6 Bold 2022 Retail And Retail Technology Predictions
This is such a fun time of the year for retail. New budgets, new visions, CES, NRF, Retail Innovation Week … and of course everyone making 2022 retail industry predictions.
I had so much fun last year with my 2021 Retail and Retail Technology Predictions. I pride myself on going bigger and a bit bolder. No gimmes. And even though I went out on a limb, I think I really nailed it last year. Here is the 2021 recap on how I did. Biggest success: predicting the rise of Buy Now, Pay Later and other financial services from retailers. Biggest miss: Amazon making a big move in physical retail (the single department store doesn’t count in my book).
So with 2022 upon us and so much in flux in retail, I am excited to present to you my <drum roll please>
2022 Retail And Retail Technology Predictions!
2022 Will Be The Year That Accelerates A Multi-Billion Dollar Shift Into Retail Digital Signage
The Reckoning Of Delivery Economics Will Lead To Consolidation As Consumer Usage Declines
Retailers Will Unbundle Their Services Creating New Models Of Industry Collaboration
Post-Sale Services Will Become A Key Point Of Differentiation
Brands En Masse Will Embrace NFTs And DAOs To Drive Early Product Feedback, Personalization And Customer Loyalty
Brick-and-Mortar Retail Completes It’s Return To The Throne Defining Winners And Losers
For a detailed analysis of each 2022 retail prediction, keep on reading below. Let’s jump in.
Retail Prediction 1: 2022 Will Be The Year That Accelerates A Multi-Billion Dollar Shift Into Retail Digital Signage
With supply chain challenges easing up in Q2, focus is switching back to the in-store experience. And yet throughout the store we still have static, expensive and cumbersome fixtures and signage. 2022 will be a big year for digital transformation in-store. But there are a couple catches…
Retail digital signage generally sucks. There I said it (and I have said it before). I think its current incarnation is often the banner ad of retail – and thus it has the same popularity. That said, banner ads are big business online and they are soon to become big business in-store. It doesn’t make sense that only 1% of digital media spend occurs where 85% of retail transactions occur (and an even greater proportion of profits and shopper loyalty).
Advertising experts know that the most valuable media is that which targets the bottom of the funnel such as retargeting ads, cart abandonment, cross-sell/up-sell or anything that optimizes conversion. Media advertising executives are beginning to realize that those opportunities also exist in-store – if only retailers create and activate those opportunities. And they are indeed! 2021 was the year that every retailer seemed to offer a digital advertising network online offering a combination of ad inventory and proprietary customer data for targeting (Kroger / Albertsons / Macy’s / Ahold / Target / Walmart / CVS). 2022 will be the year that we start seeing similar in-store advertising networks in store.
The challenge to the advertising model is that building out the network is capital intensive. So vendors like Quotient and Cooler Screens are offering to build it out for free for long-term revenue share. And so with free subsidization and new revenue generation unlocked, you will see retailers go big this year and you will see a flood of advertising dollars come in. I believe this is a multi-billion dollar shift over the next 2 years.
But will activating all this programmatic advertising that is the banner ad of retail improve the shopper experience or distract from it? The top two biggest problems with digital signage is 1) that customers tend to ignore it because it is interruptive and 2) It’s intrusive to the customer experience and frustrates customers.
This led me to ask the important question of who decides the future of digital in-store (read the full article here)? Will the leaders at the brand and retailer be the media / advertisers or merchandisers / shopper marketing folks?
A Non-Advertising Model Of Retail Digital Signage Driven By Shopper Marketing And Customer Experience Design
There is a different vision, one in which digital is more about shopping tools that add to the shopping experience. Walmart and other retailers are redesigning stores from the ground up to be more like airports and malls, friendlier for navigation with guided tools at every turn and integrated into mobile. In this world, shopper marketers and in-store experience designers will lead the digital revolution with a focus on improving the unified commerce experience and increasing both conversion and loyalty. Here are some of the key trends to look out for in 2022 facilitating the digitization of the store:
Retail smart shelves are coming, finally. Digital signage will have to be shopper-aware and product-aware like Raydiant to deliver useful and contextual information, not interruptive promotions and distraction attention grabbers like banner ads to drive 5-10x engagement and 30-130% sales lifts. Trade dollars will flow to “phygital” shopper marketing as brands realize that in-store story telling mandates the same digital content they have online at the product level (see chart where #1 category for budget increases of 5% or more is shopper marketing ) that they can’t rely on retailers to do that or even worse, just let their products sit at the shelf.
