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What’s NXT: Phygital Experience (Radical retail part 2/5)

What will shopping be like in 2030? Today, we observe a boom in technologies that enable personalized experiences, mixing of the virtual and physical as well as automation of many service steps in the customer journey. Technology is enabling a new generation of store experiences, and they are making shopping both more exciting and involving and, in addition, almost friction free.

In the work with Radical Retail Report, a report on retail 2030, produced together with Nexer Group, we identified five shifts that are defining the third retail revolution:

1. Regenerative retail – From Cowboy Economy to Spaceship Economy 

2. Phygital experiences – From Transaction Enabler to Experience Provider

3. RADICAL retail – From Manpowered to AI-powered

4. Mytopian retail – From Me in the Marketplace to Me as the Marketplace

5. The Great Data Chaos – From War on Market shares to War on Data shares

This is part 2 of 5 in an article series that outlines the five shifts of the third retail revolution, and presents key take aways for retailers to use in their strategic work towards 2030. 

Shift 2: Phygital Experience – from transaction enabler to experience provider
The physical and digital are merging to create experiences where the user moves with ease between different modes of interacting with brands.

“A source of inspiration is Alibaba’s stores in China, where the physical shop is part of a larger experience offering. You enter the store but can shop from and get offers through your phone. Then you can get home delivery of groceries or have a chef in the store cook the food for you, which you can either eat there or have sent home. That is a completely different experience compared to having channels that work in silos.”
(Linda Pimmeshofer, Industry advisor retail, Microsoft Western Europe). 

The future of retail is phygital, and cyborg consumers consisting of a human and some interface to the internet world will expect no borders between the physical and digital.

Channel explosion drives the transition
The number of channels for retailers to reach customers is booming, and the last decade has seen a great evolution in how consumers shop. According to numbers from Statista, the global retail ecommerce revenue grew by 270% from 2014 to 2021, and is projected to grow with another 50% until 2025. Social commerce, defined as purchases where everything from product discovery to checkout happen on a social platform, makes up about 10% of ecommerce sales according to Forbes, a share that is growing steadily. Going forward, visits to virtual worlds for other purposes than gaming, and the so called Metaverse, has the potential to shift retail’s center of gravity towards digital (and virtual) even further. 

But physical shops still play a valuable role in the retail system. According to research by Salesforce, customers value visiting physical stores because it allows them to touch and feel products, get products immediately, avoid shipping fees and enjoy the shopping experience. Moreover, the shop is an effective logistical solution to distributing goods. Because even though home delivery is convenient for the user, many companies struggle to get such logistics profitable. The key for retailers in the future is to embrace an approach where all channels create a unified experience together, and the role of the physical store is a piece of the puzzle rather than the center of attention. 

Four archetypal phygital shopping experinces for the future
Today anyone can put up what is needed for a transaction. To create value for the customer in the future will therefore mean more than that. (Mårten Bokedal, Director Product Strategy, Optimizely) 

The shopping experiences today are diverging in four directions, illustrated in the model below as four archetypal shopping experiences for the future. These archetypal experiences will be blended in different ways to make up the future of retail shopping. Each actor needs to find the optimal mix to meet their customers, and can think of the described archetypes as phygital building blocks. 

The shopping experiences today are diverging in four directions, illustrated in the model above as four archetypal shopping experiences for the future. 

The peak event 
Exciting and captivating experiences aimed at building relationship and brand awareness rather than directly driving conversion, often involving both inspiring impressions and community engagement. This can be an interactive virtual skate park in a Metaverse environment, a literature evening with readings at the local bookstore or a yoga training in the sports shop. 

The tailor service 
The tailor service experience helps the customer make the right purchase decision. In addition to engaging with deeply knowledgeable staff, new technologies like smart fitting technology will be supporting the customers’ decisions in the future. 3DLOOK, whose technology was acknowledged in Gartner hype cycle 2021, offers virtual body measuring, individual size recommendations and virtual try on. They claim that their technology is increasing conversions 4 times and is reducing return rates with 40%. 

