Predicting the Future of Retail

The world is changing incredibly fast — maybe faster than ever — primarily due to rapid technology innovations. If our business models don’t keep pace, we’ll quickly be left behind. Since I believe that defending the status quo is what kills companies, thriving and surviving requires somewhat accurately predicting the future. So I thought I’d take a few moments to predict the three advances I think will most affect retail in the next 15 years.

I’ll start with an easy one:

1. Just about everyone will be connected at high speeds at all times

Heck, we’re almost there now. Technologies like WiMax and its successors will be incredibly prevalent in 2024. Furthermore, screen size will no longer be an issue. Innovative technologies like OLED will allow for large foldable and rollable screens that can be neatly tucked into devices the size of ballpoint pens. But it won’t just be mobile devices that are connected. Our cars, our clothes, our sunglasses, our appliances and just about everything else will be connected. Everyone will have exactly the information they need at any given time immediately accessible at any point in time.

2. Video communications advances will make today’s office spaces almost extinct

This one is where I’ve met with the most dissent when I’ve discussed it with people. I think we’ll all have wall-sized screens in our homes that allow us to have life-sized video conversations with people, and that technology will allow us to telecommute in massive numbers. So many people will telecommute that offices as we know them today will no longer make sense. Our co-workers will be spread throughout the globe, yet our communications with them will come close to the same quality we have today with someone in the same office.

The normal argument I hear against this prediction is that nothing can take the place of the types of in-person conversations we have today. That may be true, but maybe we don’t need that level of quality for the vast majority of our office conversations. We’ve proven over and over throughout the years that we’ll trade quality for convenience. In communications alone, we’ve traded phone conversations for what used to be in-person conversations. We’ve also more recently traded the higher sound quality and reliability of land line phones for the lesser sound quality and lesser reliability of mobile phones. Texting has replaced email for many, and even instant messaging has frequently substituted for in-person conversations. I’ve seen people IM each other even though they’re sitting in directly adjacent cubicles where they could have easily just spoken in normal voice.

I’ve used current versions of video conferencing that are pretty impressive. I once attended a meeting at Google’s Ann Arbor office where we met with people in Google’s Mountain View office via video conference. After a couple of minutes adjustment, I felt like we were in the same room. We were even drawing on the white boards for each other.

This particular technological advance will also be driven by environmental concerns and continuously rising prices of fuel. The “world is flat” phenomenon may also be a significant contributing factor as companies will be able to leverage their use of these technologies to hire the best talent available regardless of physical location.

3. Supply chain advances will make same-day delivery commonplace

One of the most often cited advantages of physical retail over e-commerce is the immediate gratification available at a local store. This advantage will not hold for long. I can just about guarantee someone at Amazon is currently trying to find a way to deliver most of their goods to almost anyone in the same day. They’re actually already doing it for some items in some cities today. And they’re not alone. The auto parts retailers have long been able to deliver parts to commercial garages within an hour. In fact, I can imagine the types of distribution networks built by auto parts stores becoming a model for many retailers. Supply chain professionals are some of the most amazing people I’ve ever met.
They are constantly finding new efficiencies in their processes, and I have no doubt they will be able to solve the issues associated with same day delivery.

Do these predictions sound crazy?

If so, think back 15 years to 1994. Hardly anyone had mobile phones or emails. Amazon didn’t exist, nor for all practical purposes did e-commerce. Those of us who connected to the internet did so on dial-up modems at 56k speeds. We’ve come a long way in the last 15 years, and I don’t see any sign of us slowing down for the future.

So, what does this mean for retail?

Many of today’s current physical store advantages are going to be neutralized, so multi-channel retailers are going to have to significantly change their business models. Furthermore, the commonplace usage of video conferencing will likely cause population shifts and cause the need to shift real estate strategies. I can see some people migrating towards urban environments to satisfy their needs for more personal interaction in their social lives, and I can see others going the opposite direction and moving to rural environments to satisfy their needs for more solitude and outdoor living. Suburbs as we know them today will have less appeal and may see significant population decreases.

As I think is already the case today, the retailers who create the best customer experiences across all channels are best positioned to thrive in the future. As retail becomes increasingly self-service via customers’ constant connections to retailers and to each other and to general information everywhere, it’s going to be the retailers who get customers the right information in the right way at the right time and with the best overall customer experience who will garner the most loyalty among customers.