Rising labor costs are flipping the economic ROI of electronic shelf labels (ESLs). Companies like Pricer, which have seen heavier adoption in Europe where labor costs are already high, will start deploying in the US. It’s a massive investment for retailers, but Best Buy Canada was the North American canary in the coal mine.
Retailers will use these to better convert in-store customers to omnichannel through QR code, NFC and native app connectivity. While this kind of can be done now, there’s a reason you haven’t seen a single QR code case study in usage in retail yet. New mobile apps will help navigate through the store, to the product, and back to online in novel ways this year. And the ROI will be there with usage volume.
2x increase in number of screen touch points in-store that are tools oriented - Dynamic wayfinding, category level information, event and product promotions, BOPIS locker screens, return kiosks and much, much more. We are seeing supply chains free up for screens.
5G, which we predicted would explode in 2021 will be ubiquitous in 2022, with retailers like Walgreens lighting up 9,000 stores at a time.
Sensors, sensors everywhere. Digital touch points will be embedded with more sensors than ever to use for continuous optimization. Will we finally get visibility to the data desert in-store and overturn well-accepted shopper marketing norms with new data-driven insights? We hope so!
To capture the massive opportunity across multiple capabilities, expect 2022 to be a year of consolidation to achieve network scale and new sensor and analytics capabilities to compliment traditional digital signage. It’s going to be an exciting year.
Retail Prediction 2: The Reckoning Of Delivery Economics Will Lead To Consolidation As Consumer Usage Declines
It’s pretty clever actually. Somehow delivery apps like Instacart, Seamless/Grubhub, UberEats, DoorDash/Caviar and others have convinced us that a $30 order should be $50. There’s a delivery charge, a service charge, taxes and don’t forget that tip. It’s magic and poof, there goes your money.
Flush with additional cash injected into the economy and wanting to indulge in a pandemic world of forced deprivations, consumers accepted the charges. And VCs have pumped in so many dollars to the delivery business leading startups to spend ungodly amounts of money in subsidizing prices - unbelievably these prices are actually low.
Even at these prices most lose money with Instacart paying $15-20 per hour for shoppers who have to complete both shopping and delivery at an average rate of 1 per hour. But don’t worry, they will make it up in scale, right? Right?!? (Note: Instacart claims they made $3 per order in April 2020 but raised $265 million in Q1 2021 and $232m in Q4 2021). No wonder Chris Walton named Instacart the retailer most likely to struggle in 2022.
For grocery delivery, the delivery economics don’t work because margins are already razor thin. But the cost of labor is increasing and both fiscal and consumer budgets are tightening. 2022 is when the “Great Delivery Reckoning” will be felt. The writing is already on the wall. Larger delivery players are adapting business models to search for profitability. For example, Instacart acquired FoodStorm to help grocers turn into catering kitchens, but more importantly to offer their platform as a software subscription at software margins. It’s becoming harder and harder to keep raising money without improving profitability. Shipt is opening up consumers to pick “personal shoppers,” a stepping stone to new concierge services as it struggled to keep share with Instacart despite the Target advantage.
Rapid delivery startups will thrive in 2021, drunk on billions in VC funding, but will only take hold in large and dense cities like New York (which is why NYC is the battlefront of the ultrafast retail delivery war). But the costs will be astounding both in real-estate and labor. Everyone is looking to the hope of autonomous delivery to reduce labor charges. Last year we covered so many stories of drone and robot delivery in This Week In Retail. But nothing remotely at scale. Yes Walmart, Kroger and even regional groceries tried drone delivery. And Numo robots are apparently delivering Domino’s. But automation at any meaningful scale is several years to even a decade away.
So what’s the end game here? Similar to Uber, which raised prices 40% in the last year (Ouch!) It will be all about consolidation to a couple key winners with physical retail and microfulfillment networks that favor large incumbents like Kroger, Target, Gopuff/Bevmo and Walmart, which launched it’s GoLocal delivery service to offer other retailers (see below on unbundling).
