Retail 2.0: A look at shopping of the future

Ten years from now, going shopping will be a lot like walking through an airport. No, not because it will mean grappling with endless queues, but because retailers will be using facial recognition technology and biometric scanning that travellers are already familiar with.

By then, you could be able to pay for your purchases by taking a selfie, your favourite retailers could recognise you instantly as you enter their store, sending personalised deals to your smartwatch, and robots could be scanning supermarket shelves to keep tabs on stock levels.

Electronic shelf labelling will be standard, complete with cameras that assess stock levels in real time, and so will artificial intelligence (AI) working behind the scenes.

These changes aren't science fiction: Paymark, which processes 75 per cent of the country's electronic card transactions, has already spent six months developing infrastructure for the future of payment. One technology it has been trialling is facial recognition - paying with your face.

"Selfie to pay" systems might be activated by blinking at the camera, which would then take a photo. Once your bank confirms your identity, and that you have money to pay, the payment process is instant. This is already happening in China.

Paymark has built demo apps, and longer term it sees this system being built into the banks' apps. Within the ASB app, for example, you might take a selfie to register and link it to your account.

While Paymark does not know when the technology will be introduced, it says its developments offer a glimpse of the future. "We're hoping to enable a new wave of innovation out in the retail environment," says the company's former manager of innovation and strategy, Michael McFadden.

New Zealand retailing will rely heavily on technology in coming decades, says Massey University's Jonathan Elms, who is the Sir Stephen Tindall chair professor in retail management.

Artificial intelligence and machine learning will be used to improve store experiences, along with augmented reality, similar to the way global retailer Zara is already using the technology by allowing customers with its smartphone app to unlock access to extra shopping options.

There will also be "holographic changing rooms" - like magic mirrors - which will allow customers to check out makeup or clothing without physically trying it on.

"Visual technologies" will also be commonplace to help products stand out, such as shelves that light up to highlight a product consumers may be looking for.

"Technology will offer consumers a personalised environment," says Elms. "If you enter a store, facial recognition technology will recognise you. It will be able to say 'you bought this last time, perhaps it's time for a new one' or 'how about this to complement what you've already bought?' It will know what size you are, what shape you are, what your weight is, it will calculate what is the best thing for you to offer a personalised, elevated service.

"Artificial intelligence and machine learning will be heavily present across the industry. It will be more useful in things like electronic goods, fashion, and grocery to some extent - all shaped around the experience.

"We'll see more usage of those technologies in New Zealand in the next couple of years, never mind 10," forecasts Elms.

As well as changing consumers' shopping experience, new technology will be used behind the scenes to streamline operations.

By next year, customer experience will be more important than price and product in deciding where people shop, according to KPMG's 2018 Customer Experience Report.

"As consumers are becoming more demanding and as the landscape is becoming more competitive both for domestic retailers and internationals, technology will absolutely re-imagine the retail landscape; what stores look like, the size of the store, the role stores play in consumers' shopping repertoires, how and to what extent they are integrated with the digital experience.

"Consumers won't differentiate [physical and online] in the future."

Go into a store in China today, and online and offline retail are already strongly linked. Alibaba - one of the world's biggest internet companies - is leading the way in merging the two forms of shopping.

Other Chinese retailers are also using vending machines which are opened with a smartphone, then automatically detect items removed from a fridge and charge for them through the Alipay mobile payment platform.

Elms believes such advances in China will become the norm in New Zealand, as will drone delivery, which is often viewed as far-fetched or a gimmick.

He says retailers will use drones as a way to deliver to customers in rural areas, so someone in a remote location could have their items delivered within hours of making an order.

"Amazon can deliver multiple products in the UK, Europe, the US and elsewhere in a two-hour time window. I can't think of any retailer who can do that now, but drone will facilitate 20-minute delivery, 30-minute delivery, fulfilling consumers' needs for instant gratification."

For drones, the limits will be in the hands of the regulators, not retailers, he says.

Global retail consumption is flat. Consumers now want entertainment or an experience, and are increasingly wanting a service as opposed to physical items. This is reflected in the shift towards retailers holding regular events and activities in stores to attract people.

The internet means consumers are no longer going to stores to be informed, as they once did. They are now visiting stores with a purpose, having already done their research and compared prices.

AI, augmented reality, the Internet of Things (IoT) and virtual reality are some of the technologies retailers are beginning to experiment with.

Machine learning, a sub-set of AI, is a technology that learns from itself, looking at data, and patterns within data, to understand trends. The more data it receives, the more it learns about what it analyses. From that it can come up with recommendations, predictions and forecasts - all useful for retailers.

Gary Blumgart, head of technology consultancy Theta Analytics, says many of these technologies are advanced and already at work with major retailers in other parts of the world.

Machine learning is being used for pricing analytics, to identify the best price for a product being marketed to certain people, and for inventory management.

"Everybody is hooked to their mobile phones or online and that's going to carry on, therefore what we're going to see is more use of those technologies to drive customers to find what they are looking for, far quicker, far easier," says Blumgart.

There will also be virtual assistants in stores, probably using kiosks, and virtual and augmented reality will allow shoppers to see what the shoes on their wish list would look like on their feet, or how a piece of furniture would look in their home.

"Instead of having somebody that you tap on the shoulder and say 'excuse me, where can I find this?', there will be an app sitting somewhere across the store whereby you will be able to tap on what you are looking for and it will very quickly show you by lighting up or reveal a map how to find the route quickly."

