2019 Retail Trends Report - Microsoft Dynamics 365 - Engagis
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Microsoft Dynamics 365
2019 Retail
Trends Report
Page 1
Introduction
Over the last 15 years, retail has undergone a significant
transformation. The internet has provided customers with
access to seemingly endless options while mobile technol-
ogies have put information at their fingertips, anytime and
anywhere.
While these changes continue to reshape the retail land-
scape, we are beginning the transition into the second
phase of this transformation. As the dust of disruption be-
gins to settle, retailers are reinventing their operations to
make them faster, smarter, and more nimble.
From fulfillment flexibility to the new x-economies to in-
telligent automation, retailers are embracing the next gen-
eration of retail, one that represents not only a new set of
tools and systems but also a new definition and philosophy
of retail.
The following will explore six emerging trends in retail that
we believe will help empower retailers to create exceptional,
insightful shopping experiences for their customers.
Page 2
Trends
4
Customer experience is everything
Empowered customers expect amazing experiences
12
The changing face of retail
The retail business model is evolving
21
The everywhere store
Customer can purchase from anywhere
26
Operations drive excellence
Meeting customer demands requires optimized operations
32
Next-gen technology makes an appearance
New technologies are revolutionizing retail
38
Living in the age of uncertainty
Uncertainty puts strain on businesses
Page 3
Customer experience
is everything
• Innovation raises customer expectations
• Millennials evolve
• Gen Z gains influence
• Personalization as the rule
• Retail becomes a service
• Retailers bridge the digital divide
Page 4
Customer experience
is everything
Innovation raises customer expectations Executive summary
Stating that technology is changing customer demands feels like stating the Customers don’t just want seamless
obvious. Innovation—from the printing press and combustion engine to com- experiences across their devices; they
puters and wireless internet —has always been a driver of demand, unlocking expect personalized, experiential and
new possibilities and raising expectations. Today, we find ourselves at the in- mobile-first shopping interactions.
tersection of rapid innovation and a new generation of consumers who have
grown up empowered by technology.
Highlights
Millennials evolve • Millennials make up roughly a
quarter of the U.S. population
The number and influence of Millennials continue to grow. Today, Millennials and will overtake Baby Boomers
make up roughly a quarter of the U.S. population,1 and according to the Pew as America’s largest population in
Research Center, they will overtake Baby Boomers as America’s largest popu- 2019 (73 million vs. 72 million).
lation in 2019 (73 million vs. 72 million).2 On the surface, Millennials look very
• $0.56 of every dollar is influenced
different from their predecessors: they are more diverse,3 better educated, and
by a digital interaction.
more likely to be never married than any other adult generation was at the
same age.4
They are also a generation who entered adulthood facing a strong headwind.
They have been crippled by student loans, with over 60% of students taking
out loans to pay for college.5 The average student loan debt for Millennials
graduating in 2017 was nearly $40,000.6 To compound this, many graduated in
the midst of the 2008 recession. As a result, they have been pressured to take
lower paying jobs and have lower employment rates compared to workers of
the same age in past generations.7
The average student
However, despite these challenges, Millennials are smart and savvy. They have loan debt for
become a generation that is fiscally responsible, with 63% of Millennials set-
ting savings goals and 59% reporting feeling financially secure, higher rates Millennials graduating
than Boomers or Gen X.8 Seventy-three percent of Millennials stick to their in 2017 was nearly
budgets every month, and 16% have saved over $100,000.9 $40,000.
Page 5
While their financial burdens have led predict Gen Z’s purchasing behav-
to lower rates of home and auto own- iors precisely, but what’s clear is that
ership,10 Millennials do spend in oth- they already wield great spending
er areas; however, they remain thrifty influence. There was $829.5 billion
when they do. Case in point: Ama- spent on Gen Z in 2015, accounting
zon accounts for the largest volume for 6.8% of total consumer spending
of online apparel sales for Millenni- that year.12 Furthermore, over 70%
als, nearly 17%, more than double of parents said their Gen Z children
that of the next largest seller, Nord- influenced their buying decisions on By 2020, Gen Z will
strom.11 This shift to thrift has also clothes and food.13 be the third largest
played a role in the growth of on-de- generation in the U.S.
mand services, sharing marketplac- Gen Z is even more diverse than their
es, and online consignment stores. Millennial predecessors and will be-
come the nation’s first majority non-
white generation. With this diversity
Gen Z gains influence comes a much more tolerant and
12+24+16H
As the size and influence of the Mil- inclusive generation.14 Additionally,
lennial cohort grow, they are prov- growing up with the internet gave
ing themselves to be a generation them much greater visibility into Population by generation
of tech-savvy individuals. But where global issues. As a result, they are
Millennials were digital pioneers, a very globally and socially mind-
12 %
helping make technology main- ed population. Twenty-six percent
stream, Gen Z is the first generation of 16-to-19-year-olds currently vol- 4%
2
of digital nativists, never having ex- unteer, and 60% reported that they Greatest/Silent
perienced life before computers and want their jobs to impact the world.15 Boomers
pervasive internet.
24 %
Gen X
70+30+J
Like Millennials, Gen Z is made up Millennials
of savvy shoppers. According to a Gen Z
recent report by Interactions, 89%
4%
of Gen Z considers themselves
2
16%
price-conscious shoppers and listed
price as the top factor in making a
70%
purchase.16 According to the report,
72% said they would switch from
their favorite brand if they found
a similar product at a lower price.
Members of Gen Z also value com-
munity, with 59% preferring local
stores over large retailers and 72%
Parents who said their Gen saying they would be more willing
Z children influence their to shop at national chains if they
buying decisions. had more of a local presence in their
community.
By 2020, Gen Z will be the third-larg- The profile of Gen Z is lengthy, and
est generation in the U.S., just behind we have much to discover about
Gen X, and they are already accumu- them as they mature. But for now,
lating significant purchasing power. one thing is sure: Gen Z will have a
With their oldest members only in significant impact on both business
their early twenties, it is difficult to and the world.
