In this article, Brian Ruwadi, Senior Partner, McKinsey & Company and Global Leader, Periscope By McKinsey, outlines how the COVID-19 pandemic is impacting tech in the retail sector, alongside some of the game changing technologies we can expect to see more of in the coming year.
There is a great deal of uncertainty in retail at the moment, as the effects of the coronavirus crisis continue to play out. The human tragedy and need to take care of people is a top priority, and we’re seeing many retailers make great efforts to support both their own people and the broader community. At the same time, we’re also starting to see real economic consequences hit, and these are likely to have a profound impact on consumer behaviour and the retail industry beyond the crisis itself.
Our latest UK Consumer Sentiment Pulse Survey of 1,000 adults conducted on 28th and 29th March 2020, found consumers expect a dramatic cutback in spending across all categories except grocery and at-home entertainment. Seventy percent said they expect their normal routines to be impacted for more than two months, and 47 percent said they are cutting back on their spending as a result of the coronavirus.
The knock-on effect for tech
Prior to COVID, retailers were aggressively integrating tech-driven advanced analytic solutions in the supply chain, marketing and merchandising, and we believe the current crisis will drive an even greater acceleration of many of these programmes. In the short-term, some more advanced retailers are using these solutions and analytics to navigate the now, while also looking at ways to plan for the recovery. For example, some apparel retailers with seasonal goods are using advanced analytics to better manage the excess inventory created by their store closures, reallocating inventory to supply increased ecommerce demand and optimising required markdowns.
While many technology innovations have been in the market for some time – for example, automated-check out, mobile payment, app-based couponing, etc. – the physical distancing and shelter-in-place mandates associated with the COVID-19 crisis are driving an uptick in trial of these solutions, and some portion of this adoption will likely persist. We see a parallel between the uptick in private label market share after the 2008 recession and the likely increase in technology-enabled shopping after the COVID-19 crisis; many customers will appreciate the experience that these technologies offer and will continue to use them even after the current crisis has passed.
Looking beyond the crisis
Disruption is nothing new for retailers, but these are unprecedented times. We expect the current situation to accelerate the separation of those who have the advanced digital and analytics capabilities from those who don’t. In particular, those that have already invested in advanced analytics, online platforms, fast speed-to-market supply chains, and proprietary brands are better prepared to weather this storm.
Tech-enabled solutions have been and will continue to be the driving force of differentiation and disruption for retailers. Technologies, such as advanced analytics, predictive analytics, and digital platforms, can help drive sustainable impact by providing retailers with breakthrough, actionable insights to faster response to market and consumer changes. But they are not the only ones; the experimentation will continue and over the coming year we can expect to see the following exciting developments increase their footprint in the retail experience:
Near-Field Communications (NFC) engagement
Mobile apps have proved to be effective channels for consumer engagement, but getting them over the initial adoption hurdles is challenging. Factors such as encouraging app downloads, app learning curves, and poor location-based connectivity can restrict the uptake and usefulness of such apps. NFC technology removes many barriers and is now featured in almost all new smartphone designs. A simple ‘tap’ of the device against products or other elements in store can give shoppers instant access to a whole host of features or actions, such as ordering a different size, checking stock at other stores, or product information. All in an intuitive and critically, frictionless way.
This technology has advanced at great speed, thanks to a combination of improved smartphone performance and the availability of developer tools help retailers rapidly build use cases for both instore and online. Users can already see how a piece of jewellery selected online will look on their body through their smartphone, with incredible accuracy. We can see a time where signage and the physical tagging of products with additional information or promotion details will not be needed.
Electronic shelf labels
These will continue to evolve allowing prices to be changed instantly and additional product information to be presented to shoppers. We can certainly expect to see retailers using this technology with its performance and design flexibility advantages.
Much of the innovation that we’re seeing right now from retailers is focused on protecting the safety of their employees and customers. At the same time, they must focus on preparedness and pre-emption as tech innovation in the sector will continue to accelerate. The retailers best placed to drive successful innovations and solutions will be those focused on staying close to their customers and adapting to their preferences.