digital disruption the dawn of augmented retail - centre for digital business · 2015-07-26 · and...

© 2015 by Centre for Digital Business Pty Limited ABN: 16 162122 072. www.centre-for-digital-business.com

All views are the personal opinions of the author, and do not represent the views of organisations referred to in this article. All rights reserved.

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Digital Disruption – the Dawn of Augmented Retail

What happens when retail becomes software?

Retail hasn’t really been disrupted…yet.

And the model is not broken…enough…yet.

In some areas, the retail industry and supply chain has been

made more efficient, but mostly with online models

mimicking the physical model.

Mimicry is not disruption.

We have been lulled into thinking that this online mimicry is actually disruption.

Mimicry and the digital veneer is evident in all industries and sectors...

Well the tidal wave of disruption is about to hit. When the retail industry becomes software, the

economics of the industry transform beyond efficiency.

When the retail industry becomes software, policy decision makers will have unprecedented

policy options – software for the first time will itself will become a policy lever. Will government

and industry understand and grasp this opportunity?

First, let’s explore the typical customer experience as a benchmark for the scale of the digital

disruption that is about to shake out the global retail industry.

ABANDONMENT

How can it be, that in this age of supposed “customer centricity” and hyper personalisation, that

individual customers experience such profound and utter abandonment?

Go into any major high end retailer or department store in any country, and the evidence of this

inability to adapt is hiding in plain sight. The store layout is essentially the same as it would have

been in the 1950’s. And the model is from the 1950’s – except for the service. Staff cannot be

found and it is a common customer experience to carry a product around the store for someone

to serve you. And when you do find someone, they won’t serve you because they don’t belong

to that “section” or that “brand”.

And what they want to sell is not what you want to buy.

The 1950’s model on show is product and brand centric – and customer abandonment.

http://www.centre-for-digital-business.com/



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The product knowledge of staff is virtually non-existent. There is no one to assist you in the

change rooms – exacerbated by the fact that you will usually have two or three items from

different brands to try on.

The change room experience is one of abandonment. Usually, you find your own way to the

change room. If by chance, you have found a staff member to take you to the change room –

they abandon you. And consequently, you abandon the products in the change room – because

facing another cycle of “go hunt a different size / colour” and “go hunt someone to serve you

again” is too much to bear.

If by some miracle – and effort of customer Olympian proportions – you find something to buy,

then finding the “check out” or “pay here” counter - with someone to serve you and take the

payment is the next step in this appalling retail hunting and abandonment exercise. And if the

whole customer experience has not been bad enough, at the check-out you get asked if you

would like to sign up for a store branded credit card and be put onto the VIP list. No – no – no.

I just want to get out of that store as quickly as possible.

And I take out of that store the worst held secret – that I would have spent much much more…if

only...

And this experience is borne out around the world.

According to a recent survey undertaken by the Telegraph.co.uk (July 2015) “an increasing

number of women are buying clothes in multiple sizes to avoid ‘cramped’ changing rooms,

according to new research.”

Phenomenally, in this digital age, “…64pc of respondents said that when shopping on the high

street, they would rather buy extra sizes and return items that don't fit at a later date; a rise of

47pc on last year.”

According to the Telegraph.co.uk, “...more than a third of respondents were so frustrated by

queues that they dumped garments in the middle of the shop after losing patience while waiting

for a cubicle to become free.”


http://www.telegraph.co.uk/






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In this model, there is no service and purchasing transactions happen in spite of the lack of

service.

In retail speak there is the concept of the cost of sales – be more efficient. Well, the other side

of that is the customer effort of sales – the traditional retail model pushes the costs onto the

customer.

THE DIGITAL VENEER

According to research recently presented by The Australian

Newspaper “The Deal – Reinventing Business” June 2015,

traditional retailers in Australia have about 5 per cent of their

sales online “but they would dream of having 10 per cent.”

Yes, it’s great to be able to go “shopping” online – any time, any

time zone, and in any season to view local products globally. And

delivered to your door – or down loaded, efficiently.

And at the same time, many physical retailers continue to believe they can resist – or simply put

a gloss of “digital” on their decrepit and failing businesses and business models. “Oh yes, we will

have an online channel…” is the mantra of retailers clinging onto the retail model from last

century. Can’t wait for that!

