The Third Retailing Wave.

The progress in the field of computer vision is impacting several industries. It is one of the central technologies for self-driving cars, is becoming an integral part of the new generation of smart appliances and is already embedded in most of the latest smartphones, just to mention a few examples. I think this technology will mark the end of the retail catalog as we know it. It will be, the third retailing wave.

In my prior notes, I emphasized the strategic importance of embracing the peripheral retailing model, which combines the benefits of the traditional pipe business model with the platform one to gain competitive advantage. I also reviewed the upcoming shift from great big and giant physical stores to smaller retail formats.

While the concept of the peripheral retailer is related to an almost infinite product portfolio, the idea of small retail formats implies the opposite: a limited product portfolio in the store. Therefore, it is now fundamental to discuss the future of the retail catalog as the bridge that closes the gap between the two concepts presented earlier.

A NEW RETAIL CATALOG IS BORN: THE SURROUNDING RETAIL CATALOG.

Many decades ago, the retail companies that understood the power of the new printing technologies gained a significant competitive advantage by using paper catalogs as a core marketing tool. Later, the rise of the Internet and e-commerce transformed most of these heavy paper catalogs into electronic ones. Now, the combination of artificial intelligence, machine learning, sensor fusion, computer vision and natural-language processing are making it feasible for the shopper to begin the purchasing process not only by searching in a print and/or electronic catalog but also by selecting an acquirable item located in the physical world and instantly linking it to the digital world. I will call this third transformation of the retail catalog “the surrounding catalog.”

How will it work? The process will begin by the shopper snapping with their smartphone an acquirable product located in their physical surroundings. On the screen of their smartphones, the shopper will learn and compare information about that specific product, including but not limited to its attributes, reviews from other customers, nearby stores carrying it in stock, pricing, similar products etc. Finally, the shopper will decide whether to buy it now or later.

Current applications like Google Lens and Samsung Bixby are among the initiatives that might make the surrounding catalog an early reality. Matt Zeiler founder and CEO of Clarifai (www.clarifai.com), a startup that gives companies and developers a way to implement visual search into their products, shared with me the following: “ Retail and e-commerce have tremendous potential to incorporate the efficiencies of visual recognition and AI, and we’re already seeing examples of this technology greatly enhancing the customer experience. Users can now take a photo of a piece of clothing or furniture they like and upload it to a retailer’s platform to easily find that same item — or if not, something similar.”

For retailers planning to develop their proprietary surrounding retail catalogs, four critical characteristics should be considered: liquidity, comparison search, no physical-digital divide at the store, and membership-centricity.

THE FOUR CORE PRINCIPLES BEHIND THE SURROUNDING CATALOG.

• Liquidity.

When the shopper snaps with his smartphone an acquirable item, the smartphone’s screen must instantly show relevant information about it, as well as, places to purchase the desired product. Failure to do so – insufficient liquidity – not only might cause potential sales losses but it might also discourage the shopper from using the catalog in the future. In this regard, Ebay which has about a billion products listed on its catalog and Amazon which offers about 500 million items are two “everything stores” which seem to be well prepared to compete in the age of the surrounding catalog. For most of the remaining players, it is crucial to rapidly increase the size of their product portfolios to remain in the running.

• Comparison Search.

A leading retailer just patented a new technology which blocks shoppers from comparing prices online while being at the store. In this regard, I am a contrarian. I believe the surrounding retail catalog must offer the option to compare prices and other relevant information with competitors. This option will play a key role in increasing the credibility of the surrounding retail catalog in the eyes of the shopper. On this point, I celebrate the Walmart Savings Catcher application which offers the client the option of scanning their receipts and if a lower advertised price from a competitor is detected, the shopper receives an eGift card for the difference. Mark Cummins believes the comparison search will increasingly gain traction in the coming years. For this reason, after selling his prior company to Google he co-founded Pointy (www.pointy.com) – an Irish startup that lets small retailers put their inventory online so it can be discovered via the search engines. Mark told me “ before Pointy if someone used his phone to search for a product, he was going to likely see results only from retailers capable of maintaining e-commerce operations. Now thanks to Pointy, if a shopper is looking for a specific product online, he may discover there is a small retail store near him which does not even have a website but it in stock. We are making the surrounding retail catalog more democratic” he concluded.

• No Physical-Digital Divide at the Store.

In my prior notes, I discussed the rise of smaller physical store formats. In this context, the connection between the store and the digital world becomes even more relevant. My journey of writing this article led me to contact professor Carlo Ratti, who teaches at the Massachusetts Institute of Technology, where he directs the Senseable City Lab. He has been named as one of the “50 Most Influential Designers in America” by Forbes magazine and is serving as a member of the World Economic Forum Global Future Council on Cities and special adviser on Urban Innovation to the European Commission. He helped one of the largest supermarkets in Italy to integrate the surrounding catalog into the store. Carlo shared with me the following; â€œWe leveraged digital technologies to tell stories about the products in a store. When a shopper puts their hand close to a product, extra information about it appears on a suspended digital mirror above. Through these “augmented labels,” each product can communicate its nutritional properties, its origin, allergens, waste disposal instructions, correlated products and promotions and other data. Every product has a precise story to tell. However today, this information reaches the consumer in a fragmented way. But in the future, we will discover everything there is to know about the T-shirt or the apple we are looking at in our physical surroundings: the tree it grew on or the fabric used, the CO2 it produced, the chemical treatments it received, and its journey to the supermarket shelf or home.”

• Membership – Centricity.

Recent estimates indicate Amazon has more than 80 million Prime members. The fundamental strategic value of a membership system is the ability to collect valuable information about each individual shopper to provide a better shopping experience, as well as, streamline operations. The ubiquitous nature of the surrounding catalog will allow retailers to collect massive amounts of data. The brain of the surrounding catalog is its artificial intelligence and members’ data the most precious resource for competitive advantage.

In this regard, Joshua Montgomery CEO at Mycroft AI (https://mycroft.ai/) said to me, “We created the first open source AI solution to ensure we can offer full transparency and independence while creating room for unlimited imagination about how to use it in an age of enormous data.”

Taking everything into account, I believe the main challenge for most retailers is its own inertia and insufficient imagination. Leading retailers should embrace the peripheral model, launch smaller retail formats closer to the shopper in an upcoming age of 30 minutes drone delivery, and begin early experimentation with the idea of the surrounding retail catalog to close the gap between the physical and digital worlds of the shopper.

(*) This article originally appeared in Go Global Consulting Newsletter (https://goo.gl/g1KGRy)