Among global economic disruption, the last 12 months have seen an unprecedented rapid technological change, most significantly the emergence of generative AI.
For the retail sector in 2024, we will see the emergence and amplification of trends around fierce price competition – particularly in the groceries sector – the introduction of new technologies, including a more targeted application of generative AI to provide a more hyper-personalised experience to different generations of shoppers, as well as the spread of the checkout-free experience.
Trend one – The rise of the phygital store
Research shows that improving customer experience remains the number one priority for businesses. The rise of the phygital store is the result of a fusion of physical and digital retail strategies to create a cohesive customer journey. The phygital approach recognises that customers move seamlessly between physical and digital touchpoints when shopping. While customers know how to use retailers’ online stores to make their purchases, when they go into physical stores, they are not just looking for a specific product, but also the purchasing experience.
To stay competitive, retailers must be constantly renewing and rethinking their customer experience, and in the next twelve months we will see the digital increasingly merge with the physical, to create new content and ways of shopping to keep buyers engaged.
The technology in physical stores will range from using AI and virtual and augmented reality (VR/AR) to offer events, classes and demonstrations, to continuing to equip employees with tablets and devices to provide more accurate assistance – i.e., on where an item is located or stock availability – and tailored recommendations based on customers’ previous purchases.
Trend two – Using tech to tackle small in-person fraud
Retailers around the world are raising the alarm around the financial impact small theft is having and the dangers of this type of fraud continuing.. Retailers have already made significant headway in preventing fraud on their ecommerce platforms, using AI to identify patterns and try to block attacks before they happen. In 2024, the retail industry will be looking to implement this technology in physical spaces too.
Technology, including generative AI, alongside image recognition and a variety of sensors will be increasingly used to support retail workers on the ground in companies’ efforts to tackle small in-person fraud. For instance, AI technology can determine whether the weight of a fruit or vegetable in the shopping bag corresponds to the information in the scales-ticket.
Trend three – Tuning into diverse shopping styles for ultimate convenience – one generation at a time
Hyper-personalisation is not a new trend, but it is one we will see more of in the next twelve months, especially around targeting different generational consumer groups.
Different generations have varying shopping habits, and retailers will use technology to offer tailored options to provide an ideal shopping experience for each of them and positively influence their buying decisions. Companies have more data than ever before on their customers, which can provide a detailed understanding of how different types of people shop and like to engage with brands.
For example, Boomers overall prefer to go to a physical store first but are open for that to be supplemented by digital in some way. This generation uses coupons and other online promotions, if that helps save money, while they tend to stay clear of augmented reality.
Millennials straddle all trends and are open to leveraging both physical and online shopping, based on whichever is more convenient and easier for them. Better pricing or convenience are both key factors, and they are willing to undergo a little bit of work to optimise the outcome.
For example, convenience and saving money depends on what is important to them and what they are looking to buy in different situations. In effect, retail needs to be easy, cheap and as quick as possible and flexible, offering an in-store, an online experience or a mix of both.
Gen Zs start their shopping experience online or through links from social media and posts they are engaging with before they continue their research online. This social commerce boom, i.e., browsing social media for the latest trends, will accelerate and therefore, the opportunity to engage, leverage and orchestrate influencers will remain key to brand relevance and growth for this generation. This generation doesn’t care about being in-store to pick groceries themselves and if they do go into store, they want a frictionless experience, e.g., ”way finders” and beacons to direct them to the right place and get in and out of the store as quickly as possible. Gen Z is less loyal to one particular brand but cares about social impact and sustainability of a retailer’s products.
The tools and channels engaged by retailers to keep their wide-ranging customer base engaged and brand-loyalty up will range from digital coupons straight to email, to influencer engagement to attract social-media-savvy shoppers, or enhancing the app experience, for example, using QR codes and avoiding paper receipts.
Trend four – Becoming a sustainable, future-proof retailer
Retailers and brands have grappled with a cost-of-living crisis of its customers in many places and are having to balance that with their own environmental, social and governance (ESG) and sustainability goals. Still, companies in the retail sector have been making big efforts to improve their sustainability practices, as they know that customers care greatly about making purchases that are environmentally and socially responsible. This also includes retailers working towards improved end-to-end supply chain visibility in order to ensure processes are efficient and sustainable as goods move from manufacturer to the consumer.
One of the subsectors of retail we expect to see big sustainability leaps in over the next twelve months is fashion retail. Research by Earth.org found that 92 million tons of clothes-related waste are discarded globally every year, and garment usage has been in steady decline over the last two decades, with the average number of times a piece of clothing is worn decreasing 36% since 2000.
In the near future, we will see retailers leverage new technologies such as generative AI to improve their sustainability practices.
A generative AI personal shopping assistant will not just know a customer’s shopping habits and past purchases; it would also take into account the shopper’s physical characteristics, as well as the style they want to dress in or purpose of the purchase (i.e., family Christmas party, corporate event) to advise what styles would flatter the buyer the most. Reducing shopping mistakes and the cost per wear of purchased items will help reduce retail waste.
In addition, retailers are increasingly looking to reduce waste throughout their value chains by reviewing circular goods, such as clothes and homewares, as well as minimising fuel or food waste, the use of building management systems, or reusable packaging for packaged goods. Retailers are also looking to increase the sales of their own-label products with the continued economic pressure on household budgets.
AI is already widely used in retail for inventory and supply chain management, customer support or research and development. The next step in this direction is introducing innovations brought by generative AI to fuel parts of the business and empower customers by providing hyper-personalised advice.
Trend five – Seamless and frictionless checkout and generative AI enabled hyper-personalisation
The new year and beyond will see the spread of the seamless, checkout-free shopping experience, where customers simply go in and out of a store and purchases are made automatically. To enable such a fast and frictionless experience, product information systems, payment gateways, and pricing and promotion engines that integrate sensors and cameras will need to be installed, allowing shoppers to scan items as they go throughout the store. The authentication of a customer will be established automatically.
This model is already in use in Amazon Fresh grocery stores around the world. Customers’ bank accounts are automatically charged through details stored on customers’ Amazon accounts upon their exit from the store. In the next twelve months, we expect to see the system spread across other retail companies, moving beyond supermarkets to airports, sports stadiums and education campuses.
In addition to frictionless checkout enabled by sensors, generative AI is the technology that will fundamentally change the shopping experience. For example, rather than sifting through SKUs, customers will be offered a conversational, one-to-one personalised experience. Amid the virtually limitless possibilities for generative AI in retail, there are three areas that will feel the largest and most immediate impact—commerce, marketing and customer service.
As an example, online retailer The Man Company implemented an AI-enabled chatbot via WhatsApp to provide personalized product recommendations based on shoppers’ prompts. With this approach, the company tripled conversion rates within six months without making any other changes to its marketing campaigns or shopper experience.
Moving in the right direction
In recent years, we have seen big retail players adopt the latest AI innovations to improve customer experience and improve sustainability practices, and we expect these trends will continue throughout 2024 and beyond. From incorporating tech in retail outlets to creating phygital stores, using generative AI to fight fraud, to providing better customer service and a more seamless shopping experience, the retail sector will be at the forefront of innovation in the next year.
Those retailers that take a pragmatic approach to incorporating these trends, whilst modernising their current IT infrastructure, are expected to generate sustainable benefits. Choosing the right partners to advise, implement and support their operations in this journey will allow them to stay ahead of the competition in the currently challenging economic climate.
Rob Marchiori is vice president of Australia at Cognizant.