And you are left wondering, what is the purpose of the physical retail store or department store?

These big department stores are really an archaic and very expensive warehouse or at best a

showroom. Oh, sticking a digital veneer on this broken model would fix things – right?

An outdated and anachronistic model: no amount of marble, glass and mirrors can hide that fact.

The shock waves of digital disruption are about to hit traditional retail - in every country. Those

retailers who have not re-imagined their in-store experiences or thought that "online" shopping

was just a channel to drive efficiency - to go from meagre 5% to 10% “online” - are facing an

inescapable abyss.

The customer is about to win.

RETAIL BECOMES SOFTWARE

Re-imagine the experience and the riches.

The McKinsey Global Institute reports that the impact of the Internet

of Things has been under-estimated. According to McKinsey, by 2025

- just a short 10 years away - the potential economic impact of "having

sensors and actuators connected by networks to computing systems

could be more than $11trillion annually." The McKinsey report looks




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at sweeping changes in physical places where the Internet of Things will be deployed. Retail is

one of those physical settings and will account for an estimated $1.2 trillion of the $11 trillion

per annum.

Retail will be disrupted beyond efficiencies and cost savings; beyond the "online" mimicry of the

decaying model and in store abandonment.

According to McKinsey, it’s all about interoperability – the very essence of the Internet of Things.

Entirely new business models will arise, blurring the line between technology companies and

non-technology companies. Car companies are becoming software companies. Healthcare

becomes software.

The retail industry is becoming software.

This is a totally disrupted and re-imagined business model: beyond and different to “online

shopping”.

And as with Uber, Airbnb and other digital business models, the disruption is out of the hands of

the incumbents. Driven by the consumer – forever empowered by software – where experience

is the defining determinant.

So what does this look like?

With technologies like augmented reality the customer's experience and interaction with clothes

and products in-store and virtually is profoundly re-imagined. This is not science fiction - it's

happening.

Look at how the Singapore based Aagnaa (www.aagnaa.com) augmented reality intelligent

mirror technology redefines the customer experience and retail paradigm.

The Aagnaa technology – which incorporates body-size interactive

digital mirrors - is being located in both high end retailers as well as

boutique retailers, including through the Textile & Fashion

Federation of Singapore.

The technology scans the customer's body and then with gesture

control, the customer chooses the clothes or accessories to virtually

try on - the garments digitally cloak the customer's body, and wrap

and move with the body. Different colours, styles and different

accessories in an instant.

And all this can happen before the customer goes into the physical

change room: the customer is better informed about the garment

they want to actually try on.


http://www.aagnaa.com/



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If the customer is not sure or wants more time to think about it or wants to get an opinion from

a friend, the augmented reality intelligent mirror takes a photo of the customer "wearing" the

virtual try on garment and SMS the photo with the product info to the customer. If at some later

point, the customer decides that yes, they want the garment, the ecommerce transaction

happens via the mobile device. No out of stock, no loss of sales, no going shop to shop for the

customer.

This is a deeply immersive customer experience.

Digital inventory will replace the physical stock – and all the piles of garments on display tables

and the floors of change rooms. This means that the physical change room environment is more

productive: more sales, less spoilage due to multiple try-ons, less theft, and a more effective use

of the sales team time. The cost of sales is minimized, while actual sales increases.

The augmented reality intelligent mirror technology is connected to the retailer's inventory

system and supply chain. This means that the customer has access to a wide range of clothes

not available in the store. The data analytics enables the retailer to discover the popularity of

individual garments actually being shown – which means that cross-selling opportunities are

profoundly redefined.

Augmented reality deeply connects to the customer’s emotions and influences the customer’s

purchasing intentions. In the Accenture 2014 Augmented Reality Survey, customers responded

that augmented reality in the form of a virtual dressing room would increase their likelihood of

purchasing the product by 88%.

Compare that 88% with the absolute opposite scenario reported by the Telegraph.co.uk, where

a third of respondents were so frustrated by the whole experience that they would dump the

clothes before even getting to the change room.

So software is redefining the customer experience – and with it – the entire retail paradigm.




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Retail becomes software through the convergence of standards, mass connectivity, and

innovations in interfaces across otherwise siloed industries and systems.

