Order coffee through your smartphone, virtually try on clothes standing in front of a smart mirror, grocery shop without having to scan goods or pay at a register—these futuristic possibilities are already here and will soon be shaping the way people shop.
These options are a reality on a small scale now and as companies increase the focus on bringing online and offline together the effects are starting to really show.
The benefits of this approach are manifold. Consumers get a seamless experience and multiple options to shop from a single account or platform. Retailers get an integrated operation with improved control across inventory and logistics. They also get greater data gathering power that can help tailor customer preferences and recommendations.
For retail giants Amazon and Alibaba harnessing this technology is all about diversification. Amazon is currently the world’s third largest retailer, valued at $US880 billion. China’s Alibaba, which successfully melds trading of Eastern and Western products online, is estimated to be worth about $US500 billion.
The key to their continued growth? Constantly adapting and responding to the way people shop—and shaping future habits accordingly.
Online shopping is still a relatively small chunk of overall retail spending. In Australia, consumers spent $26.08 billion online in the year to May. That's equivalent to 8.3 per cent of the overall retail share against bricks-and-mortar businesses, according to NAB. In the US, online sales account for about 9 per cent of overall sales. In China the online market takes as much as a 17 per share, reports CB Insights.
Despite online growth, we prefer a tactile, try-before-you-buy approach. In the US, 70 per cent of millennials prefer buying in-store to online, according to research by CBRE Group. About 56 per cent want to see the product. 49 per cent want to get hold of the product there and then, and 29 per cent simply enjoy shopping.
To try to bridge that gap Amazon and Alibaba are turning their attentions to combining online and offline operations. They're expanding bricks-and-mortar presences but bringing digitisation into the mix.
It’s a move tagged by Alibaba founder Jack Ma in 2016 as “new retail”. It’s not about encouraging one side over the other, it’s about combining them into one co-existing world.
People shop in a store in the normal way, but pay online, usually through their smartphones. At the same time, retailers benefit through unified logistics, inventory management, and payments.
Last year, Amazon shelled out $US13.4 billion to acquire the 460-store Whole Foods chain and is slowly expanding a chain of physical Amazon-branded bookstores. The stores offer discounted books to members of the Amazon Prime subscription service. The bricks-and-mortar presence allows for much cross-pollination. At Whole Foods Amazon sells its Echo and Kindle products, and replaced the existing loyalty program with Amazon Prime, translating into discounts and deals for members.
Meanwhile Alibaba is busy picking up shopping malls and department stores, spending an estimated $US8 billion so far.
At the start of August, it announced a new partnership with Starbucks in China, with a coffee delivery service in the works across all online platforms. The move capitalises on a rapid growth in national coffee consumption.
Alibaba also signed a three-year deal with Ford in 2017 and ran a stunt in March when it set up an unstaffed five-storey, 42-car vending machine for a month in Guangzhou, where buyers could purchase a car through their smartphone and pick it up in under 10 minutes.
In July, Alibaba trialled its FashionAI concept store in Hong Kong, which uses smart mirrors to give customers product information, create virtual images of what the items might look like on without people having to try them, suggest matching items, and assemble a virtual shopping cart that staff bring to changing rooms so shoppers don’t have to carry around armfuls of goods. A truly new retail experience.
But back to groceries—which might be the area with the most widespread innovation.
Amazon Go’s first grocery store opened at the company’s Seattle headquarters in January and is unmanned, aside from staff offering general assistance. It uses sensors and a complex camera system and machine learning to monitor sales. Every item taken off the shelves is automatically charged to the customer’s Amazon account—and it’s another step towards a cashless world operated through smartphones, although there’s no official word as yet on its growth strategy.
Alibaba launched its first Hema supermarkets in 2015 and now has about 50 stores with 2000 planned over the next five years. The stores look like regular supermarkets, but all payments come through a smartphone, or facial recognition kiosks. There are chefs that can cook on the spot groceries shoppers order, and home-delivery takes 30 minutes to arrive.
Most importantly, the stores accumulate information in a much more comprehensive way than existing models. Alibaba also took advantage of its accumulated data to boost sales for Singles Day last November, the biggest shopping day in the national calendar.
Last year, sales hit a record $US33 billion for Alibaba. The retailer enlisted its cache of detailed data for personalised experiences for users, and ran 60 physical pop-up stores where customers paid through their smartphones.
All these test runs are reaping rewards. What’s next is anyone’s guess. But one thing is for sure, online shopping isn't done changing traditional retailing yet.
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