The average Indian consumer has grown beyond the ‘roti, kapda, makaan’ paradigm to become more demanding and discerning about consumption. Inarguably, Indian consumers drive a hard bargain and are highly cost conscious. However, in addition to compelling prices, consumers today also desire a great shopping experience, customised services, and a wider range of product offerings. This has created new imperatives for retailers and precipitated the need to create a collaborative and agile retail ecosystem where the shared objective of the entire network is to understand and meet consumer needs. Retail Tech or technology-enabled retailers can play a key role in enabling this shift and meeting the demands of consumers today and tomorrow.
What is Retail Tech?
Retail Technology refers to tech that enables retailers, including brick and mortar businesses, ecommerce platforms, and online-only direct to consumer brands, to embed themselves deeper into the consumer’s journey, optimally manage customer expectations, and eventually create ‘wow’ moments for the customer. According to a CB Insights report, “As retailers recognize the need to invest in tech that can potentially improve productivity and profitability, spends on in-store technology are growing. In 2019, capital infusion in the sector grew by 60% to USD 3.7 billion.” (Source). A World Bank report released in 2019 reveals that online sales as a percentage of total retail sales were only 1.6% in India, versus over 15% for China and around 14% globally (Source). However, IBEF estimates the Indian E-commerce market to grow to USD 200 billion by 2026 from USD 38.5 billion as of 2017 (Source). Commenting on the current retail sector landscape, Sachin Chhabra, Founder of Peel-works, an Equanimity portfolio company shared some insights:
“India's retail sector has been impervious to technology even though the world embraced new ways around that sector. There is no chance that we will ever stop consuming as a species - retail can never go out of fashion. The industry, therefore, will need to modernize itself so that it can serve the customers better and become more profitable. The following are the key parts of the value chain that need a technology fix:
1. High inventory, which allows capital to make only two turns a month,
2. Low customer stickiness (82% of customers switch stores driven by pricing and convenience),
3. Disparate and limited selection (diapers and beer do no get sold in the same store) and
4. High chore component in shopping as a task (online ordering and fulfillment by neighborhood stores).
The decade that we are in will see retail embrace enterprise resource planning platforms (ERPs) as a foundation for robust customer relationship management, and e-commerce engines to provide a seamless experience to the shoppers. These changes are starting to influence some parts of the sector. Over the next few years, we see the pace accelerating and the change sweeping all aspects of retail, including apparel, electronics, grocery, automotive, and durables amongst others.”
Tech augmenting customer journeys
Digital transformation is causing profound shifts in the way customers are interacting with retailers during their purchase journey which typically starts with information gathering and browsing, leads to purchasing, and ends with fulfilment and post-purchase services. Technology is creating value at each step of this journey.
Extended Reality: Retailers can make your online shopping experience tangible by offering virtual and augmented reality solutions that lie at the crossroads of physical and digital, i.e., phygital interactions. This technology can help customers browse for products more meaningfully by providing extra information and even try them on virtually to get a better feel of the product. For example, the IKEA Place ARKit app allows you to virtually move the furniture to your house to get a better understanding of whether it will fit and look good in your house. In the future, retail tech may also allow customers to not only have these online experiences but also share them with their friends, family, and peers.
Predictive Analytics (Big Data): Meaningful analysis of data is allowing companies across sectors to get up close and personal with their customers. Fortunately, there has never really been a dearth of data in the retail space. However, analysing this data to derive insights and create new solutions has been a challenge. This is where retail tech can play an integral role. It can allow retailers to better understand customers’ proclivities, forecast trends, and create customised journeys that effectively meet their needs. According to a MarketsandMarkets report, “the global retail analytics market size is expected to grow from USD 4.3 billion in 2020 to USD 11.1 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 21.2% during the forecast period.” (Source)
Recommendation Engines: Shopping has always been driven by recommendations. Almost everyone wants a second opinion on what they are buying and needs help in choosing the best options. Technology is now making this smarter through recommendation engines. Although recommendation engines are not a new addition to the retail landscape, over time, due to improvements in technology, they have become more accurate. This means that they are now better positioned to know the customers, funnel down information, and provide customised recommendations. According to Amazon, 35% of its sales are driven by its recommendation engine (Source).
Customer Chat Bots: In an era of 24/7, connectivity, messaging based customer service bots are seeing rapid adoption. Messaging through bots is a great way to stay connected with the consumer and share relevant information. Brands can use WhatsApp bots to directly send messages to an unlimited number of users and increase their visibility. Further, bots can also ensure that customer queries are addressed almost instantly, thereby lowering cart abandonment and helping customers solve problems after the sale without human intervention.
Pre-filling: When making a purchase on an e-commerce website, consumers expect a smooth check-out experience. However, on most websites, consumers have to face a cumbersome check out process which involves filling pages of forms and providing multiple layers of information. This can be a huge deterrent to the completion of the sale and can often lead to abandonment. According to SaleCycle, “In a single year, cart abandonment is responsible for USD 4.6 trillion in lost e-commerce sales with abandonment rates averaging nearly 76%.” (Source). Pre-filling techniques can be used to complete the form with authenticated digital identities, thereby leading to a more convenient user experience.
The Way Forward
These are just some of the many digital solutions that retail tech has to offer. While most of the above focus on enhancing customer journeys, there are several others that can help retailers manage stocking optimally, reduce cost, increase operational efficiency, and improve profitability. The future of retail is going to be singular where digital will become omnipresent. As the battle for the consumer’s time gets fiercer, retailers will need to provide their customers with a frictionless and frustration free experience. This means that technology powered solutions like a virtual catwalk or seamlessly integrated digital assistants are likely to become commonplace. In an economy like India, which is unequivocally powered by consumption demand, retail tech can orchestrate the much-needed digital shift in the retail sector.
Equanimity is very bullish on the sector. We have invested in Peel-works (https://www.peel-works.com), a company that helps small, offline retailers leverage technology and procure inventory at low prices. As technology-enabled transactions gain a larger share of the pie, we are excited to witness the growth of the sector going forward. If you are a startup looking to disrupt any part of the retail sector with the aid of technology, we would love to talk to you. Do visit http://www.equanimity.vc and send in your pitch decks or feedback, insights. comments, etc. at firstname.lastname@example.org.