Just like Uber and Airbnb. When software becomes the model. Just like car companies becoming

software companies. Just like health care becoming software.

The Aagnaa augmented reality intelligent mirror technology is disrupting the traditional retail

model through a re-imagination of the customer experience.

It is the customer experience transformed by software that is the disruptive force that will flip

the retail industry – and forever change the power relationships between retailers and

customers.

TOTAL VALUE CHAIN DISRUPTION

And the changing power relationship travels through the value chain like electricity through a

lightning rod. No part of the retail value chain will be immune. This technology will be the

catalyst - the trigger - for total value chain disruption.

The cost of entry will be much lower therefore many more organisations can enter the clothing

and accessories retail market.

Smaller organisations will respond by using the collaboration capabilities of digital to form virtual

groups that can also leverage the benefits of vertical integration without losing the agility of

being a small organisation.

Forecasting the amount of fabric to buy for a manufacturing run will be considerably improved.

It will be possible to promote advance orders to buyers ahead of ordering raw materials, more

accurate information will be available on sizes sold to estimate the total amount of fabric

required, promotions will be much simpler to sell remnants and so on.

Tailors in retail malls that exist primarily on taking up the length of the jeans you just bought will

disappear. Why? Because manufacturers will adopt supply chain postponement where the

jeans or shirt sleeve lengths are adjusted on semi-finished clothes after order against your exact

measurements via the augmented reality intelligent mirror technology, before shipment.

The cost of stock movements will be reduced and can be allocated in novel ways - the cost of

moving stock to retail locations effectively disappears. The main cost is moving the item direct

to the customer and this can be removed or discounted for loyal customers, calculated and

charged to buyers based on the actual rather than an average cost, and leverage with transport

companies and postal box suppliers can be used because of the improved delivery information

that enables them to avoid less than full loads.




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The total value chain disruption, lower cost of entry and re-imagined business models will give

rise to new policy challenges and opportunities for government – if these are understood.

SOFTWARE - A POLICY LEVER FOR THE DIGITAL ERA

The disruptive convergence of augmented reality and the Internet of Things further presents

innovative economic and social policy options which governments need to explore and

understand.

Forbes reported a recent study by Accenture and Oxford Economics which estimated that “the

increased use of digital technologies could add $1.36 trillion to total global economic output in

2020”. According to Forbes, the Accenture and Oxford study estimated that digital “…over five

years would lift GDP growth rates in advanced economies by 0.25 percentage points, and by 0.5

percentage point in emerging economies”. But there is a warning: “a lack of collaboration

between business and government may hold back these potential gains.”

Software is as yet an unrealized policy lever but it has the potential to become a very powerful

political tool.

What does this mean - and why is this concept relevant to this discussion?

Think about the phenomenon of the "dead

shopping malls" (check out www.deadmalls.com):

empty, vacant, dilapidated shells no longer able to

sustain economic activity. The dead shopping

mall phenomenon is devastating to local

economies and communities.

Contrary to popular myth, online shopping is not

the cause.

Don’t blame the Internet.

The real cause lies with the outdated strategy and ossified operating models of department

stores that failed to understand the customer experience and the power of customer choice in

the digital era. Lumbering incumbency cannot be overcome by a coat of digital veneer.

These dilapidated relics of shopping centres are the retail equivalent of the old run down taxis –

which have fallen prey to the likes of Uber.

Eventually the customers stop coming, fed up with the lack of service in-store. Eventually the

anchor tenants pull out of the malls. The downward spiral of fewer customers and reducing foot

traffic, has a knock-on effect to the smaller retailers, cafes and speciality shops. Jobs are lost in

this downward spiral and local economies and communities impacted.


http://www.deadmalls.com/



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The impact and devastation is not inevitable but creative thinking and brave innovative and

insightful policy is urgently needed.

Beyond the re-imagined customer experience, the disruptive convergence of augmented reality,

the Internet of Things and hyper-connectivity further shapes economic and social policy options.

For retailers, shopping malls and local planning authorities, the Aagnaa augmented reality

intelligent mirror technology influences other behaviours – capturing crowds and enticing

shoppers into the stores. This technology needs to be encouraged and promoted including

awareness raising to local chambers of commerce.

The management of a retail business, even a small retail business, will require the understanding

of an augmented retail strategy.

