The State of Retail Online 2019

1. The State of Retail Innovation 2019 Sucharita Kodali, Forrester

2. 2© 2019 FORRESTER. REPRODUCTION PROHIBITED. Sorry, did someone say apocalypse? Source: The State of Retailing Online 2018 and 2019 (preliminary) “…the strongest growth in the last 6 years” 43% 36% 41% 57% 16% 7% 2018 2019 Net more Same Net less Store openings vs closures

4. 4© 2019 FORRESTER. REPRODUCTION PROHIBITED. Retailers have four key goals Source: Global Business Technographics® Priorities And Journey Survey, 2018 - Global Which of the following initiatives are likely to be your organization’s top business priorities over the next 12 months? 45% 46% 49% 56% Reduce costs Improve products and features Improve customer experience Grow revenue Source: 1,867 retail and wholesale executives

5. 5© 2019 FORRESTER. REPRODUCTION PROHIBITED. Here is what retailers are doing to achieve those goals Grow revenue 1. Customer acquisition 2. Customer retention 3. Launch new products Improve the customer experience 1. Improving the online customer experience 2. Increasing frequency of customer engagement 3. Improving store customer experience

6. 6© 2019 FORRESTER. REPRODUCTION PROHIBITED. Here is what retailers are doing to achieve those goals Improve products and features 1. Make products and services easier to use 2. Increase customer input on product or service design 3. Launch products faster Reduce costs 1. Lower IT costs 2. Improve supply chain 3. Improve employee retention

8. 8© 2019 FORRESTER. REPRODUCTION PROHIBITED. Specific areas of investment Hot Lukewarm Cool Robotics Augmented reality Virtual reality Digital store AI Distributed selling Data security Personalization Mobility Cross-channel

10. 10© 2019 FORRESTER. REPRODUCTION PROHIBITED. Shoppers, especially wealthy consumers, are distrustful of personalization Source: North American Consumer Technographics Retail and Travel Survey Q4, 2017 34% 35% 36% 41% 48% 52% 16% 41% 43% 47% 53% 59% I prefer to shop with retailers who use personal information to improve my shopping experience I am more likely to purchase from a retailer who sends me personalized advertising Retailers should do more to offer me more personalized experiences The information I get from retailers is relevant to my tastes and interests I'm uncomfortable with the amount of information that retailers collect about me I worry about retailers knowing too much about me HHs over $100k Overall To what extent, if at all, do you agree with each of the following statements? (Top 2 of 5 point scale)

11. 11© 2018 FORRESTER. REPRODUCTION PROHIBITED. Shoppers don’t want to share lots of personal info for personalization Source: “RetailMeNot Consumer Survey Data”, a commissioned study conducted by Forrester Consulting June 2018 What kinds of data are you willing to share in order to receive more personalized discounts or offers (promotions, deals, coupons, etc.)? 17% 2% 4% 4% 6% 7% 26% 34% 35% 35% 37% 37% 40% 60% I am not willing to share any data Don't know Permission to track social activities My friends or followers on social networks Permission to track my online activities Social media information How much I like to spend on products Demographic information My location My previous purchases with other brands or retailers Products I own Favorites styles and colors Hobbies and Interests Products I like

12. 12© 2018 FORRESTER. REPRODUCTION PROHIBITED. › Recommendation in marketing › Segmented emails › Recommendation engines › Personalized greetings or offers on mobile devices › Remarketing and retargeting The outputs of personalization haven’t changed much over time Source: The State of Retailing Online 2019

14. 14© 2019 FORRESTER. REPRODUCTION PROHIBITED. What shoppers do in stores with mobile devices Source: Consumer Technographics NA Retail and Travel Online Benchmark Recontact 1, Q3 2015-18 *2018 data is “redeemed” a coupon 21% 17% 13% 16% 9% 15% 24% 18% 14% 18% 12% 10% 37% 30% 23% 20% 19% 14% Compare prices Look up product information To read reviews Search for a coupon* Checked product's availability Locate a nearby store or check hours 2015 2017 2018 In the PAST 3 MONTHS, what did you do when you researched products/services on your mobile phone while shopping in a physical store?

15. 15© 2019 FORRESTER. REPRODUCTION PROHIBITED. What shoppers do outside of stores with mobile devices Source: Consumer Technographics NA Retail and Travel Online Benchmark Recontact 1, Q3 2015-18 *2018 data is “redeemed” a coupon 30% 29% 24% 20% 24% 30% 22% 33% 28% 26% 25% 19% 18% 11% Compare prices Look up product information To read reviews Checked product's availability To purchase a product Locate a nearby store or check hours Search for a coupon* 2015 2018 In the PAST 3 MONTHS, have you used your mobile phone for any of the following while you were NOT in a physical store?

16. 16© 2019 FORRESTER. REPRODUCTION PROHIBITED. Mobile retail solutions in the future need to address the following Solutions Users Frictionless feedback Real-time monitoring Self-service anywhere Shoppers In-store On-the-go Stores Associates Merchants Marketers Store Operations Partners Suppliers

18. 18© 2019 FORRESTER. REPRODUCTION PROHIBITED. The state of omnichannel integration in the US Source: The State of Retailing Online 2018 2% 2% 7% 7% 13% 18% 22% 24% 36% 36% 42% 44% 47% 47% 51% 60% 2% 4% 9% 7% 9% 7% 7% 16% 4% 11% 11% 4% 4% 9% 13% 2% 4% 20% 9% 11% 16% 24% 11% 7% 13% 16% 7% 16% 58% 42% 58% 49% 36% 40% 44% 33% 22% 22% 16% 22% 18% 13% 18% 9% 2% 4% 2% 2% 2% 31% 53% 16% 38% 44% 11% 18% 22% 20% 11% 13% 22% 11% 13% 20% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Ship to locker, post office or other location Return to other stores (not your company) Same day delivery DTC (one warehouse) Return to other stores (another brand within your… Third party marketplace Reserve online, pick up in store Endless aisle Ship to my store BOPIS Online visibility of in-store inventory Store to store transfers Drop ship vendors Ship from store DTC (multiple warehouses) Buy online, return in store 2016 or earlier 2017 Implementation Plans for 2018 No plans Have removed N/A What are your plans to offer the following fulfillment services?

