Future of Retail – a New Trust Architecture

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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. Tis 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 shifto 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 efficient

to distributed electric, rather than mechanical, power, and swap the

large central steam motors surrounded by shafs and belts for small

individual electric motors attached to each machine.Tis enabled us

to optimise for work ow 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 ourrelationship 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.

Teres been a few distinct retail models before the current one.

Te village-based economy running where most goods wereproduced in the home.

Te 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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Te current model was invented by Aristide Boucicaut when we

created Le Bon March in 1852, not far into the industrial revolution.

Tis model is clearly the same as John Lewis.

Its a model built around the transaction and the need to search.Tis

is an consequence of mass production, where the customer no longerhas a direct relationship with the producer and needed to seek out

products.

Tis model is characterised by:

Amenities to attract customers (toilets for the women, tea rooms)

Merchandise on display to handle / inspect with no obligation topurchase

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)

Tis model has served us well for over 170 years as weve

incrementally optimised it.

Store formats optimised as supply chain improved (big box etc)

Point of sale mechanised, automated, and then made self service

Merchandising becomes more sophisticated (planograms etc.)

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 nish in another.

However, this is still the same model.

Even Apple, which seems so new and funky, continues to adhere tothis model.

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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.

Teres no reason that todays retail model should persist. Teres

nothing inevitable about it.

At root, the double coincidence of wantsis ction. Earlier societies ran

on debt, managed semi-formally in tight-knit communities. Money

was a unit offaccount, 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 different trust architecture.

Industrialisation and mass production broke us out of our

communities and forced us into the mass market and cash economy.

Te 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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http://bit.ly/1PFxReB


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From FoEV1: Uncovering new ways of spending (bit.ly/1Y7t5rI)

Te 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

t.

Te rise of the internet-equipped smart phone (ne iPhone) shifedthe 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 shifed the customers

focus from brands to peers. We used to use brands to navigate theworld, as the brand was all the information we had. Now we use

peer recommendations, and mass market brands are suffering as a

result. Its not enough to market to the tribe, you need to be part of

the tribe.

How we dene value is changing, value dened by the consumptionin relative rather the producer absolute feature-function terms.

Value has become multi-dimensional and subjective.

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http://bit.ly/1Y7t5rI


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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 asearch 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 largeitems.

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http://bit.ly/1PFxReB


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Retail has been built around need, search and transaction, a

response to the emergence of the mass market.

Tis was facilitated by cash, as cash enabled us to mange the risk of

transacting with individuals we didnt know and might never see

again.

Tis 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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Te 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.

Te 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. Youhelp individuals to explore their interest in photography.

You build a relationship with the customer, and helping them buildrelationships with other customers (your community).

Tis relationships spans the online and offline world but isn'tintrusive (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 thisshared store of value, to keep the transaction out of the relationship

You measure an individual customer's value via their contributionto the community, as well as their lifetime spend.

Youre identied more as an educator, than as a merchant. Its adifferent relationship and the old commercial one.

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Te 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 theydont want to transact at the point of sale.

Tey dene value relatively, in their own terms, not absolutely interms of features and functions.

Brands are being supplanted by peer-to-peer relationships. Youneed to be part of their tribe.

Te old model based on need, search and transaction is a

relic of the industrial era.

Te rush to experience stores, and our inability to quantify

omnichannel, are signs of the growing gap between the old model and

what customers want.

Te new model will be based on a new trust architecture:

Knowing our customers, and them knowing us.

Mutual commitment.

Shared creation of value.

Te 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

reward the customer and show them commitment / trust. Enable

customers to deposit into the account help them manage their spend.

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Future of Retail – a New Trust Architecture

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