Page 6
a+00+3836252920111358524233322624142165
0+
Build greater customer loyalty
Target new customers with more effective digital campaigns
Increase customer satisfaction
Increase order values (e.g., cross-sell/up-sell)
Reduce customer churn with more effective experiences
Increase conversation rates
Reduce marketer effort in personalization
Increase relevancy of the brand experience; increase brand relevancy
Primary goals of
personalization
Primary goal Secondary goal Tertiary goal
Personalization as These engines utilize previously
collected user information (such as
the rule past purchases and items clicked on
From ecommerce to mobile check- but not purchased) to provide tai-
out, technology is infusing the retail lored recommendations and offers.
experience. Greater connectivity to According to a Boston Consulting
devices has created better-informed Group research study, brands that
consumers who have the ability to create personalized experiences by
not only research products and shop integrating advanced digital tech-
online, but also to compare compet- nologies and proprietary data for
itors’ product prices and availability customers are seeing revenue in-
while in store. It is changing the way crease by 6% to 10%—two to three
customers research products and times faster than those that do not.17
make a purchase, and increasing- Brands that create
ly, it is changing the way customers As customers become more com- personalized experiences by
interact and build relationships with fortable sharing personal informa- integrating advanced digital
brands. technologies and proprietary
tion and preferences in exchange for
data for customers are seeing
personalized rewards—nearly half of
As ecommerce leads to greater revenue increase by 6% to
consumers surveyed in 2016 no lon-
commoditization, many of today’s 10%—two to three times
ger had concerns about online pri-
customers are seeking a greater faster than those that do not.
vacy18—retailers are putting data to
connection to their brands, a more work by tying their customers’ digi-
curated shopping experience that tal-channel behavior to the in-store
feels genuine and unique to them. experience, welcoming shoppers by
This type of personalization requires name and making suggestions based
capitalizing on available technology on purchase history.
to understand customers’ preferenc-
es, providing them with exactly what Another way to gain customer loyal-
they want, when they want it, in the ty in a highly competitive market is
way they want to receive it. using data to inform your rewards
programs and send targeted of-
Leveraging new technologies—like fers based on previous purchases, a
recommendation engines powered model Walgreens has leveraged for
by artificial intelligence and machine their Balance Rewards program.19
learning—retailers can make more
individualized product suggestions Beyond personalized messaging and
that ultimately translate into sales. recommendations, innovations in
Page 7
manufacturing have led retailers to ers with the assistance of a 3D-knit-
experiment with a new way to dif- ting machine.22 At the Adidas pop-up
ferentiate their products: allowing shop in Berlin, customers can com-
customers to develop personalized plete a 3D-body scan and choose the
products. Nike’s NIKEiD program color and design of a merino sweater,
has led the product-personalization which will be knitted, washed, dried,
charge, allowing customers to create and ready to take home in under
a completely custom shoe or athletic four hours. Innovations in
bag that arrives in four to six weeks. manufacturing have led
To achieve this, Nike partnered with A personalized shopping experience
manufacturers to automate factory
retailers to experiment
increasingly includes the checkout
processes and develop laser technol- experience as well. Customers want
with a new way to
ogy that streamlines the production more control over their delivery and differentiate their
process.20 pick-up options. The expansion of products
shipping programs that offer free
Other retailers take advantage of on- delivery have decreased customers’
line buying to offer customization
willingness to pay for shipping; 70%
options for products that previously
of consumers will choose the cheap-
required in-store measurements or
est delivery option. More retailers
tailoring. On the websites of mens-
are now offering customers greater
wear companies Indochino, Black
flexibility in how they order and pick
Lapel, and Knot Standard, men can
up their item, whether in a store or at
select their desired fit and cut and
an alternate pick-up location, such as
then upload their measurements for
a “bespoke” suit. an Amazon Locker or a UPS Access
Point.
Taking it one step farther, some
brick-and-mortar stores have begun Companies are even pioneering oth-
testing 3D-printing and 3D-knitting er creative delivery-channel solu-
stations, essentially offering on-de- tions to provide customers with
mand personalization. Lowe’s has greater flexibility. For example, DHL
piloted a six-month project, dubbed has partnered with Audi to deliver
Bespoke Designs, that allowed cus- packages to customers’ trunks via
tomers to repair broken parts, repli- Audi’s keyless entry system.23 By op-
cate a beloved object, or create cus- timizing digital inventory supply and
tom hardware at in-store 3D-printing the location of distribution centers,
stations.21 Adidas and business-wear retailers will be better prepared to
company Ministry of Supply both personalize delivery-channel meth-
offer customers the opportunity to ods, including fulfilling same-day
craft their own cardigans and sweat- shipments.
Page 8
86+14+J
Retail becomes a ness models. According to CEI Re-
search, 86% of customers will pay
service more for a better customer expe-
Online sales continue to outpace in- rience, and customers who are en-
dustry growth by 300%24 making it gaged with an experience are less
86%
essential that retailers seek out op- likely to think about product cost.28
portunities to generate excitement
in brick-and-mortar locations. Online Apple has been at the forefront of
shopping has changed the tradition- experiential retail with its in-store
al paths to purchase: 43% of cus- tech support, the Genius Bar, and
tomers who browsed for a product hands-on product displays. But even
online also bought that product on- the pioneer has recognized the need
line.25 Two practices, “showrooming” to constantly evolve its in-store of- Percent of customers who said
(viewing/trying products in-store ferings, launching Today at Apple: they would pay more for a
before buying the same product on- free, interactive programming on a better experience.
line at a lower price) and its inverse, variety of topics, such as music, pho-
“webrooming” (browsing products tography, and coding.29 Cosmetics
online before buying in-store), do companies Sephora and Ulta draw
impact the way customers make pur- customers to their locations by pro-
chase decisions.26 However, custom- viding beauty services and hosting
ers ultimately are browsing and buy- mini-makeover events. The Home
ing in stores at the same rate they Depot offers free DIY and education-
are showrooming and webrooming al workshops for adults and children.
combined. Sportswear retailers Nike, Brooks,
and Oiselle offer store-sponsored
Fully engaged customers—those training sessions and runs to build
who are emotionally invested in a community and increase store traf-
brand and loyal to it—visit retailers fic. In addition to providing services,
more frequently and spend more some retailers, like Urban Outfitters,
money per visit. For example, Gal- feature in-store bars and restaurants,
lup data shows that, on a given visit, encouraging customers to eat and
fully engaged consumer-electronics drink while browsing.30 Eyewear re-
customers spend nearly $100 more tailer Warby Parker appeals to its
than actively disengaged custom- social media–savvy customers with
ers (those who will readily switch in-store photo booths and a “green
brands).27 room” in its West Hollywood store,
where customers can record 15-sec-
In order to engage customers, retail- ond videos.31 Providing a unique
ers across all industries are building customer experience is integral to a
services and events into their busi- store’s ability to stay relevant.
