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.
Were starting to think that omnichannel is the canary in the coal
mine, a signal that were 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 ecient
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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Lets 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.
Theres 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 didnt exist.

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The current model was invented by Aristide Boucicaut when we

created Le Bon March in 1852, not far into the industrial revolution.
This model is clearly the same as John Lewis.
Its 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 weve
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 thats evolved over time.
Theres no reason that todays retail model should persist. Theres
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 o account, not a means of exchange. Barter was rare and
cash was used to manage the risk with transacting with someone we
dont know and probably would never see again.
We might say that these early models, prior to the creation of a mass
market, had a dierent 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 were 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 (ne 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 customers

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 suering as a
result. Its 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 weve 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 Apples
Apple Store app & HiTouch (moving payments physically away
from the till and onto the consumers device). Initially due to
convenience, but now due to a cultural distaste for dealing with
money. We dont 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 didnt 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 isnt 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).

Youre identified more as an educator, than as a merchant. Its a

dierent relationship and the old commercial one.

This relationships spans the online and oine 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 dont come to your store looking for products, and they
dont 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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