Retail’s High-Tech Renaissance

It’s all about catering specifically to you and you and you.
Welcome to the You Decade. Retailers have a much better understanding of what it takes to get you to open your wallet. There’s much more data available about your shopping habits and interests, from prior purchases to today’s online searches and posts and even to the psycho-demographic profile of your neighborhood. Deploying data analytics, artificial intelligence, virtual reality imaging and other tools, retailers are doing whatever it takes to convert you from being a shopper to a buyer.
“Technology has moved from being a behind-the-scenes enabler to a ubiquitous, pervasive source for improving the customer experience,” says Rob Cain, US Technology consulting leader for retail and consumer at PwC, the consulting powerhouse. For brick-and-mortar retailers, which have steadily lost share to online merchants, the transformation becomes existential. Cain sees a particularly urgent need to create “a seamless, integrated experience centered on the individual consumers.” 
Seattle, which has strengths in data science, virtual reality, e-commerce and physical retail, may be uniquely positioned to find new ways to use technology to shape the new retail environment.
“Retail has been an essential part of the Seattle landscape since its formation as a city,” says Michael Schutzler, CEO of the Washington Technology Industry Association. He points to a long history of retail innovation going back to C.C. Filson and Nordstrom that came from Seattle’s pioneering days as well as to current global innovators such as Costco, Starbucks and Amazon. “All of those companies have differentiated themselves through their level of service. They built their brands on how they took care of their customers.” 
Now, tech is helping them respond even better — and more personally — to the needs and desires of every single individual customer. For brick-and-mortar retailers, such tailoring means finding better ways to collect and analyze that data in combination with other technology to improve the in-store experience. One day, you’ll walk down a supermarket aisle and see shelf tags light up next to products that are on your shopping list.
Fueling this personal-attention trend are cloud-based web services that help to collect and parse data, allowing a widening range of retailers to be more competitive in the assortment of products they offer and more savvy in their pricing and promotions.  Meanwhile, artificial intelligence (AI) is helping them make better predictions about what individual consumers might be tempted to buy.
The effort to track individual purchasing habits can be traced as far back as the advent of product bar codes and supermarket scanners. It was in 1974 — remember the Me Decade? — that a 10-pack of Wrigley’s Juicy Fruit gum became the first item to be scanned at a grocery checkout counter. That point-of-sale system opened the door to merchants keeping keep better track of inventory — and of what their customers were buying — by quietly monitoring sales data.
Today, grocers routinely issue coupons at checkout based on what you’ve just bought. The coupon might be from the manufacturer of the product you purchased or — surprise! — from a rival hoping to court you away with a special offer.
Online retailers possess even more details on their customers, enabling them to reach those individuals with targeted ads and to adjust their offerings quickly. And as retailers have learned to deliver products faster, the advantages of buying online have grown, forcing the operators of brick-and-mortar stores to adopt technology to make their physical businesses more attractive and more efficient.
Based in South Lake Union, Impinj Inc. makes a smart radio frequency identification (RFID) tag, which uses radio waves to communicate the tagged item’s identity and location to a nearby reader, which then relays the information to a retailer’s network.
Rebecca Minkoff and Ralph Lauren stores have deployed "smart" fitting rooms that use Impinj's RFID technology so shoppers can adjust lighting, request new sizes, complete the look or check out on the spot.
“This allows merchants to feel confident they can find the item they promised to ship to a customer, and avoid leaving behind inventory that could have been sold,” says Larry Arnstein, VP of business development at Impinj.
More important, these tags can be used to improve the customer’s shopping experience.  Luxury retailers like Rebecca Minkoff and Ralph Lauren have interactive mirrors in their fitting rooms that rely on Impinj’s smart tags. Customers can tap on the display to find out which other sizes and colors of a particular garment are available in the store, as well as to identify coordinating pieces and accessories that could be added to the purchase.
