New Retail: How Big Data and AI is Fuelling Retail Transformation

Evolution of Retail

Like any industry, retail has gone through its share of transformations. Now the exciting thing about retail is that its development has been symbiotic to consumer behavior. It had to adapt rapidly based on how consumer behavior changed from time to time. For example, between 1900-1940s, cars were not mainstream; the retail shop formats focused on catering to the neighborhood mom and pop shops.

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However, as cars became mainstream, large format stores started opening as the consumers preferred living away from cities and drive. Fast forward 1990s-2000s, as the internet became mainstream, e-commerce rose into prominence. Companies like Alibaba and Amazon became household names. Now we are in the era of mobile commerce and digitization. Social media has pushed us into an hyper-connected world. This change in consumer behavior is disrupting retail as an industry.

 

Digitization in China

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China is a market that has that embraced the internet like no other. Mobile internet has one of the fastest penetration in China. Its adoption is more than three times as compared to the US. Mobile payment platforms like Alipay and WeChat pay have permeated into everyday lives. According to the China Internet Network Information Centre (CNNIC), more than 580 million people have used mobile payment platform in China. With the rapid adoption of the mobile platform and fundamental changes in consumer behavior, retail industry, as we know, is disrupted.

Defining New Retail

“New retail” is coined by Alibaba. It is Alibaba’s strategy to re-define retail with immersive adoption of technology in the entire Retail value chain. According to the article by Bain insights, new retail affects the fundamental pillars of retail.

New retail impacts the three core elements of retail:

  1. Consumer
  2. Merchandise
  3. Stores

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Consumers: The definition of the consumer has changed. People are no longer viewed only as consumers. More and more customer data is now being harnessed to find ways to stimulate consumer need effectively. Consumers are no longer consumers. They influence brands and push them to engage with them creatively. They help the brands to re-invent themselves and actively co-create. In New Retail, consumers are “prosumers.”

Merchandise:  The role of products has also changed. It is not about being a commodity anymore. It is about creating an integrated shopping experience with the product across all the platforms. Merchandise lifecycle doesn’t end with the purchase. It includes feedback on various digital platforms, including social media.

Stores:   The definition of stores have changed too. Stores are no longer brick and mortar. Stores now are also online. More importantly, stores strive to create an immersive customer experience between offline and online storefronts. There are no constraints of time and location.

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In a nutshell, New Retail impacts all the elements of the Retail Value Chain. It calls for making the supply chain smarter. It calls for customizing manufacturing to tailor to consumer tastes. It creates an omnichannel experience for customer interaction. It creates a closed-loop by collecting consumer feedback and embedding it in precise marketing and provides an immersive customer experience for the shoppers.

Big Data and Artificial Intelligence in New Retail

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This retail transformation has data transformation at its heart. Fuelled by capabilities to transform businesses, there are three major themes in which Big Data and AI technologies change New Retail.

  • Breaking down organizational data silos

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The first theme is to break the data silos within the organization. Retail companies have evolved over a while. During this period, data has mushroomed all over the organization. Traditional consolidation points like data warehouses can no longer sustain the change in the definition of data. Data is not just structured. In the digital world, every interaction that the consumer has with the brand need to be captured for analysis. Digital interactions like a Like, a comment, a tweet hold vital nuggets of consumer behavior.
Bringing all this data together in one place and making sense of it is the first theme. Integrating all kinds of data points; be it structured or unstructured and then using advanced analytics techniques like customer segmentation, brand affinity, etc. helps to create a holistic customer journey and their behaviors.
Creating a single customer view is another important concept. Traditional single customer view is built on the themes of master data management. In the new retail world, consumers interact with retailers through multiple channels. I can browse the catalog on the smartphone, add it to the cart on my laptop, go to the store to collect, etc. These digital footprints provide much information about customer behavior. Consolidating these digital footprints is essential to gain meaningful insights on consumer behavior.

  • Creating immersive shopping experiences

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The second theme is to create an immersive shopping experience. Stores need to transform to create an immersive shopping experience. Seamless transition from online shopping to offline shopping should be enabled. Using Augmented reality and AI technologies, shoppers can try the products virtually at each touchpoint. AI is helping to create engaging consumer experiences. It is empowering merchants to operate efficiently. Concepts like ‘smart fitting room’ provide the immersive experiences. Consumers can try on RFID-embedded clothing, and real-time product recommendations are provided based on styles and themes.
Another example is Alibaba’s Taobao and Tmall platforms. ‘Fashion AI’ technology, uses over 500,000 sourced pieces of data on fashion and dressing tips from stylists to created curated and personalized recommendations.

Another example of Alibaba has gone a step further to create an immersive shopping experience is the usage of a digital screen called “magic mirror.” Magic mirror lets shoppers try on things like sunglasses, cosmetics, and apparel virtually. If they like the product, shoppers can purchase Alibaba’s mobile payment service Alipay by scanning the QR code on the screen. Another store feature is an AR display area where shoppers can browse product images to visit corresponding listings and get coupons on Tmall.

  • Optimizing Supply Chains

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Another critical aspect of new retail is creating a data-driven transparent supply chain. Machine learning makes supply chain smarter. Using algorithms, it can quickly pinpoint the most influential factors to a supply networks’ success.

All the links of the supply chain need to be AI-driven. AI is enabling supply chains to be more intelligent and transparent. Forecasting real-time inventory levels, ensuring supplier quality, demand forecasting, procure-to-pay, order-to-cash, production planning, optimized transportation management, and more.
Alibaba’s Hema Xiansheng supermarket is an example of how all these factors seamlessly work together. Hema has digitized each of its product. Using Hema’s mobile App, shoppers can scan barcodes and get all the information about the product. Based on the purchase history, a real-time recommendation is made. A seamless payment mechanism is integrated using Alipay e-wallet. Hema store also doubles up as a mini fulfillment center. Customer orders are delivered within half an hour for a given radius.

Conclusion

Retail, as an industry, is being disrupted. Data is at the heart of this disruption. Every retailer needs to be a data company and then weaving the retailing experiences through all channels.

About Pradeep Menon

I'm an experienced Data Science and Business Analytics professional with 15+ years of cross industry experience. Data Science is my passion. I have a proven track record of successfully helping organizations to transform through the application of business analytics. I have executive-level interpersonal skills, hands-on technical expertise and the ability to cross-pollinate complex concepts across multiple industries and scenarios.

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