The Future of Retail Is a 'Phygital' Ecosystem

After 18 months of tremendous change accelerated by an enduring pandemic, the retail industry has reached an inflection point. Expanding and varying customer needs, coupled with re-emerging competition, require new ways of thinking. Or is it an old way of thinking?

The customer is always right, but for that premise to be true, then the future of grocery must be designed for the benefit of the customer, not to coerce them. It’s not the user experience that is changing, but that the customer will change it. However, to give a better grocery experience requires connecting a series of dots that meet the evolving customer ethos. Grocery must be evaluated across all the channels, forming a network with a new portfolio. Let’s call it Retail Portfolio 2.0 – a concept centered on the entire store portfolio, addressed from the customer point of view. It requires connecting the need, the timing and the delivery method to succeed, but that success only happens when the silos of logistics, store design and construction fade away.

This isn’t a simple process. Retailers often appear just as confused and are divided in attitudes toward innovation, the ability and willingness to make capital investment, and the need to rethink the future store. Over the past two decades, retailers considered only a physical retail portfolio network. Fast-forward to today, and we see a new interconnected environment.

The Future is ‘Phygital’

We believe providing an optimal store experience means the merging of physical and digital strategy. Customers are coming to expect the option of a digital experience to meet their variety of needs. With that in mind, here are four typology “dots” that need to be considered and merged to create this new interconnected retail portfolio network. They are:

1. Fully Virtualized: Embracing e-commerce and adopting technology like never before.
2. Hybrid: The implementation of delivery, buy online and pickup in store, and beacons to meet fresh and immediate needs. This also includes the hybridization of food channels. Brands from grocery and convenience stores are blurring formats and competing, including the rising sector of retail foodservice that targets a convenience culture. Overall, e-commerce volumes are increasing, and technology is a transforming disruptor.
3. Experiential Retailing: This is the showrooming model. Design and store-planning considerations include three critical factors: product and SKU assortment, a brand’s value proposition in the marketplace, and convenience. We also can’t forget smart shopping technology (kiosks and smart carts), equipment technology (smart shelving), and e-commerce logistics. These factors all create the total customer experience.
4. Dark Stores/Hubs/Ghost Kitchens: These new models enable local delivery and a fresh approach to operations. It’s repurposed space for retail and not open to the public. The dark store can also serve as the hub location for van/box truck delivery.

Keeping Up With Marketplace Changes

These typologies are designed and networked to optimize clusters and address consumer need states via hub-and-spoke logistics, in-store automated storage and retrieval systems (ASRS), and click-and-collect. As with a traditional retail portfolio network, the key focus here is on customer convenience in a way that keeps up with changes in the marketplace. Connecting the dots really is all about a long-term view of the future, because the store of the future is not always a place, but rather an experience of how brands continue to address customer need states, regardless of the era. A few things to keep in mind:

1. The future of retail is a “phygital” ecosystem, transforming the new “dot” portfolio of retailing with tiered models, multiple formats and unique solutions. Design, innovation and technology are key to transforming the new real estate portfolio of retailing. From virtualized to in-store hybrid retail, it’s fundamental to know what format best supports each cluster.
2. Environmental, social and governance factors will be advanced by innovation and are future proof that your brand will remain relevant in a marketplace focused on sustainability. 
3. Innovate with velocity by connecting the dots and providing the customer experience you would want as a customer. Determine your differentiator and provide it with a competitive edge. Would you want to shop at your store?

The entire retail ecosystem innovates and drives the customer experience forward. It’s more than just knowing the need states of your shoppers. It’s knowing how to address those needs in a way that marries technology with shopper convenience and a sophisticated back-end network.