The future of retail


The need for a new trust
architecture
Peter Evans-Greenwood

Fellow, Centre for the Edge, Australia
17th & 30th May 2016

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Paliofuture: looking at images of the past to understand how bad we
are at predicting the future. We tend to apply new technology to the
current social landscape, and fail to realise that technology and society
change in tandem. This one seems to have predicted Siri but not
PayWave.
We’re starting to think that omnichannel is the canary in the coal
mine, a signal that we’re about shift to a new retail paradigm.
Now we have omnichannel what do we do with it? It raises more
questions than answers. Do we know what “good” looks like? How do
we measure “good”? What is the purpose of “place” in an omnichannel
environment? And so on...
Typically it takes a generation – ~30 years – for us to really understand
the implications of a new technology and make full use of it.
Electric power is a good example.


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Early in industrialisation, we replaced large, central steam engines in
factories with large, central electric engines. is was great as they were
quieter and cleaner. Win!
It took us 30 years – a generation – to realise that it was more efficient
to distributed electric, rather than mechanical, power, and swap the
large central steam motors surrounded by shafts and belts for small
individual electric motors attached to each machine. This enabled us
to optimise for work flow rather than power distribution. We were
measuring all the wrong things. We reorganised our factories around
this new paradigm and saw a 30% productivity improvement.
What will post-omnichannel retail look like once we sort out the
details?
Our story goes thusly:

• Our current approach to retail is a social construct
• Signals suggest that this social construct is breaking down
• Discovering the new model requires us to understand how our
relationship with the customer is changing


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Let’s start here, at John Lewis, one of the most successful department
stores in the world.
We forget that retail is a constructed environment, and shopping a
learnt experience.
There’s been a few distinct retail models before the current one.

• The village-based economy running where most goods were
produced in the home.

• The country store with merchandise behind the counter in bulk,
prices negotiated depending on social status, and store credit.
Prior to the 19th century – before the Industrial Revolution(s) and the
Victorian Era – retail as we know it didn’t exist.


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The current model was invented by Aristide Boucicaut when we
created Le Bon Marché in 1852, not far into the industrial revolution.
This model is clearly the same as John Lewis.
It’s a model built around the transaction and the need to search. This
is an consequence of mass production, where the customer no longer
has a direct relationship with the producer and needed to seek out
products.
This model is characterised by:

• Amenities to attract customers (toilets for the women, tea rooms…)
• Merchandise on display to handle / inspect with no obligation to
purchase

• Fixed prices, clearly displayed (and everyone pays the same price)
• Payment in cash at the point of sale, rather than store credit
• Moving the manager out of the transaction (due to previous two)

Omnichannel might well be the ultimate expression of this model.
Merchandising is interactive, stores are an “experience”, and mobile is
integrated so that customer can span the physical and virtual world:
starting a transaction in one channel, but finish in another.

This model has served us well for over 170 years as we’ve
incrementally optimised it.

However, this is still the same model.

• Store formats optimised as supply chain improved (big box etc)

Even Apple, which seems so new and funky, continues to adhere to
this model.

• Point of sale mechanised, automated, and then made self service
• Merchandising becomes more sophisticated (planograms etc.)
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In a recent C4tE report (bit.ly/1PFxReB) we looked into how new
payments solutions, technologies and currencies are (re)shaping
society.
Our main point was that money is, and our commercial relationships
are, a social construct that’s evolved over time.
There’s no reason that today’s retail model should persist. There’s
nothing inevitable about it.
At root, the double coincidence of wants is fiction. Earlier societies ran
on debt, managed semi-formally in tight-knit communities. Money
was a unit off account, not a means of exchange. Barter was rare and
cash was used to manage the risk with transacting with someone we
don’t know and probably would never see again.
We might say that these early models, prior to the creation of a mass
market, had a different trust architecture.
Industrialisation and mass production broke us out of our
communities and forced us into the mass market and cash economy.
The retail model we’re familiar with is the result. However, this
appears to be breaking down as society reverts to a more tribal form.