Page 9
Mobile payment growth is expected
to increase at a compound annual
growth rate of 80%, exceeding $500
billion and 500 million users by 2019.
Retailers bridge the
digital divide
Retailers have identified the need to
create a frictionless omnichannel ex-
perience by providing real-time on-
line and in-store inventory informa-
tion, more fulfillment options, and
cross-device compatibility. While
seamless integration across all com-
merce platforms remains important
to the customer experience, custom-
ers now rely more heavily on digital
interactions at every stage of the
shopping process. A Deloitte study
found that $0.56 of every dollar is
influenced by a digital interaction.32
Furthermore, customers expect re-
tailers not only to be mobile friendly
but mobile first.
Customers consult their smart-
phones, computers, and tablets for
everything from finding inspiration,
to browsing and researching, to pur-
chasing a product. In order to cap-
italize on this usage, retailers must
56¢
of every dollar is influenced
by a digital interaction.
Page 10embrace digital platforms at every Mobile technology is transforming By definition, mobile payments in-
touchpoint. For example, Crate and every step of the shopping expe- clude mobile wallet POS payments,
Barrel launched the store-branded rience—including checkout. Com- contactless, app-based payments,
tablet program “MobileTote,” which pleting a shopping trip quickly is and near-field communication or
allows customers to browse store one of the most important factors Bluetooth-based payments. Mobile
and online inventory, add products in customer satisfaction. A Harris payment growth is expected to in-
to a wish list or shopping cart, and Poll and Digimarc study found that crease at a compound annual growth
check out via a dedicated associate, 88% of American adults would like to rate of 80%,38 exceeding $500 billion
who then collects the purchased check out faster, with “slow checkout and 500 million users by 2019.39 En-
items. Early results have shown a speeds” and “long lines” topping the abling traditional POS and mPOS de-
greater average order value from list of complaints.36 A quick and easy vices to accept mobile wallets—such
Mobile Tote users compared to checkout process is two times more as Apple Pay, Android Pay, and Sam-
shoppers not using the technology.33 important than any other retail ex- sung Pay—will help retailers address
perience.33 In order to decrease the customer desires for both checkout
To create a smoother shopping ex- time required to complete transac- convenience and speed. Some re-
perience, some retailers have turned tions, retailers can implement one or tailers have developed payment-en-
to store-focused apps. The IKEA multiple payment solutions. Equip- abled merchant apps to streamline
Store app notifies customers about ping sales associates with mobile the transaction process. Starbucks,
special events and allows them to point of sale (mPOS) devices—tab- which rolled out payment through
browse the product catalog, check lets or smartphones that are able to their mobile app in 2011, last report-
store inventory, navigate a store, process payments—allows the trans- ed that 29% of all transactions were
and manage a shopping list.34 Target action process to occur anywhere in mobile, and the number of mobile
has combined its Cartwheel savings the store, eliminating the need for a orders increases each quarter.40 By
app with its main store app to sup- large number of traditional POS sta- incorporating intuitive digital inter-
port in-store navigation, Cartwheel tions and freeing up valuable real actions into their in-store experience
deal alerts, and mobile payment.35 estate. Rebecca Minkoff’s SoHo store and offering multiple payment op-
Because today’s customers have so utilizes mPOS devices as self-check- tions, retailers can increase customer
many choices to make before pur- out stations; customers who wish satisfaction—and ultimately, sales.
chasing, implementing a digital to own their shopping journey from
strategy that simplifies the customer start to finish can complete their 88% of American adults would
journey will help ensure customers transactions without the assistance like to check out faster.
remain loyal to that retailer. of store personnel.37
Deliver amazing experiences
Driven by new technologies and changing demographics, customer expectations for retailers are higher than ever
before. At Microsoft, we’re helping modern retailers meet changing customer demands with the tools and technol-
ogy to better understand customer needs and create more personalized experiences for their customers.
Gain customer insights Deliver personalization Exceed expectations
As customer behaviors and de- Modern customers want a relation- As the baseline for retail experi-
mand evolve, retailers must lever- ship with their brands, and accord- ences continues to climb, retailers
age technology to better under- ingly, they expect personalized in- must rely on technology to deliv-
stand their customers. With tools teractions with these brands. From er the amazing experiences that
such as Dynamics 365 and Power AI-powered product recommenda- customers expect, at scale. Micro-
BI, Microsoft enables retailers to tions to fulfillment flexibility, Dy- soft is empowering retailers with
gain valuable insights into their namics 365 for Retail gives retailers the tools and technology to cre-
customers’ needs so they can the intelligence and tools they need ate innovative, frictionless experi-
provide better service and exceed to deliver a more personalized ex- ences that delight customers and
expectations at every touchpoint. perience to their customers. exceed expectations every time.
