What will retail will look like in 10 years? This is an important question for many CIOs and CEOs, and not just those in the retail sector.
To get a feel for the future of retailing, earlier this month I made my annual pilgrimage to the National Retail Federation (NRF) conference and expo in New York. The most significant difference I noticed between this year and last year was that in 2010 everyone was talking about multichannel retail while keeping an eye on social technologies as a future trend. This year the buzz was around full channel integration/retail-anywhere or what might be called "zero-channel retail."
For many years retailing has been broken out into "channels" based upon how products are put into the hands of the consumer. Channels include: retail stores, outlet stores, Internet, catalog, etc. In the past each channel was managed independently of the others (recall how some retailers actually created separate companies to run their Internet retail business). Last year there was a big focus on how to integrate online and physical retail into one, seamless channel.
This year, it seems everyone in retail is waking up to the fact that consumers are mobile and they are increasingly taking their technology (and Internet access) with them. Zero-channel retail recognizes that consumers are channel agnostic, shopping across multiple channels, sometimes simultaneously using mobile technologies. Yet this is only one of a number of significant trends in retailing that are contributing to a tectonic shift in the retail business (see also my July 2010 research on retail trends). And the various discussions and meetings I had at the NRF show this year lead me to conclude that many retailers, and in particular retail technology providers, are not well-positioned for this shift.
From Supply Chain To Customer Value Chain
Today's retail business systems have been built around the supply chain process where products are sourced, merchandised, and sold based upon supply-chain logistics and optimized merchandise assortments. It is a merchandise-oriented business. Buyers try to predict which products consumers will want to buy, and they place orders on manufacturers to meet the anticipated market needs. Manufacturers do the same thing, relying upon retailing data to make sophisticated forecasts of future demand so as to make products consumers will want.
But what if we turn the table and presume that instead of being a supply-chain business, retail becomes a customer value chain (CVC) business? A CVC retail business starts with the customer and not the merchandise: instead of merchandise planners at the core, this retailer has customer planners at the core. They profile groups of customers and examine social patterns to look for indicators of emerging demands. The CVC retailer wants to know everything possible about each individual customer, and it will maintain a complete history of every customer contact point — regardless of whether a purchase was actually made.
The CVC retailer is looking to build a lifetime relationship with an individual and to take an increasing percentage of their lifetime discretionary spending. Instead of retailing being centered around categories of products (e.g., consumer electronics, foods, fashion), CVC retail will be centered around people and lifestyles (e.g., large groups such as students or retirees and niche groups such as college alumni, hikers, swimmers, etc.).
In addition, CVC retailing recognizes that the value of any product or service is not simply a reflection of the price paid — value increases or diminishes through the use of a product or service and the customer is an intrinsic part of the value-creation model (for example, when buying a car the price paid is only one component of value; further value is created when the car is driven, serviced, and sold over its lifetime).
To succeed in CVC retail, which I predict will be the dominant form of retailing by 2020, retailers will need to develop sophisticated CVC-based systems that are built around the customer and not product. Unfortunately retail merchandising systems are still all designed from the product out and not from the customer in. Isn't it time to turn retail merchandising outside-in?
What do you think? Are you already moving down this path? Let me know through your comments below or on Twitter @nigelfenwick
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