The (retail) singularity is near
The (retail) singularity is near
One of the boldest and the most cogent takes on the future is serial inventor Ray Kurzweil’s thesis of singularity. Ray Kurzweil believes by 2045 machines will be smarter than humans, immortality will be ours, and man and the machine will be essentially indistinguishable. Singularity will be achieved through exponential growth individually in genetics, nanotechnology, robotics, and artificial intelligence, and the confluence of all four. According to Kurzweil, digitisation will increasingly bring hitherto “wet lab”/analog kind of disciplines such as biotechnology into the purview of information processing. And information processing always evolves exponentially, says the futurist. Moore’s Law is the most widely known law of exponential progress in technology, but there are many more.
Singularity is called so because at the point of singularity the known laws of progress and technology forecasting cease to be applicable. It is the line on the sand beyond which the future is entirely unknown. The word recounts “singularity” in physics, which is the name for a point in space where density and gravity become infinite.
One can quibble on whether singularity will dutifully arrive at the stroke of midnight on 31st December, 2044. However, it is perhaps more worthwhile to ponder on what Ray Kurzweil’s framework for reading the future can tell us about the future of our own industry. A study of omnichannel, machine learning, natural language processing, intelligent agents, virtual reality, augmented reality, blockchain, and IOT indicates there is much in retail that is analogous to the idea of technology singularity. Exponential growth in some of the above, and the confluence on these different strands, could lead to a point in evolution where current frameworks of thinking about the future are no longer relevant. This is as true in retail as it is in the broader world of technology.
Retail, for more than a century has been about getting the customer in through the door through marketing, anticipating their needs through algorithm and intuition-driven merchandising, and finally – fulfilment through a deep and responsive supply chain. These fundamentals are eternal, and the rules determining excellence in each have mostly remained the same across starkly different eras. Be it Sears’ transition from mail order behemoth to storefront giant in the first half of twentieth century, or Walmart’s dotting of the American heartland with EDLP boxes in the latter half – innovation in marketing, merchandising, and fulfilment had not altered what it meant to be a retailer. But that might be up for a change. What it means to be in the retail business is about to be upended.
Let’s begin with the first – getting the customer in through the door. In a more innocent time, it was about location, location, location and/or about a clear message, such as discounting or fast fashion. Ecommerce and the smartphone changed how it’s done, but not the imperative of getting the customer to opt for you. The customer still had to elect to download a particular app, one among legion. The Amazon dash button changed that forever. The diffusion of the storefront into the fabric of the customer’s life has just began. With 29 million connected home in the US alone in 2017, the storefront is no longer what it used to be. 
The above and more are the defining elements of a stage of retail evolution where rules of success known in the present day will no longer be applicable. We at Litmus7 call this the retail singularity.
We will march through, or rather stumble through, three broad epochs to reach singularity. Retailers that do not master the imperatives of the first epoch will not live to see the second epoch, and so on.
Epoch 1, instant gratification through omnichannel delivery – by 2021: Amazon has upped the ante on instant gratification. About half of US households are now Amazon Prime subscribers . In this arms race of instant gratification, the traditional retailer only has its network of stores, which must be leveraged to the hilt.
There is now enough and more data to suggest that there is a sizeable section of customers who want the formats of buy-online-pickup in store, reserve-online-buy-in-store, the endless aisle, and various other permutations of offline and online – all of which serve to reduce the gap between “I want it” and “I have it”. About 2.5% of Home Depot’s transactions follow the BOPIS/BODFS pattern . The other element that is often overlooked in the omnichannel discourse is that the omnichannel customer is a good customer. The Harvard Business Review says that the average omnichannel customer spends more than a single-channel customer .
However, the impediments to true omnichannel are many. The ecommerce stack, and the tech stack powering the rest of the business, don’t communicate as well they should. Order management, inventory management, and supplier relationship management are siloed and distinct from commerce software. Also, incentive structures, and attribution of an in-store transaction are often remnants of an earlier era. The retail industry is accustomed to treating a store as a unit that can stand on its own. Of course, the store must now become a fulfilment centre and an experience centre that drives sales on other channels. There is an incredible amount of change in technology, workforce, skillsets, management practice, and culture that the traditional retailer must bring about. It will not be easy. But this is a problem of existential proportions that must be addressed.
This leads us to conclude rule number #1 of contemporary retail. Those that fail to achieve true omnichannel commerce before competition does will not survive to see the second epoch on the road to singularity. It is to this second epoch that we now turn.
Epoch 2, total knowledge of and anticipation of customer needs – by 2024: By the beginning of second epoch instant gratification will be considered a right. The customer will want the retailer to go beyond. They will expect the retailer to know her, and anticipate highly individual needs and wants. Expect an arms race among retailers to know the customer better, and this arms race will transcend conventional ecommerce.