Retailers with physical stores may consider leveraging those physical stores as distribution warehouses while maintaining selling spaces that are in many ways showrooms. Retailers will need to consider whether or not distribution and delivery should be outsourced or become core capabilities. Will sales associates and delivery drivers become one in the same? Will sales assistance occur both via video conferencing and via direct discussion on a customer’s doorstep? Is that crazy from a customer’s perspective or incredibly convenient?

I believe the retailers who best leverage their cross-channel capabilities today will be best positioned for this brave new world. And those who attempt to protect the status quo will face pressures from all fronts.

There are lots of other things that could happen in the next 15 years that are potentially even more radical than anything I’ve predicted here. But one thing’s for sure: there can be no doubt the retail landscape 15 years from now will be very different from what we see today.

What do you think of my predictions? Even more importantly, what are your predictions? How do you think retailers should react?

30 Comments

  • By Scott Silverman, Executive Director, Shop.org, August 18, 2009 @ 1:11 pm

    Kevin – thank you for presenting a very interesting, thoughtful and provocative set of predictions. My first instinct is to challenge some of the more extreme scenarios that you describe such as the current office format becoming obsolete. But, I will resist the temptation to defend the status quo 🙂 Rather, I will wholeheartedly agree with you that the retail landscape in 15 years will look very different than it does now. In fact, I think the next 15 years will bring about even more dramatic change than the past 15 years as a new generation of retail leaders, whose formative years in the industry have been shaped by the Internet revolution, make their way into the executive suites and boardrooms of tomorrow’s leading retailers.

  • By Andrew Orr, August 18, 2009 @ 1:45 pm

    I couldn’t figure out why the picture of the video conference room looked so strange and then it hit me. Who moved the tree stump?
    I think your predictions highlight a big challenge and opportunity for the bricks and mortar retailers. I think for the bricks and mortar locations to really thrive in the future they’ll need to provide an interactive, engaging social experience.
    To drive customers to stores, retailers are really going to have to entertain or enlighten their customers. Going to the store will be an event (in a good way), or there simply won’t be any reason to go.

  • By Sarah, August 18, 2009 @ 2:09 pm

    So given what you say about the supply chain and multichanel retailers leveraging their stores as distribution warehouses, do you think internet pureplays will be at any disadvantage?

  • By Mike Tausig, August 18, 2009 @ 2:28 pm

    It’s fairly simple in my opinion…I agree on all counts. I would, in fact, challenge your time-frame of 15 years. Innovations in supply chain management are not only happening in shorter order, but they are happening in less proprietary manners (at least outside Amazon), which means the jump to more efficient, expedient services becomes the status quo…quicker.
    Office space real estate is already changing. Technologies like WiMax are already being utilized in some of the world’s largest retailers – e.g. IKEA. Budgets and Balance Sheets are already seeing redux in ops expenses by putting travel expenses on a southbound plane. It is not realistic to think that all travel will be replaced with screen, but the long term ROI on this type of tech is a no-brainer, at least for large retailers.

  • By Kevin Ertell, August 18, 2009 @ 3:18 pm

    Thanks for the great comments, Scott. I certainly don’t mind any of my predictions being challenged, but I like that you’re not defending the status quo. 🙂
    I love your point about a new generation of leaders who have been shaped by the Internet revolution ultimately rising to the top positions in their companies. I think you’re exactly right that those leaders will have a significant impact on the retail landscape, and their (our) backgrounds and experiences will lead to major shifts in strategic direction. I would even add to the point that key customers bases over the next 15 years will also be people who have grown up in the Internet age and they will have vastly different expectations than the current customer base, and their acceptance and use of technology will also be significantly different. Thanks for the great addition to the conversation.

  • By Kevin Ertell, August 18, 2009 @ 3:26 pm

    After last week’s post(http://bit.ly/41EiZb), all tree stumps were identified and removed. 🙂
    I agree that bricks and mortar retailers are going to need to make adjustments to the current model. Even if all of my predictions don’t come true, item #1 alone is practically here now and retailers who don’t adjust are running significant risks. I’m curious to hear any ideas you or others might have about how bricks and mortar retailers can enhance their experiences in order to draw people into the store.

  • By Kevin Ertell, August 18, 2009 @ 3:30 pm

    Good question, Sarah. I think pure-plays still have plenty of options, but I wonder if some of them might start to actually partner with multi-channel retailers to leverage supply chains. Such an arrangement could be an opportunity for forward thinking multi-channel retailers to actually monetize some of their existing infrastructure assets. Additionally, I wouldn’t be surprised to see third parties get more in the game. UPS and others already supply some such services, and I think they would be wise to continue to expand their offerings. What do you think?