Page 11The changing face
of retail
• Rise of the monobrand, fall of the monolith
• Online retailers open physical stores
• The new X-economies
• Brands go direct to consumer
• The gig and sharing economies grow
• Brands engage online influencers
Page 12The changing
face of retail
Rise of the monobrand, fall of the monolith Executive summary
According to the latest U.S. Census Bureau Annual Retail Trends report, re- Ecommerce leaders are opening
tail sales have climbed 23% since 2010,41 and year-over-year sales growth physical stores, while large retailers
since 2012 has averaged just under 4%.42 However, a significant portion of are closing hundreds of physical lo-
this growth has occurred in the ecommerce sector. Amazon’s growth alone cations or shifting toward small-for-
has quintupled from $16 to $80 billion over the past six years.43 To compete, mat stores. Subscription services and
physical retailers have shifted focus to their online stores, often cannibalizing online influencers can help retailers
their own customer base. Additionally, online retailers’ flexible and free return reach their target audience.
policies are forcing physical retailers to offer similar deals, further slimming
profit margins. The rapid change of pace has been fatal for many businesses.
Highlights
Nine major retailers—including Gymboree, Payless Shoe Source, and H. • More than 5,000 retail stores
H. Gregg—filed for bankruptcy in 2017.44 Department stores that have an- announced closures in 2017.
chored American malls for years (such as Macy’s, JCPenney, and Sears) have • Direct-to-consumer models allow
announced they will close 100 or more locations, bringing the number of retail for more personalized customer
store closures to more than 5,000.45 An NPR article suggests one reason malls experiences, which is preferred by
are struggling is that social media is now the “gathering place” of choice.46 75% of consumers.
Large, multi-brand retailers have attempted to rely more heavily on their pri-
vate labels but have found themselves in a dangerous middle ground: incapa- • The average influencer marketing
ble of competing with the comprehensive variety offered by online retailers, campaign generates a return of
and unable to provide the curated experience of small stores. $6.50 for every $1 invested.
Other big-box retailers like IKEA and Target are moving to a smaller store for-
mat. Target has opened four small-format stores on or near college campuses.
This is the start of their plan to open more than 150 of these stores, mostly in
densely populated urban and suburban areas.47 In 2016, IKEA opened more
“click and collect” small stores than traditional stores,48 and Bed Bath & Beyond
launched a “pack and hold” product that allows college students to purchase Retail sales have climbed 23%
all the items they need and pick them up at the location nearest their school.49 since 2010, and year-over-year
PwC’s Strategy& report suggests that retailers should consider transitioning to sales growth since 2012 has
a showroom model, in which small locations serve as a showcase for products; averaged just under 4%.
orders are then processed and shipped directly to the customer. This model al-
Page 1310090+ 7459+ 0+ 0
lows for more personalized customer Online retailers open Latest Three-Year
15.9%
interaction and can cut down on in-
ventory costs.50 physical stores CAGR in Revenue
(Select Monobrand and
Acknowledging that the majority of
14.3%
Multibrand Retailers)
Monobrand retailers, such as H&M, consumer goods are still purchased
UNIQLO, and Zara are now outper- in stores, online pure plays are look-
forming multi-brand institutions like ing to give their customers a way to
11.7%
JCPenney and Macy’s.51 In 2016, H&M interact with the brand and close
saw a three-year compound annual deals. Ecommerce companies like
growth rate of 15.9%, while Macy’s Amazon, Rent the Runway, and War-
and JCPenney saw decreases of 0.7% by Parker all opened physical stores
9.4%
and 0.9% over the same time peri- in 2016 and have plans to open more
od.35 Carrying a single brand affords locations. Warby Parker opened 25
retailers the ability to differentiate brick-and-mortar stores in 2017,
their product, combat direct prod- maximizing its online success by
uct/price comparisons, and maintain providing physical locations to try
greater credit as a fashion brand. Of on eyewear, talk to associates, and
course, being a monobrand retailer repair damaged products.53 Accord-
does not guarantee success; in 2017, ing to Listrak, the rate of cart aban-
donment (when a customer adds
Gap announced the closure of 200
Gap and Banana Republic stores.52 items to an online shopping cart but
exits the site without purchasing the
items) in 2016 was 79%.54 Online-on-
ly retailers can reach customers who
are not completing transactions by
allowing them to test products in
physical stores.
Page 14
64+ 10+ 0+
UNIQULO
H&M
Primark
Inditex
0.1% Kohl’s
Macy’s
0.7%
JCPenney
0.9%The new
X-economies
Millennials, burdened by high unem-
ployment, low wages, and high debt,
have rapidly embraced new business
models that offer them the latest
products with greater flexibility and
lower costs. In today’s market, start-
ups have led the way with these new
offerings, but large businesses—ei-
ther through acquisitions or inter-
nal development—are beginning
Sharing economy
to evolve their business models to
The sharing economy—where con-
the needs of the modern consumer.
sumers “share” products and services
These models fall into one of a few
directly instead of purchasing via a
categories:
retailer or distributor—is another
business model that has grown in
On-demand services
popularity over the last several years.
Projected to grow to nearly $57 bil-
Perhaps the most commonly known
lion in 2018, on-demand services rep- The sharing economy
example of a sharing economy busi-
resent perhaps the largest of these
categories.55 A model popularized
ness is Airbnb, where travelers can is projected to grow to
rent rooms and homes directly from
greatly by Uber, on-demand busi- 86.5 million U.S. users
other individuals. The sharing econ-
nesses are launching for just about
omy is projected to grow to 86.5 mil- by 2021, up from 44.8
every category imaginable, from
printing and dog walkers to babysit-
lion U.S. users by 2021, up from 44.8 in 2016.
million in 2016.56 While the sharing
ters and massages. While many of
economy helps reduce waste, it also
these businesses are service-based,
poses a threat to retailers, as con- Online consignment
the growth in on-demand services
sumers may opt to “borrow” goods When eBay and Craigslist launched
has also driven growth in on-de-
opposed to buying new products. in the mid-1990s, they provided in-
mand and micro-manufacturing.
As such, retailers are being forced to dividuals with the opportunity to
re-evaluate their business models to use the internet to sell used goods.
