Retail of the Future

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Kai Gondlach

Are the inner cities dying out soon? no. In the future, anyone will be able to stroll around the pedestrian zone at all, when we can comfortably enjoy all consumer requirements on our tablet online or from the couch. mobile and supply us with drones? Probably yes. A plea for moderation in trend debates.

Retail 2019: Status Quo of Retail

The German retail trade is under pressure. Although sales are expected to continue to rise in 2019, small towns and rural regions in particular are increasingly becoming the “victims of digitalisation“, as the Handelsblatt headlined at the beginning of January. More and more e-commerce and M-Commerce (mobile shopping) are afflicting the small retailers who feel powerless. More and more orders are being placed through voice assistants such as Amazon’s Alexa, Apple’s Siri, Microsoft’s Cortana, Googles and/ Alphabet’s Home or Samsung’s Bixbi – and soon without people’s help when it comes to companies like Gupshup. More and more retailers feel powerless in the face of a growing market of retail goliaths Amazon, Alibaba, H&M and Co.

Walmart recently announced that it will deliver grocery orders to its U.S. customers to the refrigerator in the future. Other retailers trump each other in bringing any orders to their doorstep – in an ever shorter time. Amazon, for example, wants to supply customers in major cities with their small orders of up to 2.3 kg (within a radius of 24 kilometers to the nearest warehouse) within 30 minutes using the new in-house drone delivery service Prime Air. At the time, Amazon became the world’s largest retailer, having had many years without its own stock.

Is this all digitization? absolute. One of the central mechanisms of digitization is the platform economy, which is the basis for the success of Amazon, Facebook, Netflix, Uber, Airbnb etc. Makes. The mechanism is: If you can write software that organizes existing infrastructure and technical devices in your favor better than the previous analog system, then look for a good asset manager in time.

Seemingly hopeless? no! Not everything is lost.

I know the situation in the retail sector very well, not least for biographical reasons. I come from a city that has witnessed the decline of the pedestrian zone live in the last 20 years. From consulting projects in recent years and dozens of conversations with insiders, I know the topics that are of concern to the German retail segment. With this contribution, I invite you to reassess the situation from the ground up. Let’s start with a…

Change of perspective: China’s focus

In autumn 2018, I travelled to China in connection with a study project with my old employer. There I talked to some entrepreneurs in Shanghai and Beijing to get to the bottom of the myth that China has long overtaken us in terms of technology. The short answer to this myth is: No, but yes. No, a fundamental advantage cannot be attested. But yes, in China every year roughly as many computer science students leave the universities as here are enrolled in all subjects. The time has not yet come, but there is ample reason to do everything in this country so as not to lose touch. After all, we do not want to be, as with the MP3 or the automobile, in retrospect, pioneers in various fields, but leave it to others to achieve economic success. Or?

Back to the travel report. A whole day with Jingdong (JD.COM) was particularly instructive for me on my first trip to China. The group said it sold more goods last year than Alibaba, which is much better known in the rest of the world, making it the country’s largest online and offline retailer in the country. The company headquarters in Beijing is initially inconspicuous, and only the mascot – the white dog – indicates that there is no bank or ordinary authority in the glazed building. Before that, we had already explored a few stops in Beijing with the funny, heterogeneous tour group, had lunch in a Jingdong restaurant supermarket (7FRESH) and marvelled at blockchain-connected fish in the aquariums. In addition, we were allowed to try out the staff-free pop-up shop on the ground floor, where no cashier sits. Here, when entering the market, customers log in with their smartphones and receive a unique code on the phone. Cameras and RFID chips automatically send the customer’s selected to this code so that when the software leaves the store, it automatically draws the amount due from the customer’s account. There is no trade union in China that could be against it, so it is made easy.

So at jingdong headquarters, I met some senior staff at a small press conference, including Chen Zhang, then chief technology officer – i.e. chief engineer – of Jingdong. Zhang brings many years of experience from Silicon Valley and during his time at JD.COM has significantly shaped the mindset of the Chinese group and promoted unusual ideas. Jingdong was only able to succeed because the company’s management understood early on that pure trading is not a scalable business model. Margins are limited and the longer a value chain is, the less profit will end up for each link. That’s why Jingdong, like G-MAFIA (Google, Microsoft, Amazon, Facebook, IBM, Apple), has become a technology company. Without data evaluation (big data or Predictive Enterprise) can no longer be optimized, warehouse scheduling cannot be organized, no transport over thousands of kilometres can be realized – certainly not in a market with potentially 1.3 billion customers like in China. For this reason, Jingdong has also stamped its own logistics infrastructure across the country from the ground and is diligently testing autonomous vehicles in the International Auto City in Shanghai (along with Volkswagen, Ford and Co.).

In addition to the usual topics of retailers – drone deliveries, blockchains to track goods from the producer to the point of sale, warehouse automation, personnel-free retail – I was particularly fascinated by one topic from Zhang’s stories: Retail as a Service. The concept was not new to me, but Admittedly, I did not fully understand it before – not least because there was no serious implementation.

So what is behind Retail as a Service (RaaS)? I try to make a crisp explanation without running the risk of advertising Jingdong. A trading company that has a lot of data-based know-how in a geographical region cooperates with small traders. End of story.