  • By Kevin Ertell, August 18, 2009 @ 3:33 pm

    Great points, Mike. It will certainly be interesting to see how the supply chain dynamics improve in the coming years.
    I would love to hear more about WiMax in IKEA, if you are OK with sharing. I also appreciate your perspective from the financial perspective about the various advantages of video conferencing on travel expenses, etc.

  • By Jay Konigsberg, August 18, 2009 @ 5:14 pm

    Yes, all of your predictions will come to pass and, for the most part, will work just fine. However, I think we will lose something when it comes to the creative aspect of designing and developing infrastructure and applications, as well as supporting our customers.
    If you will recall when you first formed the Internet Technologies department at Tower, the very first thing you did? Despite some objections, you located the techs just outside the (preexisting) Call Center to facilitate communication and form a new team – our desks were, literally, steps away.
    The department could have easily been formed in the IT building just across the street and people could just as easily walk to meetings, pick up a phone, or shoot an email. However, being right there served a positive purpose: keeping communication easy and immediate, and providing both perceived and actual support to the Call center personnel (which built moral and the team).
    I do understand that as technology becomes more and more important to the success of a business, different portions of what once were physically connected departments will become separated by geography and even cultures. However, the standardization that will necessary to make it work, will ultimately hurt the creative and support sides, as it will make it more difficult for people to “just bounce an idea around, or field a question”.
    Still, as I opened, I know your predictions will happen; in fact, they already are happening. With the exception of anyone doing creative type work, I would even agree that it’s a good thing.

  • By Jay Konigsberg, August 18, 2009 @ 5:19 pm

    I’m sorry, I forgot to specify that my comments are only on:
    2. Video communications advances will make today’s office spaces almost extinct

  • By Kevin Ertell, August 19, 2009 @ 8:23 am

    Thanks for your comments, Jay. I agree that there is definitely value in locating people together, and some of that value will be lost in a world dominated by telecommuting and video conferencing. As with anything, there are pros and cons. I just believe, as it seems do you, that the pros of convenience, cost savings and the ability to attract talent will ultimately outweigh the cons of losing some of value that co-location brings. But, we’ll see. I could be completely and totally wrong. 🙂

  • By Joedy Gregoire, August 19, 2009 @ 8:15 pm

    Your hit the nail on the head three times. Many Retailers will go the way of Circuit City.
    Their online store is alive and well. New owners of course! The expenses of retailing through a brick and mortar are soaring. Online shopping is the future of retail. They said QVC and HSN would never work. That was the proving ground that people will buy with out touching the product.
    Thank You
    Joedy

  • By Larry Joseloff, August 20, 2009 @ 2:13 pm

    Great points all around Kevin and I especially am a big proponent of telecommuting as a way to help with the energy crisis and traffic problems. I worked at home full time for three years and I currently work at home one day a week. It helps with work/family balance, can provide employees as an extra reward beyond monetary raises, and with today’s technology there is not much being lost. I even think the state should give tax benefits to organization who have a certain percentage of employees who telecommute.

  • By Kevin Ertell, August 21, 2009 @ 9:28 am

    Thanks for your comments, Joedy. The future certainly looks bright for online retailing. It is truly amazing how many categories of product are purchased online, and those categories are growing everyday. There are now generations of people who can’t imagine a time when you couldn’t buy everything online. It will be interesting to see how retail shifts in the coming years.

  • By Kevin Ertell, August 21, 2009 @ 9:30 am

    Thanks for your comments, Larry. Good points about some of the other benefits to society that telecommuting can bring. While there are some trade-offs, the overwhelming positives are hard to ignore and technological improvements are going to make the trade-offs less and less over time.

  • By Jeff Harris, August 21, 2009 @ 1:19 pm

    Regarding supply-chain advances, it is interesting to think about historical shifts on how goods were delivered to consumers (and how consumers shopped). 100 years ago it was the Sears & Roebuck catalog and the Wells Fargo wagon delivering goods to just about everybody that did not live in a large, urban center. Then a shift occurred with the advent of the automobile and shopping malls, superstores, etc. Now, with the internet, the shift is back to direct-delivery to consumers. The internet is basically the Sears catalog of the 21st century.

