From fashion to food, much of the retail industry as we know it is living on borrowed time. The global pandemic is serving only to accelerate a wave of technological transformation that is already washing over the industry, says Paul Cuatrecasas, CEO of Aquaa Partners and Author of Go Tech or Go Extinct.

In 2019 the UK retail industry employed 2.9 million people, recorded £394 billion worth of sales, and accounted for one-third of all consumer spending. Despite the industry's size and scale, however, the challenges confronting large areas of it are vast. Even before the global pandemic the shifts in the industry's tectonic plates were sizeable. Coronavirus is only accelerating this trend.

Resilience in the face of changing consumer demand

Driving the transformation is the industry's need to strengthen its resilience to cope with shifting patterns in consumer needs and behaviour. Technology, particularly as an enabler of automation, has been a primary driver in enhancing resilience and accelerating market value. Evidence of this is abundant: just look at the surge of e-commerce and the decline of the high street.

But it's evident in other areas too. In the UK's grocery sector, for example, you have large industry players such as Tesco, Sainsbury's, and Asda. Each has approximately 450,000, 116,400 and 165,000 employees, respectively. In contrast, online grocery retailer Ocado has only a little over 15,000 staff. Yet, despite the wide differences in staff count, Ocado's market value is more than three times that of Sainsbury's and around half that of Tesco's. Over the past month and a half, Ocado's share price has risen by 25 per cent. Over the same period its UK listed rivals, Tesco and Sainsbury's, have declined by 13 per cent and 20 per cent, respectively. Ocado's success relative to that of its rivals isn't due simply to its lack of a physical retail presence. It's due more to the autonomous nature of its operation that depends on as few humans as possible.

The same story is true in fashion retail. While coronavirus has wrought a devastating blow to most of its competitors, fashion retailer Boohoo has showcased the nimble effectiveness of a technology-based autonomous operation by capitalising on the situation and acquiring brands. The company has fewer than 3,000 employees and yet is valued at over £3 billion. In contrast, Marks & Spencer has 80,000 employees and is valued at under £2 billion.

Go Tech or Go Extinct

The burden now falls to established businesses competing in the sector to adapt and become fully technology-enabled to remain competitive. Achieving this depends upon increased automation through technological innovation and, often, the acquisition of tech disruptors to strengthen resilience and satisfy consumer demand.

The retail industry, like so many other areas of the economy, is ripe with opportunities to embrace technological innovations across all areas of a company's value chain.

Warehouse Automation

An obvious area to begin is greater automation in the warehouse. Just-in-time delivery has been adopted as an effective way to maintain optimum production while also reducing costs. With its reliance on manual workers, however, the pandemic has exposed it as a weak link in the supply chain.

To address this vulnerability traditional retailers need to re-examine their warehouse management systems and match them with developments in Artificial Intelligence (AI). Evidence shows that when combined the two help to optimise warehouse functionality and distribution, while also reducing the number of employees required. Even before the outbreak of coronavirus, research firm Markets & Markets expected the warehouse systems market (WSM) to explode to USD 4.82 billion by 2024 up from USD 2.06 billion in 2018.

Robotics is another area. Falling costs and longer lifespans mean the technology is another rapidly growing industry transforming the management and distribution of goods. Ocado and Amazon are already pioneers in this field of robotics in warehouse management.

Research firm Facts and Factors predicts the global autonomous forklifts market alone will reach a value of around USD 10.5 billion by 2025 up from USD 6.5 billion in 2018.

Autonomous Distribution

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Often associated with Amazon, advancements in drone and vehicle technology are allowing retailers to bolster resilience and reduce their dependency on labour by automating the distribution of goods from the warehouse to the consumer.

In a recent study, ARK Investment Management estimates parcel drones have the capacity to deliver packages profitably in under 30 minutes for as little as $0.25 compared to over $7 for traditional domestic shipping. The study also estimates that, as a result of frictionless and inexpensive delivery, consumers are likely to purchase significantly more goods online, growing ecommerce's share of retail sales from 14 per cent in 2019 to an estimated 60 per cent in 2030 with drones delivering more than half of the ecommerce volumes.

The low cost of drone delivery also provides manufacturers with the ability to begin circumventing the warehouse entirely and deliver goods direct from the factory to the door cutting out a key element of the traditional supply chain and bolstering resilience by reducing manual dependency.

Autonomous Checkouts

Driven by a need both to improve consumer experience, while also reducing human dependence, autonomous checkouts offer consumers the opportunity to enter a store, choose their products and leave.

AmazonGo is an early pioneer in the technology and has recently announced its intention to role out 2,000 stores over the coming years. Leading California-based retail technology startup, Standard Cognition, meanwhile, has continued to strengthen its AI-powered computer vision platform through the acquisition of 'DeepMagic', a deep-learning computer vision start-up, and, an indoor mapping solution provider.

Similarly, AiFi, another California-based startup, introduced a scalable autonomous solution with major retailers such as French supermarket chain, Carrefour, Albert Heijn in the Netherlands, Valora in Switzerland, and ?abka in Poland. Both startups rely on a combination of AI-based machine vision, cameras, edge computing, and sensor fusion technology. On the security front, UK disruptor, ThirdEye, is developing context-aware alert systems to detect relevant events in CCTV streams for retailers.

5G is key

A central enabler to key areas of technological innovation in the retail sector is 5G telecommunications. The technology offers consumers multi-gigabyte connection speeds eliminating lag-time, delivering greater reliability and enabling consumers to connect to retailers in real-time. 5G is central to revolutionising user experience in retail. In London alone telecoms provider, Vodafone, estimates 5G will deliver economic benefits to the UK economy in excess of £30 billion by 2030.

The technology also offers retailers the opportunity to benefit from richer consumer data in real-time, in turn driving improved consumer marketing campaigns.

Virtual Reality Retail

With the speed offered by 5G, shopping in virtual reality can become ubiquitous, vastly improving customer involvement, from virtual tours of shops to finding products from the comfort of home. 5G will profoundly change the way consumers buy things, allowing them to experience a product before they purchase it. With augmented reality tipped to reach a value of £150 billion in 2020, the role of 5G in the modern retail experience offers a well of untapped potential for those companies willing to embrace it.

COVID-19 and its implications for the retail industry

COVID-19 has illustrated the challenges the traditional retail industry faces. But far from being insurmountable, the challenges confronting the industry can be overcome through the embrace of technological innovation, improving resilience and driving growth.

Ultimately, lockdown will serve only to accelerate the industry's pace of change. A slow adoption of technological change is unacceptable. Consumer expectations toward their shopping experiences will continue to grow and will last well beyond lockdown. The key challenge now falls on established retailers to decide to embrace this change and partner with technology companies or decide to exit. If the decision to go tech or exit is not made, then retailers can expect to go extinct.

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