$57
participate in this new economy. Nearly two decades later, a new set
of online consignment stores has
Subscription box services emerged to help streamline this pro-
Subscription box services have be- cess. Sites like thredUP, Swap, and
come incredibly popular due to their TheRealReal allow shoppers to sell
highly targeted nature and ease of and purchase used clothes, jewelry,
billion
use. Companies like Birchbox, Winc, toys, and luxury fashion accessories
Stitch Fix, and NatureBox are just the online. Similar to the sharing econo-
tip of the iceberg when it comes to my, online consignment stores pose
the subscription box market, which a unique threat to retailers, as well as
Projected size of the on-
now provides services for dog own- a unique opportunity for those will-
demand economy in 2018.
ers, coffee lovers, mountain climbers, ing to think differently about their
gold miners, and sock enthusiasts. business models.
Page 15XaaS
As cloud computing becomes more
ubiquitous, Anything as a Service
(XaaS) business models are also be-
coming more popular. The principle
behind XaaS is that businesses can
provide better, more cost-effective
solutions to customers via subscrip-
tions or pay-as-you-go models than
via traditional software licensing
models. The most commonly known
XaaS model is Software as a Service
(SaaS), which provides individual
software applications and services
through the cloud; however, Plat-
form as a Service (PaaS) and Infra-
structure as a Service (IaaS) models
have also gained traction as a way
for technology companies to expand
their footprint.
While XaaS has historically referred
to cloud computing, it is increas-
ingly being used to define all ser-
vice-based business models, from
Transportation as a Service (Uber
and Lyft) to Shopping as a Service
(Trunk Club and Stitch Fix). Regard-
less of what you call it, it’s clear that
customers’ needs are evolving, and
businesses must adapt accordingly.
Page 16Brands go direct-to-
consumer
In order to pursue bigger prof-
it margins and retain control of the Having achieved a valuation of $1.2
customer experience, some manu- billion, eyewear manufacturer War-
facturers are bypassing traditional by Parker has succeeded with di-
retail channels and going straight to rect-to-consumer (D2C) sales, initial-
the consumer. Cutting out the mid- ly via ecommerce platforms and now one year after their first subscription,
dleman allows brands to build rela- with physical locations as well.58 Ma- and was purchased for $1 billion by
tionships with customers and collect jor multi-channel brands Nike and Unilever in 2016.62 To compete with
more accurate data. This shift, in Adidas have doubled down on their Dollar Shave Club and online market
turn, enables manufacturers to de- D2C efforts. Nike announced a new competitor Harry’s, Gillette recently
velop more personalized experienc- company alignment, the Consumer initiated its own shaving subscription
es, something that 75% of customers Direct Offense, that includes the cre- club, Gillette On Demand. The new
prefer.57 ation of a Nike Direct organization, service allows customers to order re-
75+25+J
which will strategize ways to deepen fills via text.63
one-to-one relationships with cus-
tomers.59 In 2016, Adidas launched Since the cost of entry is minimal,
Avenue A, limited-edition boxes that the marketplace is already saturat-
ship curated selections of women’s ed with subscription services; as of
apparel and footwear to subscrib- early 2018, subscription box aggre-
75% ers.60
Direct-to-consumer subscription
gator My Subscription Addition in-
dexed roughly 3,000 boxes.64 And
now, even major retailers—including
services have grown significantly in Starbucks, Amazon, Macy’s, Walmart,
popularity; visits to subscription-box and Nordstrom—are joining in with
websites increased 890% between their own subscription box services.
2014 to 2018.61 Arguably one of the To succeed in this sector, subscrip-
Percent of customers most successful D2C practitioners is tion services must feature an offer-
who prefer personalized Dollar Shave Club. The men’s groom- ing that has the ability to surprise
experiences. ing company disrupted its sector, re- and satisfy customers on a recurring
taining nearly half of its customers for basis.
50,000,000
40,000,000
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10,000,000
Total Monthly
0 Visitors
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Page 17The gig and sharing None of this would be possible
projects. This resulted in 60% cost
savings and reduced administrative
economies grow without rapid advances in technol- time by 64%.71 Despite this, most
The proliferation of digital platforms ogy. Cloud-based platforms make companies still are not fully embrac-
and technology has made the gig it possible for remote workers to ing freelance workers, with a recent
economy more feasible and appeal- connect with employers from any- EY study finding that only 17% of
ing to an increasing number of peo- where in the world, and companies global corporations’ workforce was
ple. Thirty-six percent of the Amer- like Airbnb and Uber used mo- contingent.72
ican workforce is now freelancing;65 bile applications to radically dis-
workers are choosing the flexibility rupt their respective industries.69
of freelance work over the traditional 3.9 million people regularly
perks of a nine-to-five job (such as The gig economy poses a unique worked in the gig economy
paid time off, healthcare benefits, challenge for traditional businesses. in 2017, and by 2021, they
and retirement packages). Corporations need to figure out how project that number will reach
to effectively engage and manage a 9.2 million.
Intuit estimated that 3.9 million remote portion of the workforce, as
people regularly worked in the gig well as determine how to securely
economy in 2017, and by 2021, they grant access to internal systems.70 In its Global Corporate Sustainabil-
project that number will reach 9.2 There are also concerns that a com- ity Report, Nielsen found that 66%
million.66 Forty-one percent of peo- pany’s culture will suffer if there are of consumers are willing to spend
ple participating in the gig economy too many freelance workers in the more for a product if it comes from
also have a part-time or full-time environment. However, there are a sustainable brand.73 It is perhaps
job, with the extra hours they gain substantial benefits for businesses no surprise, then, to see the rise of
being used to supplement income.67 who utilize the gig economy. the so-called sharing economy, with
One common misconception is that companies such as Zipcar, WeWork,
the gig economy is solely powered Freelancing offers corporations a Rent the Runway, and more facilitat-
by Millennials. While they currently more flexible and affordable means ing the reselling, renting, or sharing
make up the largest share of the gig of hiring talent, especially if the com- of items and spaces. This is not nec-
economy workforce, a recent survey pany is only looking to fill a tempo- essarily a rejection of consumerism
by Payoneer reported that one in rary need. In 2017, Samsung decided but rather a trend toward minimalism
three U.S. gig workers was over the to experiment with using Upwork to supported by the digital revolution.
age of 50.68 satisfy needs for quick turnaround Mobile technology, big data, and ad-
Sharing Economy Users and
Penetration, 2016-2020
52+6577+ 85+ 94+ 100+
Adult sharing economy users % of adult internet users (millions and % of adult internet users)
86.5
80
81.2
73.7
70
66.3
60
56.5
50
44.8
40
36% 38%
30
33%
30%
20 26%
21%
10
0
2016 2017 2018 2019 2020 2021
Page 18vanced algorithms make it possible
to facilitate the sharing economy in a
2016 in Seattle, Portland, and Brook-
lyn. Consumers can choose between
The gig economy’s
simple, user-friendly manner. the BMW 3 Series or Mini Coopers—a size of employed
competitive advantage over Car2Go’s (in the U.S.)