Exhibit A of this arms race is the subscription retailing business. The “box” fashion company Stitch Fix delivers five items of apparel and accessories after its customers fill up a detailed questionnaire (with 85 entries), explaining their fit, preferred style, and lifestyle (are you a club DJ or accountant?). The customer has little control over the five items delivered. It is driven entirely by personalisation algorithms. Of course, she can return one or more or all five after trying them on. And from this explicit feedback on what aspects of the fit or style or brand worked for a specific consumer and which did not, Stitch Fix has built a database of millions of customers, capturing intricate detail about body types and fashion quirks that nobody in the world has. The Stitch Fix model, with ingenious bridging of the offline and online, has taken data capture beyond the limitations of ecommerce and beyond the limitations of offline commerce. Stitch Fix employs over 50 data scientists and a dizzying array of machine learning and artificial intelligence techniques to predict what combination of “color, neckline, and chest diameter” would work for a client, and which combination is likely to be the rage next fall.
Stitch Fix now has 2.4 million active clients, modest in the bigger scheme of things. What happens when it has 24 million ? How does a conventional fashion retailer compete with an upstart that knows a customer’s sleeves fall too short when she wears Abercrombie and Fitch, but that the brand is a snug fit otherwise?
In the absence of deep customer knowledge, retailers – when confronted with the wrecking ball that is ecommerce – resort to competing on price. Commoditisation is a downward spiral and never ends well. By some estimates, collapse ensues when ecommerce prediction in a retail sub-vertical reaches the 25% market share mark . The retailer slashes prices, which leads to underinvestment in store merchandising and the store workforce, which leads to lower footfalls and conversions, which prompts to retailer to slash prices even further until the spiral finally kills it. Ecommerce behemoths – on the other hand – have detailed price elasticity data for individual customers. How can you get the most out of a particular transaction, without hurting the brand image of the retailer – is something their gigantic data capture and big data analysis capability is equipped to answer. This is the holy grail where the brick and mortar retailer must go.
Stitch Fix is a sign of things to come. Its recent IPO, inching towards the magic US$1 billion revenue mark, and attempts by conventional retailers to replicate the model, lead us to propose rule number 2 of contemporary retail: those that fail to keep up with this arms race of customer profiling at scale, won’t survive to see the third epoch on the road to retail singularity.
Epoch 3, commerce becomes all pervasive and invisible – by 2027: Steve Jobs allegedly said, “Technology should either be beautiful or invisible”. Commerce technology will increasingly become invisible, interwoven with the IOT fabric which captures every detail about the state of the appliances that serve us, the environments we live in, and the food that we eat and the clothes we wear. Two out of the three pillars of retail – getting people to the store and persuading them buy through merchandising that is both useful and beautiful – would no longer be the same. The storefront will be gone, or rather will be everywhere and invisible. And device software would determine what’s to be bought. The process will be so seamless the customer will hardly be bothered by how their stocks of detergent, toothpaste, intimates, and grocery are replenished.
IOT adoption has been stymied by the low return on effort of home automation technology. To take a few seconds off switching television channels, or turning mood lighting on or spinning the ceiling fan faster is not worth the trouble if doing so involves getting the phone out of the pocket, launching an app, and plodding through multiple menu levels. The intelligent agent, such as Amazon Echo, changes that fundamental return on investment metric. Amazon Echo and Google Home are coming to the fore as the primary home automation platform. Household device OEMs recognise this, and are integrating with such conversational commerce tech. That Amazon Echo was the Seattle giant’s best-selling product in the 2017 holiday season make us hopeful about the viability of a home equipment landscape that can sense demand and make orders without the need for a storefront like Amazon.com .
However, there is a reason why we believe invisible commerce will the last epoch, and will not be a major force until at least 2024. Here we must bring back the “return on effort” argument. Intelligent agents are still some distance from understanding the nuance of natural language, and the exact context of a user need. Just the other day, I noticed Alexa struggle to understand that I wanted a particular cover of ABBA’s “the day before you came” played, not the original by the Swedish group. Also, automating common household tasks involve a mastery of subtle nuance. Do I want the ceiling fan to be off, when I am away? Maybe not. Perhaps I have something to dry because my clothes drier stopped working. When an intelligent agent fails to parse human speech and context with sophistication, people quickly give up and settle into a pattern of low-stakes/low-intensity engagement. Therefore, intelligent agents ushering in an age of home automation will take a good six years by our reckoning.
Where retail will go as the industry is essentially impossible to predict post 2027. 2027 is our singularity. However, it can be said with reasonable certainty that whoever does not keep up with the three epochs progressively will fall by the wayside. The history of retail is a graveyard of once venerated giants who failed to read the tea leaves in time. A&P, W.T. Grant, Ben Franklin, and F.W. Woolworth and many more serve to remind us of how bad things could get if retailers don’t seize the moment.
 And of course Amazon had an astounding 4% of all US retail in 2017.