Saturday, December 1, 2012

The Future of Retailing?

The retail industry has been undergoing a severe amount of change recently, as new technologies continue to remake, and remake, and remake yet again how American consumers choose to shop. The video above, which my friend posted on Facebook, shows yet another iteration on the model. In the video the store, Hointer, is a high end jeans retailer with all the latest brands. Except unlike most boutique jeans retailers, the first thing you see when walking in is not a beaming face of a sales associate or stacks upon stacks of jeans of various styles and sizes and cuts. Instead what you see is the product on full display hung in the center of the room. In the distance, the walls are flanked with fitting rooms that are prominently numbered. Browsing the jeans you select a style that seems appealing, scan it with your phone, pick your size, and the app tells you what fitting room to visit. Magically, when you arrive in the fitting room, your selection is there waiting for you having been quickly spirited in by a mechanized system in the back. In the words of the entrepreneur behind this new endeavor, this new system offers “both a lower cost and a better customer experience”.

Undoubtedly, as big of an industry as retail is, it will continue to evolve and none of the current cutting edge technologies will remain on the top of the heap for long. In the distance you can see 3-d printing, mass customization, and ever smarter recommendation engines approaching to remake this industry yet again. However a few things are pretty clear. Almost every new iteration of retailing has striven to offer the consumer ever greater choice and selection, lower prices through economies of scale and improved efficiencies, and always a move to ever shrink the role of labor in the industry.

Today, according to the National Retail Federation, retail counts for 7.9% of GDP (excluding the actual value of manufacturing the goods that ultimately sold through retail) and about 18% of the US workforce is currently employed in retail. This is a huge contribution to employment in the US and the bulk of these roles are spent in helping customers identify and find desired products, restocking/organizing product displays, and processing customer transactions. A smaller subset are filling higher skilled roles including managing the operations, commission based sales, facilitating ordering and inventory management, and setting pricing, merchandizing and marketing strategies. Considering the actual value being transferred to the consumer from retail as an independent industry (separate from the creators of the actual products being sold), and these both seem like absurdly large numbers. Why are we as an economy dedicating so much economic energy to the task of transacting sales between producers and consumers? Incidentally, agriculture and farming, which is many ways is the foundation of our economy ensuring that all consumers are adequately fed, only constitutes 0.01% of national GDP while domestic manufacturing is about 11%.

My expectation is that you will continue to see more and more turmoil in retailing as margins shrink and costs eliminated. Ultimately the consumer will be the driver of this as they continue to seek the best quality for the lowest price, driving the higher labor intensive companies to the way side (see Borders, Blockbuster, Linen & Things, all major music chains, and the newly struggling Best Buy). Taken to the extreme imagine a world where consumers have at home 3d printers that are able to construct from basic atomic building blocks any item from a vast catalog of all human creations. Think this piece of clothing looks interesting? Click print and try it on. Decide its not the right option? Drop it back in the machine to be recycled for your next purchase. In this world, there is no logistics (except perhaps to replenish the basic building materials, no warehousing, very little (if any) waste, and almost no labor). The only service the consumer is really paying for is the owner of the intellectual property that was selected by the consumer. Obviously, this world is a long long way off, but it does show where we are heading, towards a world with fewer and fewer human retail workers, more and more automation, and an ever increasing availability of selection.

So where are the job opportunities in this space?

Obviously, with each new refinement of the industry more and more power is shifted towards the original producers of content, ideas, and designs. As usual, media is on the cutting edge as self-published authors and independent musicians continue to grab more and more power away from the distributors and labels. You can also see inklings of this in the rise of etsy, small fashion companies and people like this. For those who are creative or have a good idea, we are entering a phase of the economy where it has never been easier to bring that idea to market.

Secondly, it will be a long time before distribution, storage, and merchandizing of retail products is eliminated entirely. In the meantime, there are significant opportunities to help manage and streamline the increasingly complex web getting products to consumers. Much like we have seen with the high-skill takeover of manufacturing jobs, these high value retail jobs will mix operations planning with crisis management and strategy setting to make sure the right products are available when needed by the customer. These roles will be extremely important, demanding significant training and ultimately will be able to command high wages.

A third opportunity, at least in the short term, will be in helping consumers cope with the massively increasing selection at their fingertips. While many big technology companies are investing copious amounts of resources into building ever more sophisticated recommendation engines, the fact of the matter is that most solutions that exist on the market are not able to adequately address the many emotional based needs that drive consumer demand for products. As a result, consumers will increasingly look for support in making efficient purchasing decisions and shrinking the universe of options into a small and manageable subset of high quality options. I expect personal shoppers and style consultants to enter a new phase of popularity as well as an increasing role of taste makers and trusted curators to help consumers quickly focus their decisions.

These few opportunities aside, I think the overall future of retail to be a much less labor intensive one. I would expect to see the percent of workforce employed in retail to shrink dramatically over the next few years as we've seen agriculture and manufacturing before it. Improved efficiencies will lead to higher profits and lower prices for consumers. So where will this labor force (nearly 20% of the US workforce today) go? Perhaps the future is in some nascent industry like clean energy, biotechnology, or space tourism which will take up the slack. Or perhaps an old stalwart like manufacturing or infotainment will rise again as demand surges in the developing world? Or most likely, since people need to work to buy the basics of sustenance, there will be even more downward pressure on the price of unskilled labor and a greater shift into currently ZMP services in food, personal, health, beauty, and home services. Its still too early to tell, but regardless the future is sure to be an interesting one.

1 comment:

A said...

It's kind of like Star Trek
http://en.memory-alpha.org/wiki/Replicator