As the gig and sharing economies Smart Car fleet.76 In an additional 15.8%
continue to grow, customers are twist on the usual business model,
purchasing fewer new goods. In re- the entire ReachNow fleet can switch
sponse, many businesses are choos- between car-sharing and ridesharing
ing to adopt service-based business depending on current demands.77
models. Almost all vehicle manufac- This approach allows BMW to partic-
ipate in the sharing economy and to 10.1%
turers saw decreased sales in Decem- 9.3%
ber 2017, and some were down year- be responsive to consumers’ chang-
over-year as well. Ford posted a 0.9% ing needs. In March 2018, BMW and
full-year decline,74 and General Mo- Car2Go’s parent company, Daimler,
tors decreased 1.3% year-over-year.75 reached an agreement to merge
As more and more people move to their services, indicating the success
dense urban centers, the need—and of this strategy.78
desire—to own a car dissipates. In
light of these trends, and the success
of such services as Uber and Car-
2Go, BMW introduced ReachNow, a
car-sharing service that launched in 1995 2005 2015
Page 19Brands engage online (also known by her YouTube person-
ality, Missglamorazzi) to promote two
influencers of their foundation lines. For approx-
Storefronts are not the only facet of re- imately $500,000, BareMinerals will
tail undergoing a transformation. Over have the attention of Nilsen’s 4 million
the past five years, influence has shift- YouTube subscribers and 1.7 million
ed away from traditional celebrities Instagram followers.81
like actors and athletes to “cewebri-
ties,” online/web influencers who have Ultimately, influencers’ power is in
a significant and engaged following their perceived authenticity and actual
on topic-specific blogs or social me- engagement with customers. Markerly
dia sites like Facebook, YouTube, and data shows that micro-influencers, or
Instagram. In fact, MuseFind’s data influencers with between 1,000 and
shows that 92% of consumers trust 10,000 followers, have a much high-
an online influencer over a celebrity er activity level than those with more
endorsement or advertisement—and than 100,000 followers.82 The cost of
with nearly half of all customers using micro-influencers is also much lower;
ad-blocking technology, the reach of for the same price as one or two celeb-
those channels is limited.79 rity endorsements, brands can reach
a more engaged, targeted audience
Followers view these influencers as with 30 to 40 micro-influencers. These
credible, unbiased experts in their partnerships lead to measurable con-
niche areas, such as fitness, beauty, and versions. Based on a Tomoson study,
fashion. A Twitter and Annalect study the average influencer marketing
found that nearly 40% of respondents campaign generates a return of $6.50
have purchased an item online after for every $1 invested and is tied with
seeing it used or reviewed by an influ- email marketing for the most cost-ef-
encer on social media.80 Some brands fective customer acquisition method.83
pursue influencers with a large reach; Retailers can directly reach their cus-
so-called “macro-influencers” have an tomers by employing online influenc-
audience of millions. BareMinerals has ers whose followers match their target
partnered with influencer Ingrid Nilsen audience.
Transform for the future
As today’s customers evolve, so does the retail landscape. Modern retailers must remain agile, exploring new op-
portunities and business models to build relationships with their customers and drive growth. At Microsoft, we’re
empowering retailers with flexible, scalable solutions that enable them to transform their business.
Evolve your business Meet changing needs Transform culture
To meet the needs of today’s cus- Modern retailers require technology As our world faces new challeng-
tomers, modern retailers must that provides the power, scalability, es, retailers must transform their
evolve beyond their existing and flexibility they need to grow at cultures to posture their work-
business and operating models. their own pace. Microsoft’s flexible force to solve today’s most press-
From analytics solutions to col- deployment options and adaptive ing problems. From tools that im-
laboration tools to development solutions make it easy for retailers prove communication across an
platforms, Microsoft provides re- to expand their operations, wheth- organization to the platform on
sources with the technology and er entering new global markets, which a retailer will build the app
support they need to redefine re- launching new brands, or spinning that will disrupt an industry, Mic-
tail and their business. off a new company. rosoft is empowering businesses
to redefine their culture.
Page 20The everywhere store
• A-commerce (anywhere) becomes the new reality
• Social-media selling grows
• Voice-first conversational commerce makes some noise
• Enterprise chatbots are here to help
• Mobile payments go mainstream
Page 21The everywhere
store
A-commerce (anywhere) becomes the new Executive summary
reality An overcrowded marketplace is push-
Technology has granted customers access to a dizzying array of products, and ing retailers to diversify their points of
customers expect to be able to purchase on their terms, whenever and wher- sale by using social media platforms,
chatbots, and virtual personal assis-
ever they want. From social buying on Instagram to v-commerce with Alexa,
tants, connecting with customers wher-
businesses are no longer forcing customers to their websites to make a pur-
ever they are at any given moment.
chase; instead, they are turning every platform into a purchase platform.
