Not Your Father’s High Street

Not Your Father’s High Street

The shopping experience is changing in unexpected ways

What will retailing look like 10 years from now? Will Main Street and suburban shopping still exist?

Recent announcements by household names such as Sears, Macy’s and J. C. Penney of mass store closures, and the unrelenting growth of e-commerce, do not augur well for the traditional shopping experience.

But the death of bricks-and-mortar retailing has been grossly exaggerated. A decade from now people will still be visiting their favorite outlets – it’s just that the environment in which they shop will look very different than it is today.

Ironically, some of the branded outlets they’ll patronize are ones that are leading the online revolution today.

Amazon recently opened its first Go store. The store sells food products and has no checkout line. Shoppers scan their smart phones on entry, and the outlet automatically tracks what products they pick up from shelves and charges them. This new format offers a glimpse of the future of bricks-and-mortar retailing. Reports suggest that the online retailer might open 2,000 Amazon Fresh grocery stores across the U.S. in the next ten years (in addition to its book stores).

Amazon is not alone in its unexpected migration to real-world shopping. For example, this January online purveyor of eyeglasses Warby Parker told the Wall Street Journal that it plans to open at least 25 retail stores this year. In 2016, Alibaba invested in Sanjang Shopping Club Ltd., a discount supermarket in China. Forbes reports that Alibaba’s long term strategy is to achieve a transformed retail industry, driven by the integration of offline and online shopping.

What is the attraction of physical stores to companies that have been instrumental in pulling consumers away from the malls and into the virtual world?

First, it seems clear that consumer demand for the physical shopping experience still exists – and judging by the actions of the above companies, will continue to exist for some time.

Second, online retailers can bring something different to the bricks-and-mortar table, and not only in terms of store layout and payment options. They are likely to integrate physical stores with on-line retailing in an efficient and seamless way. These players have achieved enviable growth rates in an extremely demanding competitive environment, and can now teach traditional retailers a thing or two about serving the customer. Their experience is particularly relevant in areas such as customer service (online customers are notoriously intolerant) and inventory management.

Third, while the online world has been very profitable for leading players, there is still something to be said for face-to-face contact with customers. Physically interacting with buyers builds brand equity and provides a unique opportunity to get to know the people who buy your wares. Zara has leveraged such intimate customer contacts in its vaunted speedy redesign-and-replenishment cycle.

Still, migrants from the virtual world will not be the only brand names to populate the shopping areas of the future.

Traditional players are responding to the challenge of online competitors with hybrid omni-channel retailing as well. As part of this push, they are redesigning stores to give consumers multiple buying options.

One possible format is a highly-automated checkout procedure. Shoppers who want to visit, say, a supermarket, are allocated a parking slot ahead of time. Their orders are delivered to that slot for pick up, and payment is automatically processed.

Retailers will have to redesign their backroom spaces to accommodate the changing face of their business. The backroom is the vital link between the store and the supply chain that supports it, and conventional configurations are woefully inadequate. In an omni-channel world, the back room is the fulfillment center for on-line order. As I mentioned in my Wall Street Journal article about in-store fulfillment, the current practice of allowing pickers to intermingle in store aisles with shoppers both increases costs and degrades service levels.

New concepts will be required, such as back room hubs that serve multiple stores. A PhD researcher at the MIT Center for Transportation & Logistics has carried out extensive research on this subject with a leading retailer.

Smaller outlets such as coffee shops and restaurants are likely to become more prevalent in shopping areas. Perhaps the mall anchor store of the future will be a restaurant. This trend requires fresh approaches to supply deliveries, since these types of retailers tend to order in smaller units (another reason why backrooms must be designed differently) and often need more frequent deliveries.

The supply networks that will supply these small format retailers will be complex, because many restaurants have limited back room space, will operate in omni-channel environments, and manage increasing volumes of returns as customers become more demanding.

New software platforms and large scale optimization tools are under development by retailers, software firms and research organizations. For example, MIT’s Megacity Logistics Lab, which is part of the MIT Center for Transportation and Logistics, is working on supply chain configurations capable of supporting these changes. One approach being explored is to develop various ways to stage and distribute product in densely populated urban centers.

It’s anyone’s guess what the next wave of innovation will be a decade from now. Possible future innovations include affordable and safe 3D printing of customized products close to consumption centers, drone deliveries from van platforms, and autonomous vehicles that reduce delivery costs and enhance travel.

As Niels Bohr, the famous Danish physicist, reportedly said: “It’s tough to predict, especially the future.”

This article was written by Yossi Sheffi, Elisha Gray II Professor of Engineering Systems at MIT, and Director of the MIT Center for Transportation & Logistics. The article also appeared as a Linkedin Influencer blog post. 

 

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