The just walk out/one-click store 
E-commerces has for long known the importance of designing smooth processes and you can today purchase online with just a few clicks. When it comes to physical stores, Amazon was first with launching the “just-walk-out” technology in the US, a concept that they are now taking to Europe with hundreds of stores in the UK. Carrefour and several other actors are following with stores that allow customers to just pick products from the shelf and walk out, thanks to technologies like face recognition that can trigger payments.  

The social feed 
The social feed experience serves the consumer individualized, shoppable inspiration on a silver plate. A present example is how Instagram has made it possible for consumers to journey exceptionally smoothly from scrolling inspiration to check-out. 

Stores are becoming sensocratic environments
The customer journeys of the future, regardless of channel, will be created by data-based experience design. David Dobson, Intel’s global industry director for retail, points out the need for physical stores to catch up when it comes to data collection: “The amount of information that’s known about what you do on your mobile phone or your computer, it’s phenomenal. They know everything about your purchase journey. In the store, they know nothing. It’s like a dark channel.”

But technology for that purpose is developing rapidly. FastSensor’s technology gathers, analyzes, and delivers foot traffic analytics and engagement metrics from physical spaces. Thereafter, content on screens in the shops can be customized for the visitor in front of the screen. In Ralph Lauren’s new fitting rooms, RFID technology senses what items are brought in, and an interactive mirror then offers service to the customer by combining the behavior in the fitting room with product data like available sizes, colors and recommendations of other products if the one tried on was not perfect. According to Ralph Lauren, the mirrors have an engagement rate of 90%. Knowing what products are brought into the fitting rooms and how customers react to them is a goldmine for product development.

In digital environments, data-based experience adaptation is already real, and in the future, we can expect all “store”- environments to be filled with sensors that collect data, combine it with other online and offline data and thereafter design customer experiences – the stores will be sensocratic environments. 

The virtual shopping experience
The message on National Retail Federation: Retail’s Big Show 2022 was clear: Brands need a virtualization strategy. 3D, AR and VR are revolutionizing shopping experiences. And according to IBM, 61% of consumers claim that they would be more likely to buy from a brand that uses immersive technology. Examples today span AR for virtually trying on items to being totally immersed in a virtual world to experience brands and products. The big retail actors are betting on XR (AR, VR, MR). For example, recent recruitment ads from Amazon suggest that the company is looking to put together a substantial team with senior XR-related competence. An ad reads: “You will develop an advanced XR research concept into a magical and useful new-to-world consumer product”. And listening to expert projections, it seems like Amazon is on the right track: Statista projects the global market for XR hardware to grow from $28bn in 2021 to $252bn in 2028. 

And the hunt for the new interface towards the digital is on:“Something as disruptive as the cellphone will probably arrive and give us a new interface to the digital.”
(Martin Andersson Ekberg, Digital Area Manager at Volvo Trucks). 

When we let go of the limitations of the smartphone, there will be enormous changes in retail. At IKEA we are talking about what will happen when you can bring your home to the store and vice versa and do that seamlessly. There are technologies today that help you test how products will fit in your home, but they are screen based and not very precise. But if the technology improves, there is potential for great change in retail. The winners will be the actors that see this and make themselves part of the transition.
(Ann-Sofie Isaksson, Consumer & Customer Insights, IKEA). 

Defining transitions for phygital experience

Key takeaways for retailsers towards 2030
• The digital will penetrate further into the physical, with sensors and virtual elements, enriching the physical store with new types of experiences and possibilities for personalization. Do you have the right competence to meet a future where store experiences are more multidimensional?

• Future retailers will innovatively integrate channels and touchpoints to create a seamless, ever available, shopping experience. Do you have a vision for how your channels synergistically interact and together deliver customer value?

• Consumers and environments (homes, offices), as well as products, will increasingly have digital twins in AR/VR, which will transform the evaluation phase of the shopping process. What will it mean for your organization that consumers can try products virtually? 

The next article, part 3 of 5 in this series, describes the shift towards RADICAL retail – a future of retail characterized by automation, AI and robotization. Would you like to know more about how this affects your business, please contact Åsa Jonsson.

By Åsa Jonsson