Success will also require service diversification. Few people realize how important Uber’s acquisition of Postmates was in saving their business and redirecting ride-share capacity to delivery. As delivery usage subsides, competition will get more cutthroat. As several vendors fail, they will be gobbled up for customer purchase data and geographical strength. Capacity has to be able to be redirected to changing service needs, delivery back to ride share, and even some new services that hasn’t been offered (B2B messenger delivery, in store shopper marketing services like Survey.com, price comparison research, secret shopper, etc.).
Retail Prediction 3: Retailers Will Unbundle Their Services Creating New Models Of Industry Collaboration
2021 was fascinating. New collaborations between brands and retailers everywhere. GNC leveraging its supplement retailer brand to offer its private label products at Walmart, an impressively smart move. Target welcomed Ulta into its doors. Sephora at Kohl’s.
Seemingly every retailer rushed to launch a digital marketplace, selling their endemic online audiences to third party brands in the hopes of greater monetization, improved search engine optimization and better utilization of supply chains. Many of these digital marketplaces will disappoint in 2022 as they clutter interfaces, increase fulfillment complexity and remain undifferentiated on service and price. Maybe that’s why many experts consider it the most overhyped retail tech move of 2021 (see Oliver Banks Retail Transformation 2022 trends podcast). But the idea is right. How do we unbundle services to provide a new offering to partners that leverage our assets and create scale and profitability?
The most interesting of example of this is Walmart offering its GoLocal delivery service to third party retailers. It launched pitching SMBs, but scored Chico’s (1,200+ stores) as a partner by end of the year. Here’s what we wrote about it and why it has fascinating implications for who owns the customer.
Another example is how Mr Beast and Tik Tok are opening hundreds or thousands of virtual restaurants with Virtual Restaurant Concepts, by utilizing unused kitchen capacity in partner restaurants (a trend we nailed in our 2021 Retail Predictions - so read our 2021 Retail Prediction Recap).
How far down the rabbit hole does this go? Could retailers sell other data for off-property use and targeting or will they continue to hold customer data as sacrosanct? Will retailers leverage in-store networks to offer new services for shopper marketing research a la b8ta, Showfields and Neighborhood Goods? Kroger’s 8451 is building quite a powerhouse data practice, but could go much deeper, especially for emerging brands. How will Target adapt Shipt into a full spectrum retail services offering (See Prediction #2)? Will Macy’s explore a new model for their upcoming toys section? Could they gather toy feedback and data via a new toy product lab? Could they offer apparel tailoring to other mall tenants? What else could anchor tenants do to help promote malls and create joint experiences? Could they offer their shipping and receiving to other mall tenants to create local fulfillment centers?
What we do know is that scale unlocks new opportunities and long-term differentiated advantages in “winner take most” markets. Physical locations makes scale harder, favoring retailer incumbents and service unbundling provides new ways to scale services beyond the limits of a retailer’s own walls. While Amazon wrote the original playbook for service unbundling eCommerce with AWS, inventory management, shipping, advertising, etc., brick-and-mortar retailers will pioneer this great unbundling in 2022 for the physical world. We will see bold experimentation from those who have scale and those that need it.
Retail Prediction 4: Post-Sale Services Will Become A Key Point Of Differentiation
Buying is not shopping and shopping is more than buying. While 2020 and 2021 were about simplifying buying (cashierless checkout, inventory, BOPIS, eCommerce, etc.), 2022 will return focus to the holistic shopping experience as supply chain woes fade away. And while a lot of focus on shopper experience is on what happens before the transaction in the store - and rightfully so because we have a long way to go - 2022 will shift much more focus to post-sale services.
Turning Returns Headaches Into Sales Generation
We know returns are a growing problem. Returns are already a margin killing mess for many, and 2021, including the January 2022 processing of returns, will see the highest level of returns we have ever seen. The economics are a bit scary. 15-40% of online purchases end up being returned, costing $550 billion in 2020. And the cost of reverse logistics is astounding. Reverse logistics costs amount to nearly 60% of the original sales price.
At the same time, a good return process is key for customer loyalty, and 42% say that returns have to be free to be a positive experience, and 33% of repeat shoppers would abandon a retailer if they had a bad return experience. Returning Amazon packages at Whole Foods is a snap. No boxing, printing taping, etc. It’s a really positive experience that generates more Whole Foods visits (I mostly shop at Trader Joe’s).Returns are a key customer touchpoint, enabling you to direct shopper attention to the next service offering. According to McKinsey, 57% of retailers are actively working on how to leverage the return journey as a sales opportunity. That’s why Kohl’s decided to process Amazon’s returns. Good return processes will be key to long-term customer value and interestingly 3 in 4 retailers prioritize having a good returns experience over reducing returns. But it’s not just about returns.
