Retail 2.0

In the face of continued online competition, the high street is now fighting back by utilising the advanced technology that has long underpinned its fiercest adversary. It's time to check out...

Could this be the end of the shopping queue? MishiPay lets customers buy goods in store, using nothing more than their smartphone. Download the app. Scan in the item using the camera. Pay via the app with a click. And then walk out with your new cashmere jumper. No need to go anywhere near a cashier. No standing in line. No waiting.

The clever bit is the security. The app disables a tag the moment the payment clears, so there's no drama at the exit. French DIY chain Leroy Merlin is offering MishiPay to customers, and reports a 96% reduction in checkout time – and no increased theft.

It's exactly the sort of innovation the retail world has been waiting for. While online shopping has exploded with clever tech, the physical world has been stuck in the 1950s, with clanging tills and world-weary shop assistants. And we all know the calamitous impact of the internet on retail space demand.

Change has arrived

But change is here at last. After an aeon of delays, Retail 2.0 is coming to a store near you. It's made up of AR (augmented reality), VR (virtual reality), in-store apps, new payment methods and artificial intelligence.

AR and VR lead the way. The hype began about 10 years ago, but progression stalled as a result of poor-quality headsets and lagging issues. But, in the past year, both technologies have finally hit retail. In April, Spanish fashion chain Zara launched an augmented reality app, which allows customers to point their phones at store windows or clothes displays to trigger the on-screen appearance of a model clad in the desired items. The app offers the chance to buy with a click, and recommends items to complete the look.

Meanwhile, French retailer Coty is going one better, with a Magic Mirror that modifies the reflection of the customer. When they hold a lipstick, the chosen colour instantly appears on their lips, and by pressing an on-screen button to take a photo, a Polaroid is printed of their new look.

Naturally, Alibaba in China is pushing AR considerably. In August 2018, it launched an augmented reality experience via the Microsoft Hololens headset. Shoppers see the retail space around them overlaid with 3D holograms, then can beckon goods closer with a gesture, or dismiss them with a wave. It's undeniably next generation, but is it enough to revive offline retail?

"It is difficult to assess the value of new technologies. We are testing VR for our visitors, and we do it for free. But to establish clear value is difficult." Andrea Ometto MRICS, asset and finance manager of Sonae Sierra, which operates 81 shopping centres across 14 countries.

But Ometto is convinced retailers need to experiment with new technology. "Virtual reality is a must-have. You need it to be competitive and on the cutting edge. It increases the leisure experience of the customer. It builds loyalty. And, potentially, if the stores sell more, they can sustain higher rent, which is important for landlords."

And that's the real point for real estate. If Retail 2.0 can increase footfall by even a few percentage points, then land values will be affected. "The biggest thing [that would improve footfall] could be payment," says Ometto. "For example, food courts are busy at lunch. There are long queues. We need a way for customers to pay instantly. That would be a fundamental change."

Payment companies sense the potential of Retail 2.0, hence the profusion of creative new payment methods.

At US department store Kohl's, it is possible to pay by snapping a QR code at the checkout, and discount offers are automatically applied. The app stores transactions, so returning goods is easier – plus, there are no paper receipts to hold on to. It's not a game changer, but a useful incremental improvement.

Catering for foreign buyers is yet another crucial piece of the jigsaw. Chinese and Arab tourists are a critical market for city centre retailers, but until now it's been hard to offer the exotic payment methods that they enjoy using. Payment provider Adyen calculates that £422m was lost in the past year in the UK alone, as a result of retailers not offering preferred payment methods.

Traditional payment terminals are getting a makeover to solve this. A popular new format is smartphone-style tills, such as the Axium, made by Ingenico, which marries tablet screens with an Android operating system. Now the retailer can install a new payment method by downloading an app, so providing AliPay and WeChat Pay for Chinese customers is made simple. The same is true for NFC (near-field communication) payment methods, such as Google Pay and Apple Pay. The Android operating system enables retailers to offer 200 payment types via the same payment terminal. It's a big deal, as terminals have barely advanced since barcode scanners were introduced in 1974.

For retailers leading the industry, the goal is to eliminate all payment steps. The frontrunner in achieving this is Amazon Go – a cashier-less store that allows customers to literally pick and go. Shoppers scan the Amazon Go app on their smartphones as they enter, triggering a chain of AI-driven automated processes. Computer vision (a science that allows computers to view, recognise and process information as a human would), sensor fusion (when data from a range of sources merges to offer higher accuracy), and deep learning technology (when computer networks use algorithms to learn and problem-solve from reams of data) track the shopper and the items they bag during their visit. When they leave, the bill is automatically calculated and debited to their Amazon account. "When Amazon Go was announced it stunned retailers and shoppers," says Shane Finlay, chief value adviser at SAP, a German business software group.

Amazon believes the concept has the power to shift the way shoppers behave, and liberate acres of space taken up by cashiers. The company's CEO, Jeff Bezos, is reportedly planning 3,000 cashier-less Go stores in the US by 2021. That's more than half the amount of superstores that Walmart owns in the region.

Thinking outside the box

At the heart of Retail 2.0 is artificial intelligence. The early impact of AI on retail is well documented, as the technology has transformed back-office functions such as demand forecasting and automated ordering. In fact, Peak, a retail AI specialist with its headquarters in Manchester, claims retailers using AI are growing 30% faster than those that aren't, and enjoy a 50% higher median gross profit. And fresh applications are appearing all the time.

Dunnhumby, the UK data firm that invented the Tesco Clubcard, is using AI to optimise the way products are presented. One of its models is able to group inventory into affiliated categories, as lead researcher Adam Hornsby explains: "For example, it automatically identified that a basket containing snow peas, raw chicken and soy sauce formed a group, a 'stir fry', despite not being similar in terms of their appearance." When so-called "missions" are identified, retailers can rejig the store to make it easier for customers to complete more of them.

"The first golden rule is to ensure each store caters to as many of these missions as possible," Hornsby continues. "It sounds simple, [but] is actually often forgotten by retailers. Instead, they fall into the trap of only keeping and selling their highest-selling products. But this rarely works alone. A shoe shop needs to sell more than just black leather shoes, even though these may be the best-selling item." This work would exhaust an army of humans. Only algorithms can find the patterns in millions of data points.

For now, all many retailers can do is adopt these new strategies and wait in hope that Retail 2.0 translates to Revenue 2.0, turning the tide against purchasing online. Whatever happens, there's no denying that we're looking at a reinvention of shopping as we know it – and it's only just getting started.

• This article originally appeared in the January 2019 edition of Modus