Remember credit card imprinters?
A few months ago, I rented an AMC theater and took my family to see Christmas Vacation. I always get a good laugh at the establishing shot for the department store scene about 15 minutes into the film. One swipe after another, viewers are treated to clips of credit card imprinters pressing payment information into carbon paper. It’s a good reminder that what’s normal and ubiquitous now may soon be dated and archaic.
Indeed, retail technology is advancing at a rapid pace. Walmart is adding micro-fulfillment centers to dozens of stores, delivery aggregators are delivering convenience from dark stores, and it’s now been more than three years since Amazon Go opened its first location in Seattle. Last September, the Amazon One palm reader was added to that store as a new payment and entry option.
I recently had a conversation about retail technology with Krishna Motukuri, the CEO and co-founder of Zippin. Motukuri always has a unique perspective on these issues, and an abridged version of our conversation is below.
Q: I find it interesting when people say checkout-free technology harms customer service. I actually wrote an article about this recently. When employees are untethered from the register, they’re able to do everything else they were hired to do — including customer interaction. It seems to me that this is a win-win situation for everyone. What are your thoughts?
I think your point that they can do more high-value work is very important for retailers when they consider how to compete with e-commerce. The physical store is a secret weapon, and retailers can up the game in terms of customer service and justify higher margins. That’s a better business than trying to cut people and save money to save the margins. If you keep doing that over and over, and it becomes a vicious cycle and a race to the bottom.
Retailers should think of their stores as an asset. Physical retail provides so many variables, technically speaking, that you can use to differentiate yourself from competitors. Specific location, size of the store, types of customers you serve — it all allows you to define a unique experience. This is different from e-commerce where the variables are often the same and it’s difficult to have a connection with someone.
I’d also believe that the post-pandemic period will benefit physical stores. Everyone had to use e-commerce at some point over the past 12 months. Now they realize what they’re missing from stores. They will flock to stores and undoubtedly be a proof point for operators that people want to come back. It’s up to operators to retain them.
The problem isn’t physical retail; it’s that some brands aren’t doing well with it — and there is no excuse to not fix bad retailing.
Q: I agree, but I also think e-commerce growth will result in changes to the strategies used in brick-and-mortar stores. There has to be a compelling reason to visit a store if everything they sell can be ordered online. What do you think?
E-commerce was always a small percentage of retail but steadily gaining ground. Now, it’s up to around 14%. It spiked quickly last year, and a lot of people got exposed to it. It became a habit for many.
Individually, people are going to come back to physical stores because you can’t replace everything in an e-commerce environment. But we do see that more use cases are being satisfied by e-commerce than ever before. It’s not just the hard-to-find products that e-commerce players can offer because of the theoretically infinite shelf space they have, but also things like the ability to get groceries outside of a weekend shopping trip.
What’s going to happen is physical retailers will start offering more of the e-commerce benefits — such as the convenience of being open more, or the ability to discover products better. They need to make every visit count. Customers can’t walk up and find that an item isn’t in stock.
Checkout in particular has always been a point of debate and frustration. Retailers need cashiers to do more — like drive loyalty adoption — but that hurts the shopping experience. Stores are supposed to be convenient, and the most convenient thing you can do is get them out quickly. Now you’re adding on things.
Q: Despite advances in e-commerce and direct-to-consumer infrastructure, the pandemic made me realize how much I miss shopping at my favorite stores. I also think there’s a lot of pent-up demand in general. Not just to visit stores, but also movie theaters, restaurants, and concerts. Do you agree?
Absolutely. People love travel and were forced to stay home and be cooped-up in their homes and neighborhoods. We’re seeing a lot of pent up demand there — even theme parks. Kids had it hard this past year, and they’re missing out on the fun stuff.
Retailers need to be prepared for this traffic. It’s likely going to be an unpredictable, irregular sort of demand. There’s no seasonality analysis from the past that will tell you what to expect in this situation. Retailers need to have technology that is elastic. For example, checkout solutions need to function just as well with 100% occupancy as they do when the store is nearly empty.
We’re seeing a reconsideration of the checkout process everywhere from stadiums and convention centers to hotels and grocery stores. The demand is coming from the desire for convenience, but that’s not the only consideration.
Consider business dining. Corporate cafeterias are a big problem for many companies. It may be a long-term trend where people want to go back to shopping but not to the office. Many companies are rethinking how dining will work — such as using a centralized kitchen with multiple checkout-free grab-and-go locations.
Convenience stores might consider something similar. When you use technology to reduce your cost structure or improve operations, you should be able to further the convenience model and push it out into other buildings and formats. You can take the proximity from a mile to half a mile, for example.
Q: As many convenience retailers look to evolve their stores into something of a community hub, there’s a realization that delivery and off-premise solutions can be a part of this. How do you see other retail sectors looking to incorporate micro-fulfillment?
Most retailers have no choice but to think of their business as omnichannel. You have to meet customers where they are. Play to your strengths, but if your customers are doing some of their shopping online for various reasons, then you have to make it easy for them to do so.
Grocers have been using their stores to fulfill online orders. On the face of it, it looks like an obvious idea. But it’s actually a 20-year-old idea, that has yet to be executed well.
Online orders through pure play e-commerce sites are picked in an optimized fulfillment center that’s more cost-effective than a retail center in a prime location. Unlike a warehouse that typically deals with pallets and boxes, a fulfillment center needs to handle individual items. That increases the complexity and scale and can’t be done without extensive use of technology. This necessity drove e-commerce players to invest heavily in technology, and that became a huge advantage. So almost every e-commerce player is cloud-native. Everything that happens in their fulfillment center is instantly digitized. This makes their operations more reliable and more optimizable through real time cloud-based algorithms.
Stores struggled with this. They’d sell something online, and the inventory wasn’t there. Or the employees didn’t know where the item was because a customer placed it elsewhere.
Larger grocers are now saying ‘we can use our inventory, but meet halfway.’ They’ll build a micro-fulfillment center in the back of the store. This still works like a larger micro-fulfillment center, but they’re duplicating inventory and investing more.
I think there is a better way on the horizon. Checkout-free technology captures every piece of information in the store and puts it in the cloud in an instant. What’s on the shelf is known. When a customer in the store, the system knows. If they pick up an item and put it on the wrong shelf, that’s known as well. Now we can make reasonably reliable promises to the customer.
The future of fulfillment in general is that physical retail can double as micro-fulfillment centers for online orders without requiring any more investment.