Social media selling grows Highlights
Social media continues to grow in popularity; globally, 482 million people be- • Eighty-seven percent of Pinners
came new active users in 2016. Today, a total of 2.789 billion social media users purchased something because
are spending an average of 40 minutes to four hours on social media sites of Pinterest, and 93% of users
each day.84 While customers have consulted social media sites for purchase say they use the site to plan their
inspiration or research for years, we are only now seeing the potential of these purchases.
channels to translate into direct sales. • Eighty percent of all smartphone
users are expected to use mobile
Today, idea-collection site Pinterest has 175 million users, and 93% of them messaging apps by 2018.
use the site to plan purchases. More than half of them also use the site to shop
for products.85 Pinterest’s “Shop the Look” feature employs computer vision • By the end of 2017, 33 million
and human curation to allow users to shop Pinned products on the web and voice-first devices will be in
their mobile devices. Early tests showed that users visit a company’s website circulation.
two to three times more frequently when “Shop the Look” Pins are deployed.86
Additionally, Pinterest for Business offers a “Buyable Pins” option, which allows
customers to purchase a company’s products directly on Pinterest with a credit
card or Apple Pay. Businesses are no longer
forcing customers to their
Instagram continues to explore ways to turn its 700 million users into regular websites to make a purchase;
consumers of its business partners.87 In 2016, Instagram piloted its Shopping instead, they are turning every
Tags program, allowing companies to upload a product catalog and tag spe- platform into a purchase
cific products on their posts. When clicked, a tagged product takes the user platform.
directly to the product page. The program has since expanded to thousands
Page 22of businesses, and the results have can reach customers directly. Microsoft’s Cortana, Amazon Alexa,
been promising.88 Industry leader and Google Assistant are working
Nike has announced that it will sell In addition to living on mobile de- toward developing better user expe-
certain products via Instagram in vices and computers, VPAs now exist riences for their voice-first merchant
what they describe as a “seamless” on household devices like the Har- ecosystems, adding skills and fea-
experience for customers.89 man Kardon Invoke, Apple HomePod tures that make the checkout pro-
Amazon Echo and Google Home. A cess easier and more accessible. In
One issue brands face in expanding VoiceLabs report estimated that by early 2017, only 28% of U.S. residents
social media sales is that many cus- the end of last year, 33 million voice- indicated that they would use a VPA
tomers are not aware that they can first devices would be in circulation,92 to buy goods and that they were
shop directly via social media sites; and these devices are beginning to more likely to use their VPAs to play
in a recent survey, 26.4% of respon- drive sales: Amazon Echo owners music, give weather information, or
dents said they had never heard of make 6% more purchases on Am- provide search results.95 As users
social commerce.90 However, if social azon than they did prior to owning increasingly rely on their VPAs, the
the device.93 Shopping capability on trend toward voice interactions will
media platforms and retailers can
Google Home launched in February continue alongside the development
generate better awareness—and re-
2016 and 18 months later, predict- of other artificially intelligent sys-
move barriers to purchasing with a
ing the growth of voice shopping, tems—based on gestures, biomet-
smoother transition from browsing
Walmart partnered with Google rics, and more—that will make these
to buying—social media users will
to offer hundreds of thousands of types of interactions easier and more
readily become in-app consumers.
products for sale via Google Assis- natural for users.
tant, with a vision that customers will
Voice-first use Google Home devices to reorder
conversational frequently purchased items.94 Amazon Echo owners
20+80+J
commerce makes make 6% more
some noise purchases on Amazon
In 2016, nearly half of U.S. smart- than they did prior to
phone users consulted virtual per- owning the device.
20%
sonal assistants (VPAs)—such as
Microsoft’s Cortana, Apple’s Siri, Am-
azon’s Alexa, and Google Assistant—
and Gartner predicts that by 2019,
20% of all smartphone interactions
will take place via VPAs.91 While the
shopping capabilities of voice-en-
abled VPAs are still nascent, as they Smartphone interactions that
evolve, they will offer a powerful new will take place via VPAs in 2019.
platform through which businesses
Page 23Companies quickly recognized the
potential in-messaging chatbots
have to engage customers and turn
Enterprise chatbots content into commerce. As of June
are here to help 2016, Apple iOS 10 supported an
app extension for iMessage that
Pioneered by China’s WeChat app
enables customers to send pay-
in 2013, enterprise chatbots are
ments. Skype allows customers to
still in their infancy globally. Brands
make payments with their Microsoft
began using chatbots—comput-
payment account directly through
er programs designed to simulate
bots.100 Early enterprise bot-adopt-
conversations with humans—as cus-
er, 1-800-Flowers, relies on their bot
tomer-care representatives as part of
to help customers select and pur-
their omnichannel strategy, with the
chase flower arrangements, process
goal of reducing the number of que-
orders, and send shipping updates.
ries handled by live agents. Prior to
The chatbot platform offers a mul-
deploying its 24/7 virtual agent, Ana, titude of innovative opportunities
Latin America’s Copa Airlines han- for product marketing. Cosmetic
dled only 10% of inquiries online (via company Sephora’s Color Match bot
search and frequently asked ques- helps customers match the hue in an
tions). Ana now handles 50% of all uploaded photo to a Sephora lipstick
queries, and 40% of all interactions shade. H&M’s bot makes clothing
with “Ask Ana” require no live-agent recommendations based on custom-
phone or chat support. Early in-app ers’ answers to style quizzes. Users
chatbot adopters American Express can also upload a photo of an arti-
and Intercontinental Hotel Group cle of clothing they like, and the bot
utilized bots to notify customers of will suggest a complete outfit from
recent transactions and to confirm H&M’s catalog.101
80+20+J
upcoming stays.96
Development rapidly accelerated fol-
lowing Microsoft’s release of the Bot
Framework in March 2016 and Face-
book’s F8 2016 conference, during
80%
which CEO Mark Zuckerberg encour-
aged developers to take advantage
of open access to API to create bots
for Facebook Messenger.97 Within a
year, developers had created 100,000
bots.98 As mobile users begin to tire
of installing and tracking numer-
ous apps, companies should look to Percent of smartphone users
text (SMS) and messaging apps for projected to use mobile
application-to-person (A2P) com- messaging apps by 2018.
munication. Half of American mo-
bile users have not installed a new
app in the last year—but combined, Chatbot technology may be relative-
messaging apps Facebook Messen- ly new, but these pioneers demon-
ger, WhatsApp, and Kik have more strate its vast potential. The op-
than one billion users, and 80% of portunities to create personalized
all smartphone users are expected customer experiences expand as bot
to use mobile messaging apps by technology develops and becomes
2018.99 more advanced.