Impinj’s smart tags can also be used to help automate checkout and curtail theft, Arnstein says.
Pricing is another area in which physical stores use technology to compete with the likes of Amazon, which changes its prices multiple times a day based on demand and how competitors price their products. A traditional retailer might change prices once a quarter. 
DataWeave Inc., an India-based company with an office in Bellevue, helps its retail clients respond more like online retailers. The company scoops up data from 3,000 websites around the world to collect millions of data points. Clients receive competitive intelligence on what their rivals sell, how they price their products and what sorts of promotions they offer. With RFID tags, retail prices can be adjusted quickly to maximize sales.
It’s not all about lowering prices to remain competitive, says DataWeave President and COO Krishnan Thyagarajan. About 20 percent of the products DataWeave tracks are priced below the market, giving clients the opportunity to boost prices and still retain the lowest price on the market. 
DataWeave’s customers include retailers such as eBay, Adidas and Seattle Lighting, as well as global brands like Unilever.
“The velocity of the rate of change that’s happening in the retail world in general is accelerating dramatically,” Thyagarajan says. “Products are coming to market faster and their life cycle is shrinking, [and] prices are changing much faster. The retailers who are able to keep pace with that change are the ones who are going to survive.”
The speed at which a customer can find a particular product represents another advantage online retailers possess. By contrast, customers at big-box stores can get frustrated searching the aisles for an item. Bellevue-based Point Inside offers help by turning a shopper’s smartphone into a “shopping Sherpa,” says CEO Josh Marti. The shopper opens the store’s app and provides information on what he or she is looking for. Point Inside then uses in-store beacons and the smartphone’s location to guide the shopper to the product. 
“Our strategy is to look at everything Amazon has to offer and give every retail partner a private version of the same thing,” Marti says.
Target and Lowe’s are among Point Inside’s major customers. And keeping track of products is painstaking work. Every night, Point Inside remaps every product in every store it serves. That way, the app can lead shoppers down the correct aisle to within a centimeter of where the product is shelved. Additionally, the technology can point to deals on products near where the shopper is situated within the store. Brands can then work with retailers to find out how products perform relative to their location within a store and in different store formats or parts of the country. Brands can also pay to have their products featured when shoppers search for a category. 
Marti doesn’t expect physical stores to go away. He notes that a recent Nielsen report says 98 percent of millennials like to shop in physical stores, bucking the perception that they are “robots on the couch.” 
Online retailers actually seem to agree. About 18 months ago, Amazon opened its first brick-and-mortar bookstore in the University Village shopping complex. A new Amazon Go grocery store in Belltown, where shoppers use a smartphone app that tallies their purchases automatically — no need to stand in a checkout line — opened in December for Amazon employees only. Amazon says Amazon Go will soon be open to the public. Another concept, still shrouded in mystery, is a new drive-up grocery store. One is nearing completion in Ballard. (See story on page 29.) 
Blue Nile CEO Harvey Kanter, meanwhile, describes his company’s new 500-square-foot “showroom” in the Bellevue Square shopping mall as “a digital experience in a 3-D format.” The small store, one of five around the country, is designed to appeal to potential Blue Nile customers who might be willing to buy a diamond ring online but still want to be able to see and touch the product first.
Actual rings are on display in the showroom while shoppers can see a three-dimensional image of the particular diamond they have chosen for the ring they’ve picked. They can also photograph a sample ring on their finger and post the image on their Facebook page. An added flourish: The photo is posted on a digital video montage displayed in the store. 
Like Amazon, Blue Nile also transacts each sale online rather than at the store, reducing costs. The concept appears to be working. Blue Nile’s five showrooms produce between $6 million and $8 million in annual revenue despite their small size, Kanter says.
Seattle retail consultants Dick Outcalt and Pat Johnson of Outcalt & Johnson: Retail Strategists expect Amazon will open more physical stores in the future, driven in part by its deep knowledge of its customers. “They collect data, study our habits. Amazon is on a crusade to turn the art of retail into the science of retail. They are absolutely relentless,” notes Outcalt.