Retail as a Service: Fictional Story of an Implementation

Specifically, RaaS can look like this. Imagine running a toy shop in the Lüneburg pedestrian zone. You have been feeling for years that fewer and fewer customers are coming to your shop. And then there are always those who get long and wide advice from you and leave your business after a nice, informative conversation with the following words: “Thank you, I’ll think about it again.” You already suspect that you will not see the customer again, that she prefers to order online and thus perhaps saves a few euros, and you feel exploited. After all, you advised the customer and a small surcharge is justified! But many customers ultimately make a fundamentally rational decision. And the currency for this decision is the price. The fact that you have both invested time for the conversation, that you pay rent for your business and perhaps even place special emphasis on well-trained consulting staff, itches the wallet of very few customers. But there is salvation in sight: companies like Jingdong are increasingly recognizing the fragmented market of small traders as attractive partners in the RaaS sense. And that’s how it happens.

A large technology and trading company addresses you as the owner of our toy business, probably via email. The big retailer, we call it ABC AG, first amazes you with some insights about your customers without ever having entered your shop or Lüneburg or Lower Saxony. In addition, he knows your assortment reasonably well and will already in a first conversation mention optimization suggestions, which products or services are especially popular with your target customers. Finally, ABC AG will make you an offer that you will surely have to sleep on for one night: ABC AG joins your company as a silent employee and helps you to complete the long-overdue renovation and modernization work on your store space. to realize.

Suppose you decide to cooperate. Then everything goes very fast. In addition to a makeover for furnishing and interior design, your new partner installs a few cameras in the entrance area, which from now on identify all customers who agree to it by facial recognition and by matching them with your customer register ( CRM). Small and large digital screens in your store attract customers identified in this way with individualized product suggestions and personalized special offers. If a customer removes a product from the real shelf, information about the origin, skin (un)compatibility, application possibilities etc. will also be available on a nearby monitor on a nearby monitor. RFID or NFC chips on the products and packaging make it possible. The digital price tags are constantly synchronizing with the prices on the online platform of ABC AG, so that the customer has no argument at all not to generate sales in your business immediately – otherwise ABC AG also knows exactly that exactly this customer You were in the shop and you will still receive a sales commission if the customer prefers to order from home.

In addition, you naturally offer the possibility to deliver the purchased goods from your shop to your home; this is ensured by the highly automated logistics network with flying and moving drones operated by ABC AG. Finally, you no longer only offer toys, but also some articles and services that your target group also finds interesting. If we assume that your end customer is usually children and adolescents, but in addition to these, but also their adult relatives are in your shop, these additional items could perhaps be the last SPIEGEL bestsellers, kitchen appliances or garden furniture. ABC AG will definitely know this, because it knows a lot about these people who enter your store – and what needs they have outside of this store. And best of all, it has exactly these goods and equips your shop in a small, dedicated motto corner. The assortment in this area changes regularly, of course, after all, no one needs a deckchair for the veranda in the deepest winter.

Last but not least: payment systems / payment. I often have the feeling that alternative payment systems in this country still seem like magic. The Germans still prefer to pay with cash, only in 2018 more money was transferred than handed over. So we are conservative at best about money. Some merchants and restaurateurs are even rowing back because they don’t want to pay the credit card companies’ fees. Anyone who has ever changed the restaurant knows that this argument is negligently short-term because he or she could not pay by credit card. Conversely, it is easy for retailers or restaurateurs to raise certain prices in the assortment and thus to pay the fees. Even better, you make yourself independent of the credit card companies and accept Paypal, Apple Pay or Google Pay. Why buy equipment when customers carry their bank around in their pockets? Certainly, both staff and customers need to be trained in the initial phase. But your accountants and tax advisors will thank you if they don’t have to decipher bonded receipts more weeks after receipt.

Is it worth looking to China? Well, it’s up to you. Chen Zhang announced in October 2018 that Jingdong will start expansion into the rest of Asia from 2019. Also in 2019, the first European countries, including Germany, will be able to make their way, and the first steps have already been taken. Alibaba, by the way. Whether you like it or not, sooner or later this topic will occupy you. But please do not fall into fear or categorical rejection; it is about existential changes, as hard as it may sound. But existential also means that there will be two sides. The one who can successfully adapt to the changed framework conditions and the other. This is an almost banal insight into the evolution of economics.

Nice, but what will happen to the inner cities?

Right, almost forgotten. In the introduction, I announced a plea and in between reported a lot about trends from all over the world. For decades, trend researchers have predicted the extinction of pedestrian zones and, consequently, inner cities. They were completely wrong about that. But I would like to point out that dystopian statements of my predecessors often lead exactly to where many people end up in their fate: to lethargy, the resistance to change, the rigidity of fear. For years, municipal institutions such as municipal bodies for urban development, trade unions or chambers have done too little to combat the wave of insolvency, especially among small traders. Conversely, they may have done too little to promote and support them in innovative restoration of the core of their communities. Digitization is not a one-person project.

So my plea for more prudence in trend debates is like this:

Don’t believe any trend and its disciples, who claim that your environment will change diametrically almost overnight. Technologically, we could certainly be somewhere else – but there are also social, political and economic constraints that stop technology. And that’s not good or bad, that’s how it is.

Whether as a political decision-maker or managing director in a (small) company: take the step out of your comfort zone, take unconventional paths, find alternative financing concepts for your ideas and colleagues to turn your utopia into reality. to do. The cities that succeed will not die out. All you need is a precise understanding of your target group and its real needs – and they are and remain decisively determined by their genetic material. I would like to bet that any retail store can ‘survive’ by appropriate means; but without changing your own business model, this will be nothing.

I am happy to help you develop ideas for your new business model – as a workshop moderator or initiator at your event. Please write to me!

Photo by Mike Petrucci on Unsplash

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