Post-Sale Service Offering Expansion
Neiman Marcus has begun offering resale services to its clients, a clever way to help luxury shoppers monetize their existing accessory and apparel collections to spend more money in-store. Nordstrom Local offers alterations, trunk club services, manicures and personal stylists. Dick’s House Of Sport offers driving range with expert feedback, a wellness center with expert consultations, rock climbing classes, and even offers local teams to use their facilities for team meetups. Is that post-sale experience or just experiential retail? The lines are blurring, but the initial sale can be the point of conversion to a deeper relationship.
But it is not just department stores and higher end category leaders. Mass retail is getting in on the game. Target is offering personal shopping via Shipt. Grocers like Hy-Vee and Giant are offering dietician consults. Walmart is offering a slew of post-sale services including insurance, big investments in health and wellness services, cable and mobile service and repairs, and more.
And all of these touchpoints give more opportunities to collect consumer data, enroll them in loyalty and CRM, and further target them after they leave the store. With a focus on unified commerce, these services will prove out great ROI in total value of customer increases and in shopper data acquisition.
So where does this go? Expect to see a blow out of larger format concepts like Dick’s House Of Sport, post-service destinations like Nordstrom Local and new models of post-sale services that drive brand engagement, including ways that don’t involve the physical product (see NFTs below).
Retail Prediction 5: Brands En Masse Will Embrace NFTs And DAOs To Drive Early Product Feedback, Personalization And Customer Loyalty
You’ve heard the stories. Someone bought a pixelated JPEG online and resold it for tens of thousands of dollars. But NFTs are much more than buying and selling JPEGs (and my Web3 friends would be appalled by such a simplification). NFTs are basically a deed to a digital ownership. Ownership of anything. Yes the original art of a JPEG, but also a digital authentication of your physical product, a membership in a community like a customer loyalty program, or an earned perk. Once you think of an NFT as a virtual deed or ticket to an experience, all kinds of new shopper offerings unlock.
And we began to see experimentation in late 2021. Macy’s offered limited edition NFTs to own the artwork for Thanksgiving floats that sold for between $15-300k!!! Nike bought a company that makes virtual NFT products and opened up virtual Nikeland on Roblox, where enthusiasts can buy and discuss virtual goods - a very clever way to gather and measure shopper feedback before products are manufactured. Expect to see lots of brands flood the dominant digital worlds like Roblox with branded goods sold on the open market, and at a much greater price than you might think.
Fred Segal launched Artcade, a “dynamic retail experience” that includes an NFT gallery on digital wall displays, physical and digital products for sale, and a streaming studio. Shoppers can buy NFTs on Coinbase. “The metaverse is going to happen in one way or another,” said Jeff Lotman, the CEO and owner of Fred Segal. “The idea of being involved in having a Fred Segal store in that world makes sense, because we’re always a place showing things that are really cool.” Even Forever21 launched a virtual fashion store in Roblox. This is definitely going mainstream.
But where this gets really interesting is when digital and physical worlds collide. Those who own a CocaCola NFT get a cool-looking branded CocaCola cooler. Fanatics in 2022 will open Candy Digital, a digital marketplace of virtual items licensed by sports leagues. What happens when owning that NFT gets you access to a real world athlete signing event, free spring training access, or early access to tickets for your favorite team?
As retailers look to cater to younger, digital audiences and plug into the multi-trillion dollar cryptocurrency wealth that has been created, will Chanel, Gucci or LVMH give early access to product launches and exclusive in-store events to NFT holders? Answer: yes. NFTs will become status tickets in the physical world and be thought of as much as membership into an exclusive community as much as virtual art or product owner. NFTs will become a loyalty club, but much more exclusive so as to retain value. Consider it Willy Wonka’s Golden Ticket of sorts.