The key is “matching who is buying with what is selling,” Johnson says. Amazon could use its customer data to determine where its best Amazon Prime customers live and open an Amazon Go grocery, an Amazon bookstore or Amazon clothing store catering to their particular shopping needs nearby. 
“What we anticipate,” Outcalt says, “is that Amazon will build its own stores or take over a strip center mall.” 
Whether or not Amazon takes over the malls, it and other retailers will have to adjust to another retail trend: the increasing use of smartphones. During the past five years, Kanter estimates the number of shoppers browsing Blue Nile’s website from their phones has grown from less than 10 percent to almost 70 percent of the site’s online traffic. 
Growing popularity of smartphones has led some retailers, particularly overseas, to create special mobile apps. Using a store’s app can be easier than logging on to its website and doing searches. There are other advantages for retailers. It’s easier for their customers to make impulse purchases with a smartphone while waiting for a bus or having coffee at a café and it’s harder to search competitive prices while using the app.
Redmond-based Dimensional Mechanics is developing for artificial intelligence a toolkit that can be used by small and large companies. Although the startup’s initial market is the media, CEO Rajeev Dutt thinks retailers could find its toolkits useful. For instance, a fashion designer could study which dress styles have been most successful and use AI to predict which modifications to those styles might be popular going forward. “The hidden message in AI,” says Dutt, “is that humans are surprisingly predictable.”
Retailers could use AI tools to improve customer service by analyzing issues raised in social media posts and emails. AI could also be used to boost sales by predicting which customers are most likely to walk out without buying anything and targeting them for special attention.
“I think a lot of retailers say the only way to compete with Amazon, the 10,000-pound gorilla, is to lower prices, but that’s not the only way to compete,” says Steve Rowen, a managing partner at Miami-based Retail Systems Research. “You can offer a service model.” For example, stores can offer cooking classes or shoe shines to build customer loyalty.
Rowen, for one, does not expect widespread adoption of automated checkout. “People do not like to go to the store and feel like an employee,” he asserts. Rather, they like being able to interact with other people.
“When you go to a mom-and-pop store, you can have a relationship with the owner. Online, that’s hard to establish,” says David Jennings, head of business development for information and communications technology at the Economic Development Council of Seattle & King County. “Is there a way to use technology to interact with people?” he wonders.
Maybe. The answer could lie in customer service chatbots that use natural language to communicate with customers. Already, talking virtual personal assistants such as Amazon’s Echo, Apple’s Siri, Microsoft’s Cortana and Google’s Home respond to voice commands. They can answer questions and perform tasks, such as ordering pizza. It’s not much of a stretch to see retailers making more use of similar interactive voice-activated devices.
Ideally, says PwC’s Cain, technology is used to connect every part of a customer’s journey. While home improvement centers once sold a collection of do-it-yourself products for the weekend warrior, today, increasingly, they try to create an end-to-end project management experience that starts with the consumer using the retailer’s software to design the space and select color and style of tiles, plumbing products and other elements of the bathroom. One day, stores may offer the ability to use virtual reality goggles to walk into the bathroom and experience the space. The retailer might even arrange for a contractor to handle the job.
At Lowe's, Point Inside CEO Josh Marti uses the StoreMode platform to locate products, create a shopping list and search specific inventory.
Point Inside’s Marti isn’t sure if Seattle will lead this evolution of retail through data analytics, artificial intelligence, virtual reality or other new technologies. “We are still in the infancy of a lot of those technologies,” he says, “so it’s too early to claim the pole position ahead of San Francisco, New York, Austin, Los Angeles or Boston.”
But Joseph Williams, director of tech industry economic development for the state of Washington, is willing to bet Seattle’s “enormously deep talent pool for online retail” will give it a competitive advantage for quite some time. 

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