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From FoEV1: Uncovering new ways of spending (bit.ly/1Y7t5rI)

• The consumer internet and express freight killed the mid market;
we now either buy the cheapest, or the best and the lowest price.
We, as individuals are playing on this, with the bespoke or maker
market emerging in response, arbitraging cheap for good as we see
fit.

• The rise of the internet-equipped smart phone (née iPhone) shifted
the balance of power from merchant to consumer. Consumers now
have more information than merchants, and the ability to source
products from anywhere around the globe. Consumers now control
the relationship.

• Social media and recommendation services shifted the customer’s
focus from brands to peers. We used to use brands to navigate the
world, as the brand was all the information we had. Now we use
peer recommendations, and mass market brands are suffering as a
result. It’s not enough to market to the tribe, you need to be part of
the tribe.

• How we define value is changing, value defined by the consumption
in relative rather the producer absolute feature-function terms.
Value has become multi-dimensional and subjective.

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From FoEV2: Cryptocurrencies and the trust economy (bit.ly/
1PFxReB)

• More recently we’ve seen payments are moving away from the till,
both in time and space: Skip (delaying payment), Starbucks
(bringing the payment forward to create a sunk cost), and Apple’s
Apple Store app & HiTouch (moving payments physically away
from the till and onto the consumer’s device). Initially due to
convenience, but now due to a cultural distaste for dealing with
money. We don’t want the payment / transaction at the centre of
our relationship.

• Finally, the on-demand economy is transforming shopping from a
search for product – the buying cycle – to an impulse-driven
activity. We bounce between states until we realise that we want /
need a product and then purchase “on impulse”, even for quite large
items.


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Retail has been built around “need”, “search” and “transaction”, a
response to the emergence of the mass market.
This was facilitated by “cash”, as cash enabled us to mange the risk of
transacting with individuals we didn’t know and might never see
again.
This trust architecture is the foundation of the various buying cycles.
However, what will retail look like in a world where

• need is never fully formed,
• search is irrelevant, and
• transactions are seen as distasteful?


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The architecture of the our relationship with the customer is changing,
and the future of retail is not simply more or newer technology in the
same model.
The current retail model was a response to the challenge of scaling
mass distribution in an environment when we knew little, if anything,
about our customers.
Today, however, we know a lot about our customers, nor is
distribution a problem anymore. We also have a situation where
customers have the balance of power over merchants and are using
this power to set the terms of the new relationship.
Imagine:

• You run a photo store, but the focus isn’t on selling product. You
help individuals to explore their interest in photography.

• You build a relationship with the customer, and helping them build
relationships with other customers (your community).

• You’re identified more as an educator, than as a merchant. It’s a
different relationship and the old commercial one.

• This relationships spans the online and offline world but isn't
intrusive (you are present where your customers expect you to be).

• You help them pursue their interest by helping source the ideas,
knowledge and materials (virtual or physical) they want / need.

• However, payment happens somewhere and somewhen else, via this
shared store of value, to keep the transaction out of the relationship

• You measure an individual customer's value via their contribution
to the community, as well as their lifetime spend.
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The problem is this divergence between our historical relationship
with the customer – built around need, search and transaction – and
the new relationship that the customer is demanding.

• Customers don’t come to your store looking for products, and they
don’t want to transact at the point of sale.

• They define value relatively, in their own terms, not absolutely in
terms of features and functions.

• Brands are being supplanted by peer-to-peer relationships. You
need to be part of their tribe.
The old model – based on “need”, “search” and “transaction” – is a
relic of the industrial era.
The rush to “experience stores”, and our inability to quantify
omnichannel, are signs of the growing gap between the old model and
what customers want.

reward the customer and show them commitment / trust. Enable
customers to deposit into the account help them manage their spend.

The new model will be based on a new trust architecture:

• Knowing our customers, and them knowing us.
• Mutual commitment.
• Shared creation of value.
The new model will likely be built around a shared commitment, a
store of value, a “loyalty scheme”, that moves the payment to the edge
of the relationship. Deposit into the account – or forgo payment – to
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