20. 20© 2019 FORRESTER. REPRODUCTION PROHIBITED. The digital store • Wi-fi • Labor and task management solutions • Digital pricing • Kiosks • RFID • Digital payments • Connected shelves • Connected dressing rooms • “Just walk out” technology • Same-day delivery Must-haves Nice-to-haves Optional things

22. 22© 2019 FORRESTER. REPRODUCTION PROHIBITED. AI Machine learning Deep learning “imitating human behavior” “automating data crunching” • eCommerce platforms • Voice assistants • Markdown optimization • Site availability • Recommendations engines • The Waze app • Self-driving cars • Westworld

24. 24© 2019 FORRESTER. REPRODUCTION PROHIBITED. But we’ve been doing ML for years already Source: Stitchfix Algorithms Tour; Forrester Merchandising • Merchandise exception reports (e.g. content completeness) • Recommendation systems • Inventory management • New style development • Demand modeling Marketing • Lifecycle management • Acquisition marketing • Chatbots and automated service • Competitive insights Operations • IT performance metrics • Fraud detection • Warehouse optimization • Logistics optimization • Hiring • Labor optimization • Store efficiency

25. 25© 2019 FORRESTER. REPRODUCTION PROHIBITED. What we are hearing retailers say we’ll see more in the future Function Solution Merchandising “Robobuyers” and “roboplanners” (like roboadvisors in private wealth management) Checkout Sophisticated fraud checks for online orders; policing unauthorized sellers Merchandising Automation of image processing for lifestyle images; automation of product descriptions Merchandising Predictions for new products (including StyleSage, Boomerang) Merchandising Dynamic pricing algorithms Fulfillment Route optimization for warehouse picks or delivery of packages Customer service Smarter chatbots Customer service Speech to text for product requests in stores; complaints and other issues

27. 27© 2019 FORRESTER. REPRODUCTION PROHIBITED. More consumers know VR than AR Source: Consumer Technographics North American And European Technology, Media, and Telecom Topic Insights Survey 2, 2018 (US) Which of the following best describes your experience with augmented reality in the past 12 months? Which of the following best describes your experience with virtual reality headsets in the past 12 months? 45% 34% 8% 14% Never heard of until now Heard of, never used Have used >12 mos Have used <12 mos 14% 57% 17% 12% Never heard of until now Heard of, never used Don't own but used Currently own a headset

28. 28© 2019 FORRESTER. REPRODUCTION PROHIBITED. People still don’t know what they don’t know How interested would you be in using augmented reality for the following activities? 41% 28% 31% 33% 26% 22% 20% 28% 24% 19% 27% 26% 38% 43% 44% 44% 46% 50% 1% 1% 4% 1% 1% Testing different cosmetics Measuring or leveling physical objects Trying on clothes or accessories Playing video games Locating restaurants or shops nearby Navigating or receiving directions Not interested Middle Interested Already use Source: Consumer Technographics North American And European Technology, Media, and Telecom Topic Insights Survey 2, 2018 (US)

29. 29© 2019 FORRESTER. REPRODUCTION PROHIBITED. People still don’t know what they don’t know How interested would you be in using virtual reality for the following activities? 41% 41% 35% 27% 24% 17% 25% 23% 34% 38% 39% 49% 1% 0% 1% Shopping in a virtual store Playing video games Training for specific job duties Touring a location or sightseeing Not interested Middle Interested Already use Source: Consumer Technographics North American And European Technology, Media, and Telecom Topic Insights Survey 2, 2018 (US)

32. 32© 2019 FORRESTER. REPRODUCTION PROHIBITED. 1. Amazon vs Walmart: The battlefronts Category Size of the prize Who wins and why B2B $1T+ Amazon with an early lead; Walmart would need to acquire Grainger or other Grocery ~$1T Walmart; store footprint and omnichannel dominates International $1T+ Slight edge to Amazon; both have struggled in China; size of prize is small in India; Amazon is strong in UK and Germany Last mile delivery <$50B Amazon; focus and willingness to “play the long game” 3rd Party Sellers <$50B Amazon; early, dominant lead Media <$20B Amazon; early lead Advertising <$20B Walmart; needs to activate stores

37. 37© 2019 FORRESTER. REPRODUCTION PROHIBITED. 4. Focus vs innovation: Diversification and new businesses are essential Company Revenue in 2000 Revenue now Amazon ~100% from 1st party retail ~40% from 3rd party retail, hardware, cloud Apple 80% from Macs 10% from PCs and laptops Google 44% off-Google ads 16% off-Google; licensing and on-Google bigger (e.g. YouTube, Waze) Microsoft ~80% from Windows and Office ~50% from cloud, hardware and social networks

41. 41© 2019 FORRESTER. REPRODUCTION PROHIBITED. Summary › Retail has demonstrated resilience in 2018 › Revenue growth is top-of-mind for retailers › Mobility and cross-channel solutions are still areas of investment for many retailers and brands › Many opposing forces will be a wet blanket on current trends (e.g. privacy laws, brands selling DTC)

The State of Retail Online 2019

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The State of Retail Online 2019

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