Facial recognition is another technology that could offer personalised shopping, if regulation allows, says Blumgart.

A camera, like the ones already in airports, will be able to identify who you are by scanning your face and measuring the distance between your eyes, lips and ears, he says.

"Being able to identify who you are the minute you walk into a store, that's a technology that is very valuable if it is used reliably and securely," he says. "If it's allowed to be used in a safe environment where your privacy is kept private it can be a powerful tool for retail."

Blumgart says the Big Brother-type technology will be commonplace in 10 years' time in some parts of the world, but how widely it is used will depend on privacy laws and regulation. "With digitalisation and the need for understanding the customer better, there has been a huge investment by retailers into technology. There's a transformation in the retail space which is changing from being product-centric to customer-centric, and that's where things need to be going."

New Zealand's retail industry has an annual turnover of $96 billion - twice that of the country's tourism sector.

Retail NZ predicts that by 2030 annual retail sales in this country will be worth $120b, and 13 per cent of all retail spending will be online, compared to 8 per cent today. It forecasts that half of all online transactions will be with overseas merchants in the next decade.

Vaughan Fergusson, founder of retail technology company Vend, says New Zealand retailers are beginning to explore AI, for example through voice assistants and allowing shoppers to use voice-activated systems such as Alexa to add products to a shopping list. But at this stage, he says, most of the adoption is going on behind the scenes to automate business - to manage books automatically, for example, or stock management.

Fergusson believes that in 10 years' New Zealand retail will look like it did 30 years ago - but with gimmicks.

"There will be more smaller independent brands, a return to the high street-style retail away from the mall experience; it's going to be delightful, and some experience," he says. There will be more self checkouts than manned checkouts, predicts Fergusson, particularly in "chore retail" segments of the market.

"We're still very much in the early adoption [phase]; most independent retailers are using technology in their business for doing their accounting online and a little bit of e-commerce but we're really only at the start line of how retailers could take advantage of technology."

He says innovation will be driven by consumers.

"We're all armed these days with incredibly powerful computers on our wrists and in our pockets and I still don't think we're leveraging the power of our smartphones and smartwatches yet - that's going to be the first area where we'll see more innovation in retail.

"It will be an experience where you are recognised by a store without it being too creepy; say you're a frequent customer through a particular retailer you're a big fan of and you get a notification on your smartwatch that says 'Hey, welcome back', acknowledging that you're there and letting you know what your loyalty balance is."

NZX-listed jewellery retail company Michael Hill International considers itself a traditional bricks-and-mortar retailer, but has made "significant and ongoing investment" in technology, says chief executive Daniel Bracken.

In coming years the company will introduce apps that offer personalisation, "click and reserve functionalities" and opportunities to customise the shopping experience.

Bracken says about 80 per cent of Michael Hill customers start their shopping journey online before coming into a store, but it won't overhaul the way it does business in coming years.

"We see the jewellery application of click and collect more about click and reserve, because customers want to see how a product looks on their hand, neck or wrist. It's not as transactionally focused as other retailers would be, but much more experience focused, and that's where we see the evolution of the internet and how it will help our business," says Bracken.

"Someone coming to buy an engagement ring, it could be an eight- to 10-visit process, and they may go to five, six other retailers as part of that process as well, so we need to make sure we're keeping in touch with our customer through that process and we're using technology to maintain that.

"This blurring of the lines between the internet and physical stores is a major trend that's going to continue ... the physical and digital are ever increasingly closer and closer and businesses have to adapt to that."

Bracken doesn't believe Michael Hill stores will be as automated as others in the market. "We're all watching the robotisation, I think it's early days, and with our business because there's a real romancing and experience in the purchasing process, I don't see how we will be able to automate and systematise that as possibly more impulse transactional retailers would."

However, Michael Hill is watching the introduction of these technologies overseas. "We have our eyes wide open on the internet and all of the different applications that it has in people's live ... every year statistics grow, particularly at the millennial end, are living their life there - and we have to be where our customers are."

Auckland liquor retailer Fine Wine Delivery has made a six-figure investment in AI. It recently launched a smart search feature on its website that allows shoppers to search for a wine based on phrases such as "fruity" or "rich".

"AI is actually an amazing tool for us in the beverage business," says managing director Jeff Poole.

"It draws on all of our legacy information from tasting notes in seconds and comes up with a dozen recommendations - it works faster than I can as an expert."

The company has seen increased sales thanks to the technology and is gearing up to expand that into voice command, so wine-buyers will be able to ask for wine using voice-activated systems such as Apple's Siri.

"I absolutely believe this will be a standard way to shop," says Poole. "This is just the start for us. I think AI is probably the next most important step since the inception of the internet; in seconds it can completely change the customer shopping experience."

Jonathan Reynolds, professor of retail marketing at Oxford University, told the annual Retail NZ summit in Auckland last week that physical stores will still be relevant in a decade's time, even though new technology will make it even easier to shop from the comfort of your sofa.

"We're going to see massive advancements in human augmentation; consumers will find out more about stuff faster through different kinds of mechanisms, we'll see investments in robotics and unmanned systems ... the growth of heavy duty drones, and the question is what will shoppers be able to do with enhanced cognitive functions, augmented reality and what will retailers be able to do with big data collection and insight?"