Page 24Mobile payments go er, Alipay, which boasts 520 million
users.106 Globally, $590 billion was
mainstream spent using contactless payments in
Apple Pay launched to great fanfare 2017, and purchases via contactless
in October 2014, but the public has payments are projected to increase
been slow to adopt this technology. to $1.3 trillion in 2019 and over $2
In 2016, a study by Auriemma Con- trillion globally by 2021.107
sulting Group reported that only
27% of users with an eligible device
As mobile wallets become more
had used contactless payments.102 At
broadly adopted, businesses are
the time, 39% said they would use
looking to capture a piece of the
mobile payments more if stores ac-
mobile payment market, which is
cepted it, but the study found that
projected to grow to $112.29 bil-
Number of Apple
1+83211452+1740100
even when a store did accept mobile
lion by 2021.108 The list of mobile
payments, less than a third (31%) of
payment providers is growing and Pay, Samsung Pay,
150 million
users consistently used mobile pay,
now includes PayPal, Intuit GoPay-
most frequently citing that they sim-
ment, Barclaycard bPay, Chase Pay,
and Android Pay
ply forgot.103
Visa Checkout, Walmart Pay, CVS Contactless
Despite its slow start, mobile pay-
Pay, Target Wallet, Starbucks, Kohl’s Users
ments may finally be reaching a tip- Pay, Square, Stripe, Venmo, LevelUp,
ping point. Apple Pay is now avail- PayAnywhere, and more.
able in 20 markets around the world,
works with 4,000 card issuers, and is Further pushing mobile payments
available at 50% of U.S. retailers.104 into the mainstream is the broad-
20 million
This increased availability has driven er adoption of mobile wallets as a
growth in the market; Apple Pay, Sam- whole. An increasing number of busi-
sung Pay, and Google Pay currently nesses, from stadiums to airlines, are
have a user base of roughly 150 mil- leveraging mobile wallets for paper-
lion and are expected to exceed 500 less ticket distribution. As adoption
million users by 2021.105 And these increases around the world, it seems
numbers don’t even account for Chi- clear that mobile wallets are the way 2015 2016 2017
na’s leading mobile payment provid- of the future. Android Pay Samsung Pay Apple Pay
Redefine shopping
Technology is redefining the shopping experience by making it possible for any platform—from social media to
smart speakers—to be platforms for making purchases. At Microsoft, we’re empowering retailers with the tools
they need to embrace these new channels and allow their customers to shop on their terms, wherever they are.
Shop seamlessly Make tech accessible Empower employees
Today’s customers expect a seam- Successful retail leaders are seeking Employees are a business’s most
less shopping experience across diverse perspectives and new ideas valuable asset; today’s retailers
channels and the flexibility to buy to challenge their most ingrained must empower their employees
in-store, pick up in other loca- assumptions. With intuitive, famil- to do more. From tools such as
tions, or to receive home delivery. iar tools that are easy to learn and Office 365 that help teams get
Dynamics 365 enables retailers cloud-based applications that allow more done to role-based work-
to provide a consistent shopping individuals to access information spaces in Dynamics 365 that de-
experience across nearly every from anywhere, Microsoft is mak- liver the right information, Micro-
channel and offers flexible fulfill- ing technology more accessible to soft is helping retailers empower
ment options, increasing custom- more people, opening up untapped their employees to deliver better
er satisfaction and brand loyalty. markets for talent and innovation. experiences for their customers.
Page 25Operations drive
excellence
• Robotics and automation streamline operations
• Blockchain becomes more than a buzzword
• The Internet of Things opens new doors
• Supply chains become intelligent
• Technology empowers frontline sales associates
Page 26Operations drive
excellence
Robotics and automation streamline Executive summary
operations Driven by connected customers who
Retailers are looking to leverage robotics and automation technologies to off- are demanding quicker delivery and
set mounting healthcare costs and rising labor costs due to minimum-wage more transparent processes, compa-
legislation, as well as to streamline warehouse and fulfillment processes. A Re- nies employing digital technology will
search and Market study predicts that the retail automation market will grow see numerous benefits in inventory
at a CAGR of 10.96% between 2017 and 2023 and be valued at almost $19 management, fulfillment, data analy-
billion by 2023 as companies look to reduce operational costs and enhance sis, and employee management.
the customer experience.109
Target’s California distribution center utilizes a robotics warehouse system, in
Highlights
which incoming pallets are automatically separated into product cases and • Tracking a product via blockchain
sorted into a high-density storage container. As orders come through, robots takes 2.2 seconds, versus seven
travel up to 25 mph and can retrieve one product per minute—approximately days via paper.
five times faster than a human can pick products on foot. The robot then cre- • 8.4 billion IoT devices were in use
ates “perfect pallets” according to store layout, and another robot wraps the by the end of 2017, a number
pallet. This system has a significant overhead but ultimately can save retailers expected to double by 2020.
as much as 80% on distribution-center labor costs, allowing them to operate
• Seventy-two percent of customers
warehouses that are 25% to 40% smaller than traditional buildings.110
who dealt with a store associate
using a mobile device to provide
In 2019, large stores will add more self-scan and self-checkout options. These
product info, credit-card checkout,
have already been successfully implemented by Rebecca Minkoff and Macy’s,
or inventory look-up said it
who tag their inventory with radio-frequency identification (RFID) sensors.111
resulted in a better shopping
Electronic shelf-label technology automates retailers’ price-changing systems,
experience.
eliminating the need for employees to change them by hand and allowing
companies to run and display special offers in real-time.112 Amazon has paved
the way for full automation with its staff-less, checkout-less Amazon Go lo-
cation, which utilizes multiple technologies to detect which items customers
leave the store with and to charge their accounts accordingly. These trends Retailers are looking to
don’t only provide cost savings: by streamlining operations, retailers help pro- leverage robotics and
vide faster checkout times and quicker delivery windows to customers, ulti- automation technologies.
mately building brand loyalty.
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