Reflections From Berlin: The 4th Generation of Retail is Coming – Are You Ready?
“The future of retail will be led by sophisticated technology companies who happen to have a retail business.”
This quote lit a fire in me at a recent Consumer Goods Forum Summit presentation in Berlin, where pervasive topic of conversation was the fast-approaching 4th generation of retail (“4G Retail”).
Dan O’Connor, a fellow at Harvard’s Advanced Leadership Institute, spoke about the impending shift. In his conceptualization, the past 100 years saw three iterations of the retail model and the landscape today is being disrupted by a fourth new model.
O’Connor preaches that companies which function between innovation curves are best positioned for success. He cites Netflix as a great example, noting their ability to leverage one declining business model (the DVD) while anticipating and preparing for the next (digital content).
My key takeaway from his impassioned overview: in today’s retail environment, visionary leadership means optimizing for the world we know while preparing for the 4G Retail future.
Thinking about where retail has been helps us see more clearly where we are headed, so let’s dive in at the beginning!
The first wave, 1G Retail, was mediated through small, community-driven trade networks. In 1G Retail – which still accounts for 50% of the global retail pie – proximity, localization, and relationships are everything. This is the domain of the small family-owned shop where everyone knows your name and your buying habits.
Retail consolidation marked the beginning of the 2G Retail era. Starting in the 1960s and 1970s, large retailers (think: Wal-Mart) created new economies of scale by merging fragmented supply chains. These pioneers offered both convenience and cost savings, creating a juggernaut model that comprises 30% of the global retail pie today.
The rise of the online marketplace ushered in the third generation– 3G Retail. In this model, transactions take place on “platforms,” like Amazon or Alibaba’s Taobao. And, through what O’Connor calls “intermediaries” like Facebook, Google, or WeChat. Amazon’s IPO took place less than two decades ago. Yet, 3G Retail already accounts for at least 20% of global retail dollars.
Driven by real-time data analytics and rapid innovation (e.g., subscription pricing, mobile ordering, same-day delivery), the digital store model disrupted almost every aspect of the retail landscape. 3G Retail also prompted a shift in the very pace of the business, from a 52-week planning cycle to an environment that requires near-constant response to real-time developments.
O’Connor dubs the next era 4G Retail or the age of “Real Time Retail.” In this 4G landscape, he predicts that a significant part of commerce will take place on a small handful of large digital value networks,” or digital platforms that serve a widening variety of functions including commerce, search, and social. Notably, technology companies and not traditional retailers will own these networks. In the U.S., we immediately think of Amazon, but around the globe, other platforms like Alibaba, Flipkart, and JD come to mind.
Tech innovation notoriously empowers consumers, and the Age of “Real Time” Retail will be no different. Imagine the 4G landscape like today’s retail on steroids – with interactions increasingly fast and frictionless. Transactions will take place on a few digital platforms, seamlessly along the spectrum between online and offline.
Same-hour delivery via driverless truck. Check. Personalized offers based on yesterday’s purchase behavior. Yep. A content-rich environment where everything you see is for sale? You got it. The 4G world will push the era of consumer control to its infinite boundaries, fueled by innovations around things like robotics, AI, driverless delivery, and 3D printing.
So now that we know that a 4G world is coming, what should we do about it?
Here are three implications. In a 4G Retail World: 1. Data is table stakes 2. Retail platforms > media platforms 3. Success requires inventing new moments of consumer discovery.
#1: Data Is Table Stakes
In the 4G Retail future, the companies who control the data will rule the world. Success in the 4G retail world will require “big data collaboration” – both within organizations and across new (unconventional) manufacturer + retailer alliances.
This was illustrated in a recent Financial Times piece about Alibaba, which noted the company’s transformation into a growing “big data conglomerate.” Their massive data stream informs everything they do including merchant strategy, marketing, inventory management and even the layout of physical stores.
Despite the importance of data-driven insights, most traditional retail companies still face significant organizational and technical challenges to integrating and analyzing their own data. These issues compound when companies try to look further afield to think about how to work together with digital platform partners (e.g., Amazon) to optimize.
Getting their data house in order is an urgent matter for current retailers, since even simple data transformation efforts can take many years to launch.
#2: Retail Platforms > Media Platforms
My hypothesis is that in the 4G Retail landscape, the importance of large retail platforms will ultimately dwarf that of traditional media publishers. In fact, I am not sure the traditional standalone media content players survive in this future.
Think this sounds radical? Consider the similar tale of digital consolidation playing out in two very different retail markets, the U.S. and China.
In the U.S., Amazon is steadily reducing the need for online consumers to venture far from their site. They dominate commerce, with over half of shoppers starting every online shopping trip on the site and a full 90% cross-shopping Amazon even if they find what they are looking for on a retailer site. Amazon Prime Video is tripling their production of original content series over the next few years. Amazon Spark – curated retail in a social media format – looks poised to change the way we shop. In a retail future where consumers can shop, view content and socialize all within the Amazon platform, traditional publishers start to look much less relevant.
That “single platform” future is even one step closer to reality in China. Alibaba-owned Tmall already controls more than 60% of the Chinese eCommerce market. Their multi-faceted Alipay is a true “killer app” that lets users complete a wide variety of tasks (from bill pay, to calling a cab, to getting a loan) right within the app. Like Amazon, Alibaba is aggressively expanding into digital media and entertainment with ventures including Alibaba Music, Alibaba Pictures and video-streaming site Youku. With aspirations far beyond simple retail transactions, Alibaba is building a vast “social commerce” ecosystem that supports almost everything someone needs or wants to do online.
This shift to a world where commerce, content and social life seamlessly merge on a single platform will require marketers to rethink the 4P’s through the lens of ecommerce retail platforms. (These are the future “Digital Value Networks” in O’Connor’s G4 framework).
New alliances between retailers, manufacturers and social platform companies will be critically important. Retailers and manufacturers will succeed by viewing shoppers as more than “trips and baskets” and by understanding their increasingly wide array of behaviors on digital retail platforms. In a G4 world, an Amazon shopper could be binge watching her favorite show via Prime Video, purchasing the outfit the main character is wearing, while conversing with her friends about the plot twist that just happened. How will your product or service get in on the action?
Savvy industry leaders will benefit from thinking now about which partnerships matter and how to develop these.
#3: Success = Imagining New Moments Of Discovery
In a 4G world, the retail storefront will be “everywhere,” and it will be up to brands and retailers to create new times and places to engage shoppers.
Critical questions for retailers and manufacturers will include: Where and when are my consumers that my product could be? How can we bring our product or service experience TO them, as they come to us less frequently? How do we offer a personalized experience to every shopper?
A number of retailers and manufacturers have begun seamlessly integrating the retail and hospitality consumer categories by rolling out “buy what you see” lines available for purchase at boutique hotels. This seamless, arresting experience is a picture-perfect example of the thinking needed to succeed in the G4 Retail world.
The spoils will go to the companies with the vision to imagine and create the retail landscape of the future – where every space and moment of technological interaction with a consumer is a potential storefront. What can you do to create a more seamless, simple connection to your customers today?
At The End Of The Day, So What?
We’re at the early, nascent stage of the 4G Retail Age. Today, promise yourself that you will be one of the leaders with the vision to co-create the new, exciting, ready-to-be-built world of 4G retail that’s coming, whether we like it or not.