  • By Kasey Lobaugh, August 22, 2009 @ 7:57 am

    I agree that we are in the middle of radical change in the retail industry. In my mind, it is the equivalent of the industrial revolution but applied to the consumer.
    While I generally agree with your predictions, I also believe that there is opportunity to drive to the ‘so what’ in terms of implications to retailers. I would include the additional points to the conversation:
    – Absolute transparency of information, including prices
    – Competition shifting from location and price to customer relevancy and experience
    – Assortment expanding exponentially to include all items that a brand should sell based on a retailers brand proposition, without limitations to square footage or inventory turns. (Evolving distribution models don’t require holding all items in inventory) Shifting from push to pull.
    – Supply chain complexity skyrocketing with many fulfillment nodes, and all stores serving as points in a distribution network
    – Associates shifting from POS jockeys to multi-channel customer service reps
    – Shift from the store as the epicenter to the brand as the epicenter
    This will demand:
    – A shift in the metrics, skills and process of merchants
    – A shift in the supply chain strategy, metrics and systems
    – The rise of retail insights and analytics as a competitive differentiator
    – Content management as a core competency (and not in the current web-centric mode)
    – A changing role of the store
    – A new set of enterprise-wide capabilities (order capture, order management, inventory visibility etc)
    – A recasting of the value proposition of major brands
    – Reorganization of store-based retailers, current channel-based organization models create limitations
    – Redefinition of store associates roles, responsibilities and standard operating procedures
    I believe this is truly is a Retail Revolution. You can read more of my recent research on this topic here: http://tinyurl.com/ljtpsp
    http://tinyurl.com/l5kcbe
    Thanks for opening the discussion Kevin!
    Kasey Lobaugh
    Deloitte
    Multichannel Retail Leader

  • By David Fishman, August 22, 2009 @ 12:36 pm

    Great post! We tend to look at these events as more evolutionary and the genesis of personal self-computing and retail. Eventually there will need to be better technologies that support multi-channel commerce and social networking. The forces that are in play will force this paradigm shift in more like 3 – 5 years, because technology is advancing so quickly.

  • By Kevin Ertell, August 23, 2009 @ 7:26 pm

    Good points, Jeff. I agree that in many ways we’re coming full circle. Of course, we’re definitely super-charged from the original Sears catalog. 🙂

  • By Kevin Ertell, August 23, 2009 @ 7:30 pm

    Thanks for the very thoughtful commentary, Kasey. I love your point about this being a consumer focused revolution in the same vein as the industrial revolution. That’s a powerful comparison, but I think it makes a lot of sense. I think your bullet points are right on the money and call out some very specific strategic points for us all to think about. Thanks for pointing us all to your excellent white paper as well.

  • By Kevin Ertell, August 23, 2009 @ 7:34 pm

    Thanks for your comments, David. I think it will very interesting to see how many changes come about in the next 3-5 years. Certainly, there are many advances coming that could significantly affect current retail models, so we’re all going to have to all we can to anticipate the changes and flex to not only accommodate them but take advantage of all their goodness.

  • By Mitch Joel - Twist Image, August 24, 2009 @ 9:49 am

    Great post Kevin.
    For me the big thing is something I have been calling, “The Great Untethering” – as we move away from physical locations to “go online”, all the rules change. Just look at SnapTell and other amazing iPhone apps. We’re going to see consumer be a lot more informed at the retail level and this is going to push against everything from pricing and staffing. Highly informed consumers are something retail is not used to or really comfortable with 😉

  • By Kevin Ertell, August 24, 2009 @ 2:49 pm

    Thanks for your comments, Mitch. I think you make a great point about informed customers, and as they say “Information is power.” Retailers who do the best job generating trust in an information-everywhere environment may well stand to gain. As Kasey stated earlier, we’re looking at an Customer Centered Revolution not unlike the Industrial Revolution. Those retailers who are most open and honest in such an environment can end up having their customers become their greatest marketing assets.

  • By Mihai, August 31, 2009 @ 12:11 pm

    I can see your point about the development phase. It is obviously that we`re moving fast to the next communication era and that devices have multifunctions even now.
    I know, for a thing, that I use my Blackberry to do lots of things from about anywhere. My phone subscribtion allows me to read & write emails wherever I have 2G connection, I can IM or receive photos, buy products, check updates on blogs, etc. The only thing I cannot do now from my phone is watch videos, but that is because of the phone ( which i`ll upgrade soon ).
    So developing sales ? Definitely! If I can buy a bluetooth for my phone, from my phone…

  • By Kasey Lobaugh, December 16, 2009 @ 6:21 pm

    The comment about ‘the great untethering’ is interesting. Take a look at this Ted video, and think about the implication from a retail perspective of the ‘device’ that they demonstrate.
    http://www.ted.com/talks/pattie_maes_demos_the_sixth_sense.html
    Kasey

  • By Clyde Brown, September 28, 2010 @ 11:43 am

    The turn of a new century….wow.

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