Every retail business will need to become an Internet of Things business.

More productive businesses generate more tax revenue and stimulate jobs growth – these are

the “jobs of the future”.

Retail “careers” will be equally transformed. Retail careers will be digital careers.

New skills will be required in-store and beyond – beyond sales – to be effective in the use of the

augmented reality solution, to answer customers’ questions not only about the products but

about the solution. Retail employees will be need to understand that customers will choose to

engage with the product and with the experience process across channels in different ways. The

customers will be omni-channel natives and so must the employees.

IN-STORE REIMAGINATION

Re-imagine the augmented experience inside the store.

The waves of change will reach the customer base of shop fitting

businesses – “design” businesses who cannot see beyond the

traditional physical shop fixtures, fittings, racks and shelving will

wither.

Shops can be “barebones” from a stock perspective but rich and immersive from a customer

experience perspective. This is flipping the current model. The shop could potentially carry no

stock, or carry just one of each size if they want to support try-ons; shops can therefore be much

smaller. These try-on samples aren’t sold therefore stock replenishment only occurs when new

products are released, further reducing the need for staff currently using to restock shelves and

racks.

Retailers can use the freed up space to create a lounge like atmosphere with coffee etc so that

customers can electronically try on items and then sit down with their friends or family to look




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at the items on their mobile device before deciding what they want. The wasted and frustrating

time otherwise spent by the customer in queues and in abandonment, is re-imagined into an

enjoyable experience. For the seller, this reduces lost sales where a buyer leaves the store to

discuss a purchase over a coffee elsewhere and never comes back.

Sizing will also be disrupted. Sizing is one of the most confronting and confusing aspects of the

tradition retail model – it says, “I don’t fit”. Time to demolish the psychological barrier of size

labels.

Customers will be able to ask what the item will look like on them if they lose a few pounds or

kilos (or put a few on). Size labels might even become irrelevant as the clothes sizes are selected

for you, no need to agonise over which size to take to the change room.

One of the most profound changes the customer will experience will be in pricing, when what

they pay for can move from fixed to variable.

Pricing will be on the screen and the retailer can offer, in addition to “sales”, bundled/volume

discounts if someone buys multiple items, spot discounts for loyal customers, reduced pricing if

a buyer adds the recommended accessories to their purchase, monogramming of shirts and

jackets as an incentive or for a little extra on the price, and so on.

Along with the size labels, price labels and sale stickers will also disappear altogether. And gone

from the value chain is all the handling, logistics and production costs of “labels”.

The traditional model has now been decomposed and assumptions exposed. No more lining up

for change rooms and cashiers; no more stock-outs; no more size shaming.

The scene is set for the rise of the software-empowered customer and an era when innovative

agile digital retail experience services take on the entrenched and slow moving incumbents.

WHAT’S NEXT?

The software-empowered customer changes the game.

Customers will have a wealth of information available to them that will

increase the enticement and excitement of the retail experience. What

celebrities are wearing this item or similar; how popular is it in your

demographic; advice on what accessories will go well with this item can

be drawn from a much bigger pool across multiple suppliers. All whilst

they are “trying on” or selecting the garment of interest.

Eventually, my Aagnaa “virtual me app” means that once I have visited a store with the

augmented reality intelligent mirror technology, I can download the app with my exact body




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scan. I can then shop online or in-store at any participating store where I can also keep my body

scan image updated. Always ready.

Be “seen” with the celebrity in the same outfit. Share my “augmented selfie” on social media

for “likes” – and the more “likes” I get, the more discounts and special deals I get.

And clothes are not just sold in retail stores - let’s look at what is sold in gyms and fitness clubs.

Here, the Aagnaa augmented reality intelligent mirror technology can turn what is a couple of

clothing items kept for occasions when members forget to bring something – into a substantial

parallel revenue stream.

In the gym, the fitness clothing store comes to me via the “gym augmented reality intelligent

mirror”. And what better environment: I am in the “zone” and highly motivated to purchase

great looking work out clothes I have seen on someone in the gym. But the “gym augmented

reality intelligent mirror” does so much for me beyond the retail experience – attending the gym

regularly enables me to keep my body scan updated for an accurate evolving record of my body’s

changing image.

