Retail is a Simulation

In the midst of chaos, there is opportunity." - Sun Tzu, Art of War

Human ingenuity has developed incredible technologies that have radically transformed our lives. As we left the hunting and gathering age to agriculture, humans knew who was in charge by their clothes and status with recorded ledgers keeping grain inventories. Fast forward to the information age, clothes still offer status, but with 7.7 billion people how are you going to stand out as an influencer? If that is what you want. Billionaires try to dress like surfers and white collar professionals still cling to suits (at least Mon-Thurs). Sartorial clues can be real or misleading. Life is a simulation anyway, right? We are all just trying to decide what skin(s) to wear and how to outfit our avatars. We will soon be connecting our brains to the cloud via neuralinks, recording all the worlds data on immutable distributed ledgers, and quantum computing promises to break Moore's Law. We will be cyborgs and soon enough will be editing our DNA and optimizing our genomes. With change there will be innovators. This tech journey has helped teenagers become billionaires: Palmer Luckey spent 6 years on Oculus and sold it to Zuckerberg for $2 billion (he raised $2.4 million just two years prior on Kickstarter).

Most industries aren't quite winner take all, but BigTech sure does look monopolistic thanks to platform network effects. It's hard to refute that in the world of Retail its everyone versus Amazon (in the West at least). Amazon plays 3D chess and is using robotics, cloud, and AI to transform how we buy replenishment good, discretionary goods, and white labeled products. Speed and low pricing are wringing out profits faster than retailers can stop the hemorrhaging before they slip up on renewals of their flagship stores on Fifth Avenue. There are some frontiers like artisanal discovery (Etsy), fast fashion (Inditex), high end luxury (Gucci), and discovery (FarFetch) that have eluded Amazon so far. In Amazon we trust except edge cases and creative products that still offer unique experiences or otherwise thrive on scarcity. Robert Sapolsky already showed us that dopamine hits in the animal kingdom are optimized by anticipation particularly when rewards are scarce. (Will I get to buy anything out of the next capsule drop of Off White?). So, the modern day Sears Catalog in the Cloud isn't taking the entire market just yet, but they are trying. Some cracks in the foundation for Amazon are showing as Nike is pulling off of Amazon. Nike doesn't appreciate the white label competition and less than favorable catalog positioning.

Corporates in consumer and retail are increasing their sophistication as the industry is forcing them to become exceptionally data driven. They must understand point of sale, credit card transactions, web site virality, quality of impressions, and brand perception on social networks. They must optimize how and where their products are stocked and real time factors of success are pushing the product cycles faster than ever. Wall Street has actually struggled a bit to keep up. Analysts continue to be focused on traditional metrics: sales per square foot, sales per employee, comparable store growth, and inventory turns. Investors will increasingly be focused on tracking brand value, experience quality in flagship stores, social media momentum, value of impressions and other markers of future success. Suddenly beating or missing a quarter is very short term, it is more critical to see where a Company is headed in the next few seasons and are they equipped with the right design teams, the best products for the category, and do they keep the attention of their core audience and aspirational customers? 

The most confusing part of the mobile transformation of shopping is that as people are more urban and otherwise isolated they still need tribal feels. Even when we are competing for attention in real life and digital worlds we need to link arms with social strategies to avoid real or perceived conflicts over status as a proxy for food and territory. So if we don't want to shop all the time we still do want experiences. Some brands are figuring this out and creating amazing journeys to further embed loyalties. Restoration Hardware in Meatpacking has 90,000 square feet. I wonder how much they sell per square foot? Does it matter? You can drink wine and wander around with a consultant and purchase a membership with a high touch selection approach. Take a look at the Bass Pro Shops in Memphis which looks like it belongs in Las Vegas.

Alibaba sold $38.3 billion of merchandise this past Monday (Singles Day)! Almost everyone in mature markets that shops has a mobile phone or Internet connection. Imagine how much rich data can be harvested on retail shopper trends? Mobile location with dwell time, crossover affiliation, emotional tracking through path of purchase using facial recognition, abandoned digital carts, show rooming, and subscriber loyalty. Creepy? What's more interesting is as we move away from catalog shopping to eCommerce to experiences we will expect more immersive, realistic, group shopping experiences to keep people entertained and engaged on non-replenishment purchases. I will have my chatbot arrange a virtual shop with your chatbot for Saturday .... The next layer for us is now the experience economy and the craving for memorable events. Theme parks and restaurants with merchandising, boutique hotels with curated shopping, pop-up shops, and otherwise chasing new stuff at trunk shows. Further we have higher expectations of customization and fit. Witness the innovation of Atoms shoes that are offered in quarter sizes. Marc Andreessen believes all atoms will be consumed by bits, in this case, "Software eats retail." He is certainly right that having high fixed costs of retail space and surplus inventory make it very challenging for any retail business to survive through seasonal, cyclical, and secular changes to the business.

Retail isn't dead, but rather it is moving to experiences and virtual worlds. People want to shop as a tribe and get social signaling rewards from peers. The intersection of tech and tastes will accommodate personal adaptation, and social shopping will evolve Retail. Retail is a simulation.