Automation will produce a brick-and-mortar retailing renaissance…if labor is deployed creatively
By John Pugliano, author of The Robots are Coming: A Human's Survival Guide to Profiting in the Age of Automation
At present, the future of brick-and-mortar retailers looks bleak; however, I believe the technological forces that have favored online retailing are about to shift the advantage back to the local storefront. The trend for online sales is reaching a saturation point, otherwise Amazon wouldn't be paying a premium to acquire Whole Foods. Less expensive options are available if Amazon simply wants to reduce delivery time or showcase their merchandise. Amazon is buying Whole Foods as a catalyst to creating exceptional in-store customer experiences.
Amazon knows its competitive advantage is slipping as traditional retailers expand their online presence. A Walmart super center typically stocks 150,000 SKUs. The revamped walmart.com now offers over 50 million SKUs. Walmart also dominates with a home-field advantage — its 4,000 U.S. stores are within a 15-mile proximity to 90 percent of Americans. The Walmart customer experience may not be posh, but it is practical. And apparently enough of a threat to motivate Amazon to acquire an old school brick-and-mortar grocer.
Amazon used technology to change the face of retailing, and we're about to enter the next phase. As the digital age made information near free, automation will reduce the cost of some labor to near zero. What has worked in warehouses and along the supply chain will now be applied at the storefront. Mundane routine jobs like stocking, pricing, reorder, inventory, cleanup, scheduling and checkout will soon be automated.
While mediocre management will use the headcount reduction windfall to pad profit margins, innovative leaders will use the productivity savings to invest in high quality human talent that can create an extraordinary in store customer experience. Shoppers will have a clear choice between paying the lowest price or embarking on an experience.
Retailing has always been about offering choices and consumers are willing to purchase a product at a premium price, provided they receive a commensurate experience (entertainment or knowledge). A hot dog and drink at Costco is $1.50; the same meal is $15 at a football stadium.
Like all technological innovation, advances will come in phases. Mobile apps, kiosks and self-checkout stations marginally improve the customer experience by offering benefits like faster checkout or curbside delivery of groceries. These enhancements are trivial. Revolutionary changes will occur when talented employees are the draw. Think of a Walmart greeter with the personality and appeal of Ellen DeGeneres. Imagine if all Barnes & Noble employees had a Ph.D. in literature. Sound impossible? My grandfather would have thought Amazon was impossible. The same technological revolution that enabled online shopping will create in store efficiencies that will free up capital to hire extraordinary staff. Talented employees will create interesting in-store content and programs that attract customers.
Think of today's retail challenges. Radio Shack isn't struggling because of lack of demand for electronic products. Their demise is due to an inability to attract customers. Imagine how successful Radio Shack might have been if instead of simply stocking shelves with merchandise, they had transformed their ubiquitous storefronts into neighborhood "makerspaces." Learning centers where customers are taught how to use 3-D printers, write code or solder a circuit. Millennials and Baby Boomers are flocking to maker fairs to learn these skills, but apparently none of them are shopping at Radio Shack.
Brick-and-mortar retail will only survive if the storefront becomes a destination for consumers seeking knowledge and entertainment. Imagine a shopper that has a non-urgent need for a bolt or a tool. Prior to Amazon, one would drive to the local big box retailer and wonder around the isles looking for the needed item. Perhaps if they were lucky, they'd find an employee to help them. Today, that consumer shops online, avoiding the inconvenience of a dreary big box retail experience.
Now, imagine the frustration of that online shopper if they don't know how to select or use the item. They'll likely turn to YouTube and watch an instructional video. A video of generally poor quality, produced by someone with marginal subject expertise.
Consumers seeking knowledge are a large underserved demographic waiting to be rescued by an innovative retailer. The solution is as simple as providing a well-stocked store that is staffed by motivated employees with merchandise expertise.
The concept works across all retail sectors. Grocery stores where employees are not stocking shelves or cashiering, but sampling food and teaching shoppers how to prepare it. Lumber yards that demonstrate tools and construction techniques, not as a special event but as a course of daily business. Genuine subject matter experts that have a passion for the merchandise they sell.
A similar value-add strategy applies to restaurants and I believe Starbucks is already headed in that direction. Starbucks' sales are less susceptible to online erosion but sales growth is slowing as the pool of premium coffee drinkers stabilizes. Starbucks is shifting its growth strategy from attracting new customers to selling more items to its existing clientele.
The transition will rely heavily on implementing technology throughout the organization, including at the top. When selecting a new CEO to fill the enormous shoes of Howard Schultz, Starbucks didn't pick an insider, nor someone with restaurant or retail experience. They selected Kevin Johnson, who has risen through the technology ranks from IBM, to Microsoft and then CEO of Juniper Networks.
Technology implementation at the store level started in 2010, when Starbucks introduced the nation's largest mobile payment program. That has since morphed into an extremely successful mobile-ordering app. Last quarter, the app was used to place 8 percent of orders and 29 percent of payments. Mobile ordering has been so successful that operationally it's been hard for baristas to keep up with demand. The latte making bottleneck will likely be solved by implementing the next technological phase — robotic baristas.
Robotic baristas are a natural progression for providing an extraordinary customer experience. Productivity will increase to match mobile ordering demand and each drink will be customized to individual preferences that are stored in the app database. The traveling executive's favorite coffee will be served with precision, whether ordered in Tokyo or Toledo.
Robotic baristas are not far off science fiction. The technology is available off-the-shelf and already being successfully implemented by Cafe X, a San Francisco-based coffee shop.
Automating the coffee making process frees up labor and reduces counter space. Key elements to helping Starbucks expand into additional product offerings like evening food and alcoholic beverages. Employing robotic baristas could reduce headcount by at least 60 percent, allowing that human capital to be utilized to prepare more complicated meals and in direct customer facing roles, thus improving the overall customer experience.
Expect this and more as repetitive low value jobs are replaced with automation and human talent is unleased to serve the customer. Education and entertainment won't be supplemental to the sale, they will be the primary reason that shoppers choose to enter a storefront.
Topics: Assisted Selling, Augmented Reality, Customer Experience, Customer Service, Marketing, Merchandising, Omnichannel / Multichannel, Retail - Warehouse, Shopper Marketing, Technology, Top 100 Retail