How Smart Cities Will Impact Retail Sales
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I’m a retailer and retail industry technologist by trade. My early career days were spent in the apparel business. What was known then as women’s better sportswear. Sold through department stores, specialty stores, catalog houses, and those first little e-commerce sites.
For the past many years, however, I’ve viewed the business through a technology lens. For two reasons: my professional responsibilities and the fact that the entire retail industry has been pushed head-first into the digital age – often unwillingly, and with occasional stumbles and screams.
In a few days I’ll be participating in an exciting conference on the future of retail – and, specifically, the retail store — in the new landscape of the so-called connected or smart city.
Will the smart city make a difference for brick and mortar retailing?
We know that many see dark clouds over the traditional retail store. Some observers have declared that an Amazon- and internet-driven “retail apocalypse” has descended upon the land.
It’s simply not true.
US retail is, at present in robust good health, as measured by the most important metric: overall year-on-year revenue. What’s going on is not an apocalypse, but an ever-accelerating, very-Darwinian process of natural selection. This is calling into question the purpose and necessary capabilities of brick and mortar retailing. The brands that are able to adapt to the new realities are winning shoppers. Those that cannot are unable to reach even the low-hanging fruit of today’s retail abundance with their short dinosaur arms.
So what about smart cities?
What difference will they make for brick and mortar retailing? My hypothesis: yes, a connected and smart urban environment will provide fertile ground for brick and mortar success.
But not because of the technology.
Make no mistake – there is a value to the technology-driven capabilities of connectivity and data intelligence. It’s true that the connected and smart urban environment could provide destination shoppers with the do-not-underestimate-it value of efficient parking. It is true that they could provide retailers (and retail real estate owners and managers) with predictive and responsive digital, rich media signage. It is true that they could provide shoppers with high bandwidth WiFi and deep cell coverage, thus enabling the lowest latency and richest mobile content.
However: none of the afore-mentioned value propositions – individually, or in unison – will drive that which drives retail: traffic, conversion, or basket size.
And that’s what pays the bills.
So: how will the connected and smart urban environment benefit brick and mortar retailing?
In a word: traffic.
It will drive traffic:
- When it becomes, in integrated concert with a rich variety of entertainment and dining options, a destination stage set for artisanal and expertise-based specialty retailing.
- When it becomes, due to its attractiveness to the digerati, a place of dense residential living, and thus a valued site for national brands with small, unified commerce formats.
Let’s examine these one at a time.
There will continue to be meaningful demand for brick and mortar shops that offer unique and artisanal products, merchandised (curated) with thoughtfulness and whimsy, and backed (essentially) by on-site expertise. The essential experience here is one of authenticity. The shopper interface can be highly digital or achingly analog – depending upon the brand ethos – and the look can be sleek as Sweden or as gritty as your grandfather’s hardware store, with linoleum on the floor and a bell on the frail entry door.
How do shoppers measure authenticity? Most often in the deep usage knowledge of the proprietors. What low-water flowering plants attract bees and hummingbirds? What lovely Oregon vintage will go best with rack of lamb (and why)? What bag truly completes this look – and is so perfect to use when I travel? What doozit goes with this thingamajig within my 1940-era house? Really? You’ve got one of those?
Retailers of authenticity are, by definition, destinations. Because big box stores cannot, despite all the technology, replicate their expertise. But they need support, both in awareness and in traffic-building, far beyond what small ad budgets and word-of-mouth can bring. What does a smart and connected city do? Encourage them, certainly. But also surround and integrate them with price-point right hospitality and entertainment. Restaurants, taverns, tasting rooms. Live music. Boutique hotels.
Second: as the connected and smart city attracts residential digerati – and a density of population begins to form – there will growing interest in the connected and smart area from national brands that are expanding small, unified commerce formats. These are down-sized stores that fit into urban footprints. Ten to twenty-five thousand square feet, as compared to the 140,000 square feet footprints found in suburbia. With a narrowed inventory tailored to the needs of the urban apartment and condominium owner – and, most importantly, integrating the new fulfillment capabilities of unified commerce.
Think brands like Target or Lowe’s. Whole Foods. Offering busy professionals the option of buying online and picking it up in the close-by store – or, having it delivered to the door within a one-hour slot. Destination retailing, driven by the authenticity of expertise and integration with hospitality and entertainment. Unified commerce retailing, made viable by residential density and appealing household incomes.
This is the future that I see emerging amidst today’s Darwinian natural selection.
What do you see?
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Good morning Jon, I have just read your publication and I agree with your comment, in fact Telefonica de España currently advises some of the largest retail distributors on the best locations for their new stores, if you add that the potential customer may have information that facilitates their access and about other complementary services in the area, smart cities will favour consumption in physical stores, if you add to that that in some countries shopping and go for a walk is part of our leisure, you come to the conclusion that there is life ahead for physical stores, retailers will have to adapt, nothing new under the sun, but they will survive.
Yours faithfully, Daniel Ferrer