale are stalling, largely because of issues around the consumer-facing technologies integral to making stores of the future function smoothly. No winning technology has emerged yet, so retailers are forced to develop their own solutions. Frequently they end up with a flagship store decked out with the latest and greatest technologies but little more to show for their huge investment.
To scale stores of the future expeditiously and effectively, retailers often need to add a scale-up phase to the implementation process. This ensures the flexibility needed to make improvements after the pilot and, if necessary, pivot before rolling out an expensive solution to thousands of stores.
While numerous retailers have closed or shrunk their physical stores, and others have declared bankruptcy, some brick-and-mortar retailers are taking the opportunity to recast the role of the physical store in their omnichannel strategies. With a mix of online and offline features, these stores showcase reconfigured formats, cutting-edge technology, and speedy and convenient checkouts. The aim is to turn what was primarily a purchasing transaction into an enjoyable experience that boosts foot traffic and the brand while also enhancing retail productivity.
Companies are using digital technologies to improve three parts of the in-store retail journey: exploration, selection, and checkout. (See Exhibit 1.)
While digital technologies have the potential to significantly improve foot traffic and revenue, few retailers have rolled them out at scale. Our experience with clients across subsectors worldwide suggests that focusing on specific activities during the four phases of deployment—design and development, pilot, scale-up, and rollout—can help retailers implement these technologies quickly and effectively. (See Exhibit 2.)
Design and Development
The goal in this phase should be to develop a minimum viable product that addresses consumer pain points. But retailers have often invested heavily in a technology without first determining its benefits or the cost of deploying it at scale. In the rush to get something out there, they may not think through the cost of making it work in thousands of stores.
Moreover, given the lack of a universally superior technology, retailers are forced to use multiple technologies in different variations across their stores, updating them frequently in the quest to keep consumers interested. Matters are often further complicated by the existence of multiple backend systems resulting from mergers, joint ventures, or franchise relationships. As a result, companies have to build different technology stacks for different retail innovations, which requires integrating each stack with existing platforms.
Some retailers understand that it’s better to start by investing in a technology foundation. But often these are built by niche IT teams, which may underestimate the effort required to clean data or integrate the new technology with retail legacy systems.
To address these challenges, four tasks are critical.
Start building a flexible and scalable data and digital platform (DDP). A scalable and flexible platform makes it possible to roll out future solutions faster and more easily. The platform should have reusable components such as microservices and built-in application program interfaces (APIs) that connect to different legacy platforms. After the first rollout,retailers can leverage the same microservices to build many different in-store digital solutions instead of creating a unique tech stack for each one.
The DDP, which is best built incrementally throughout implementation, should be flexible enough to adapt to consumer expectations and to specific technology differences and legislation in different locations. Its infrastructure needs to be harmonized so it can connect well globally, but also sufficiently modular to accommodate in-store hardware equipment. The infrastructure should also allow new or upgraded applications to be used while leveraging existing in-store technology such as screens or sensors as much as possible.
Retailers can approach technology investments in different ways, depending on their organization structure and culture. For example, a US fast-food chain that had the same organizational structure and culture around the world standardized its systems and infrastructure so it could roll out the same technology everywhere.
By contrast, a global sporting goods dealer that preferred developing innovations from the ground up gave its stores the freedom to define standards specific to their particular city or region. This approach required investments in foundational and reusable APIs that were open and accessible to the organization at each specific location. The setup allowed each city to develop its own digital experiences while reusing elements from experiences that worked well in other cities.
Most retailers implement in-store technologies from established tech companies. Since these technologies are already built for scale, there is little need for scale-up, other than building interfaces and small customizations to prevent performance or cost issues.
Retailers that wish to use newer technologies must either build the solutions themselves or work with smaller tech players that dominate in this space. But smaller companies usually don’t have employee manuals or other aids. Consequently, many retailers build a pilot to test usability at a single store and then go straight to a major rollout without taking steps to ensure that it’s reliable, scalable, or user-friendly in different markets.
The results are somewhat predictable: the solution breaks down, can’t be integrated with the existing system, or is too expensive. Worse yet, it may simply sit idle because retail associates don’t understand how to operate it. With new technologies that are designed to be used by consumers, retailers need to focus on usability and product design, not just functional capabilities.
To solve many of the issues that plague pilots, we recommend adding a whole new step to the deployment: scale-up. This is the time to review and improve both the overall solution and the individual microservices. It’s important to determine not just whether the technology works, as when launching a pilot, but also whether it’s inexpensive and reliable enough to be used by a full network of stores. Other questions to ask: Can expensive components be swapped out for cheaper ones? Is data usage too high? Can the technology be used in stores with space constraints? This is also the time to develop training and knowledge transfer programs. Four practices are critical:
During the rollout phase, retailers must optimize performance and maximize ROI as quickly as possible. This make it critical to monitor reliability, scalability, and cost in order to spot opportunities for improvement. This means examining and tweaking the components that make up the technology foundation. Say, for example, that stores in North America have interactive video, which requires more bandwidth. If in the course of the scale-up it becomes clear through testing that all stores outside of North America should have this video capability as well, the additional bandwidth requirement could become a global standard.
In our experience, a few practices need to be followed throughout all four phases:
Store-of-the-future technologies hold great promise for retailers that know how to scale them quickly. This is especially true for companies with a relatively large proportion of internet sales, such as clothing retailers. Since more clothing is purchased online than, for example, food, deploying in-store technologies is more urgent for apparel companies than for grocers. Providing consumers with the extra level of service that they can’t get online is essential for getting them into stores.
Regardless of category, all retailers need to start building in-store digital capabilities today. Before long, the technology used in the store of the future will be critical to engaging consumers and building sustainable success.