And since brand is all about community, in 2022, I predict that we will see a new type of “virtual-first” brand cross-over into physical world goods - and one that shows the escape velocity of the early days of Supreme. Certain NFTs allow you to leverage the artwork to create your own products, like owning the trademark. Bored Ape Yacht Club members are using their Apes to launch beer brands, children’s books, comic books and even clothing. Right now this is the field of experimentation. 2022 is when we see the trend go pro and generate sizable revenues.
Soon we will see this in collective organizations driven by members and perhaps in a new structure called a Distributed Autonomous Organization or DAO, whereby ownership of the company is via NFT and all decisions are made collectively to the owners. Can a world where value is often driven by exclusivity and rarity in access be driven by democratic principles? DAOs are much more than one person - one vote. Members can have outsized ownership stakes based on contribution, leading to both elements of leadership and community driven principles. I predict 2022 will see the year of the first successful 2022 DAO brand.
Digital and physical worlds are colliding. Are you ready?
Retail Prediction 6: Brick-and-Mortar Retail Completes It’s Return To The Throne Defining Winners And Losers
I feel like I’ve been beating the same drum for years. “The retail apocalypse is hooey.” We published The Case For Bright The Future Of Brick-And-Mortar Retail in 2019. Read the stats and analysis. It’s compelling. Better customer acquisition metrics. Better revenue per customer. Better profitability per customer. Better brand loyalty. Brick-and-mortar has all the advantages but it just isn’t as sexy as eCommerce, livestream shopping (that still hasn’t taken off in the US), the metaverse and NFTs, and whatever the next, new, shiny thing will be.
But brick-and-mortar is still a $4 trillion dollar market and accounts for 80-85% of all transactions. In 2021, brick-and-mortar grew faster than eCommerce on a percentage basis for the first time in 2008. It’s always grown more on a dollar basis other than 2020. And as 2022 is upon us, it appears consumer trends will continue in that direction. According to a Dec 2021 survey from BofA, consumers are looking to spend remarkably less on food delivery (see Delivery Economics Reckoning above) and online shopping. Instead, they look to spend more on the physical world including travel, grocery, restaurants, etc.
Brick-and-mortar retailers took eCommerce share from online only players like Amazon. We are coming to terms with the fact that stores drive eCommerce success. For example: Macy’s confirmed that shoppers spend 200-300% more online where there is a nearby store and Warby Parker and AllBirds IPOs and prospectus confirmed the value of store in customer acquisition and spend.
But my excitement is grander than that. As I look at eCommerce I see only incremental improvements, like social selling and livestreaming. How much more can you squeeze out of personalization and ad optimization, expecially when Facebook and Google are squeezing out all the margins. What’s the improvement? A couple points? By contrast, when I look at brick-and-mortar I see the possibility of a revolution and disruptive returns.
Right now 80-85% of transactions occur in-store yet there is no good data on what happens. The physical store is mostly a black box. Shoppers go in. Shoppers go out. We see sales. What happens inside the black box?
For the first time computer vision, machine learning and big data are uncovering insights into a multi-trillion black box. For example, at Raydiant, we used computer vision to overturn decades of planogram design axioms, including “eye level is buy level.”
What happens when we can detect which content changes shopping behavior and which promotions are effective or ineffective? For example, how much better are recognizable spokespeople in store than Instagram influencers? Hint: they’re not overall, but it depends on demographic. What’s the optimal way to cross-sell products?
As Eric Mogil, Chief Growth Officer of Radar reminded me on our recent PSFK Retail Innovation Week panel, RFID stickers have gone from $0.30 to $0.03 and are getting to be pervasive. What happens when our location algorithms detect product location not at 15 feet but at 1.5 inches? Radar is doing just that. What can we do when we visualize every product location in the store? Real-time turnover metrics and replenishment, sure. Planogram enforcement. Sales associate productivity. Merchandising and promotional optimization.
In 2021, the focus was on supply chain and omnichannel fulfillment. With 5G, computer vision and machine learning all hitting in a tsunami of new capability, 2022 will be a year of exponential insight and learning that will change how we do everything better.
What Will 2022 Hold For Retail? What We Create Together!
I hope you enjoyed reading all of this as much as I enjoyed writing it. Here’s to an amazing 2021, and let’s check in quarterly and see how I did.
I hope most of all that I provoked your imagination for what could be possible whether it is in 2021 or beyond. As Abraham Lincoln once said, “the best way to predict the future is to create it.”
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