All made possible by the augmented reality intelligent mirror technology and the potential of a

“virtual me app”.

Uber and Airbnb have been highly disruptive business models through the use of convergent

technologies that challenge the imbalance between the bloated incumbents and the customers

they ignore.

How much more profound will be the impact of the Aagnaa augmented reality intelligent mirror

technology on retail, given the strong emotional connection between what we wear and how

we feel.

The software empowered customer is about to win.

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About the Author

Marie Johnson is the Managing Director and Chief Digital Officer of the Centre for Digital

Business. An experienced public entrepreneur, Chief Information Officer and Chief Technology

Architect, Marie has delivered significant technology, innovation and digital services

transformation programs across taxation, business, social services, payments and immigration

operations in the Australian Government. Jointly with the ATO, Marie led a team on the

implementation of the Australian Business Number (ABN) registration, and subsequently

initiatives on business authentication. Marie was the Chief Technology Architect of the

Australian Government Health and Human Services Access Card program. At Microsoft, Marie

was the Worldwide Executive Director of Public Services and eGovernment based in Redmond

USA. In this role, Marie was the joint author with Dr Jerry Fishenden of the Microsoft Strategy

“The New World of Government Work”, and led Microsoft’s strategy for identity in government.

Marie is sought after internationally as a speaker, commentator and thought leader on topics

such as digital disruption, digital identity, egovernment, transformation and innovation.

Together, Marie collaborated with Dr Jerry Fishenden on a major paper “A tale of two countries:

the digital disruption of government”. This paper was a twenty year historical comparison of the

online / egovernment strategies of Australia and the UK and was delivered at the biennial

conference of the Commonwealth Association of Public Administration and Management

(CAPAM) in Malaysia in October 2014, and subsequently published in the CAPAM Innovation

Review. In November 2014, Marie was invited to address a special session of the United Nations

ESCAP in Bangkok on “ICT, e-Government and Women’s Empowerment”. In April 2015, Marie

was a keynote speaker on digital identity at the European Digital Identity Conference IDNext in

The Netherlands.

In 2006-2007, Marie was named “Innovative CIO of the Year – Australia”. In 2013, Marie was

named one of Australia’s “100 Women of Influence”.

Marie is a Board Director of the Australian Information Industry Association (AIIA), a member of

the NSW Government ICT Advisory Panel, which advice on transformation and ICT strategic

directions for the NSW Government, and a member of the NSW Accelerating Digital Government

Taskforce. In 2015, Marie was appointed as the Head of the Technology Authority for the

National Disability Insurance Scheme; and Co-Chair of the Digital Careers National Committee.

Marie has an MBA (Melbourne Business School); Bachelor of Arts; Harvard University John F

Kennedy School of Government Senior Executive Fellows Program; and a Graduate of Australian

Institute of Company Directors. Marie is a contributor to CIO Online (Australia) www.cio.com.au

and to The Mandarin www.themandarin.com.au.

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http://www.cio.com.au/

http://www.themandarin.com.au/



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References

The Australian Newspaper. “The Deal – Reinventing Business”. “Future Shop”. June 2015,

Telegraph.co.uk. “Revealed: why women don't like changing rooms” by Scott Campbell.

Saturday 11 July 2015

McKinsey & Company. “The Internet of Things: Mapping the Value Beyond the Hype”. McKinsey

Global Institute. June 2015

Accenture. “Life on the digital edge: How augmented reality can enhance customer experience

and drive growth.” 2014

Forbes. “Digital Technologies Will Soon Add $1 Trillion-Plus to Global Economy” by Joe

McKendrick, 17 March 2015. http://www.forbes.com/sites/joemckendrick/2015/03/17/digital-

technologies-will-soon-add-1-trillion-plus-to-global-economy/

www.aagnaa.com (corporate website) and www.cutefit.ME (products and technology website)

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http://www.forbes.com/sites/joemckendrick/2015/03/17/digital-technologies-will-soon-add-1-trillion-plus-to-global-economy/

http://www.forbes.com/sites/joemckendrick/2015/03/17/digital-technologies-will-soon-add-1-trillion-plus-to-global-economy/

http://www.aagnaa.com/

http://www.cutefit.me/

digital disruption the dawn of augmented retail - centre for digital business · 2015-07-26 · and...

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