Retail & Hardware: A Good Product ≠ A Good Brand
As tech alters the nature of the multi-trillion dollar retail environment, hardware startups must adapt or perish.
Retail is the arena where brands fight against each other to grab customers’ attention, facilitating over $20 trillion in global sales across the globe every year. A common mistake hardware startups do is launching a product, and not a brand. Your brand is your defensibility. Your product will be overwhelmed by clones (it starts right in the factories), and without a strong brand you will barely stand out from the crowd. You must be ready to adapt to the emerging retail environment in order to entrench your position further.
Brands no longer affect consumer perception from the shelves alone (where they originally evolved as a clear marker of quality amid a sea of choice). Hardware startups must be better equipped to master the full sales-channel dominance that might be described as Total Retail. Funnily enough, a lot of the change is down to hardware itself (sensors, delivery drones & logistical robots). These are interacting with the rising share of total retail sales of e-commerce platforms.
Retail Therapy
The U.S. has an average of 23.5 square feet of retail space per capita (which we suspect might be a bit too much). Credit Suisse predicts that 25% of U.S. malls will close by 2022 (The graph below illustrates the number of closures until now). The contraction in retail space across the U.S. doesn’t predict a total retail apocalypse, just the death knell for retail as a bland undifferentiated experience. This is obviously facilitated by the fast, low-cost convenience of online retail.
Retail is becoming three things:
I. Ubiquitous — it’s wherever your screen is.
II. Logistics driven — it’s not about where your product is, it’s about how fast you can deliver it.
III. Predictive — your online presence will give away your preferences and recommend you the things it thinks you’d like before you even get to see the advert.
I. Ubiquitous retail
The medium is the message
Retail is a bit like quantum mechanics, as there is a wave-particle duality between the solid store and its various digital channels. In other words, the store ends where your smartphone screen begins. This is being accelerated by image recognition and tagging advances which allow brands to effectively drive sales from their images.
The Pinterest Lens is an interesting example of this process at work. Using machine learning and a lot of images to train algorithms it is aiming to build an ‘object search’ function. These objects are then recognised as products and the customer is connected to the online site of sale. This represents an opportunity to remove a lot of semantic friction from online searching. You can finally get that things you wanted but just didn’t have the right search terms to find it. But years before this there was CamFind APP, a visual search engine allowed you to take a picture of anything and be told exactly what it was. It augmented AI by using “Crowdsourced image tags” to identify the “80% of images that algorithms can’t recognize”.
Customers, influencers and evangelisers
Influencers are widely loved/loathed but when you strip away the hype there is something interesting going on: the best content is always made with love. In other words good branding provides a lot of scope for online consumer fanfic and more importantly testimony: ⭐⭐⭐⭐⭐. User-generated content can even just simply include footage of opening the box up for the first time. These videos combine the lost anticipatory joy of unwrapping Christmas presents with marketing via the medium of a shared experience. They are serious business having been estimated to garner 10 billion in views per month online. Truly anything can be made into a shared experience and it’s helped brands like Casper make their mark.
People will do a lot of memeing for free — for something they truly like.
Brands might be wise to start paying commissions to their best fans (even though that would probably destroy the bonds of affection and replace them with the bonds of fat stacks of cash 💸💸💸). In other words you should be setting up influencer programmes: dedicating resources to scouting, cultivating and rewarding the relevant evangelisers for your product.
II. Logistics driven retail
Agoraphobia?
In the medium term, brick & mortar stores are undergoing a profound shift towards a more experiential, staff-led showroom model. However, as the malls contract and close, it’s clear that the long term future of retail relies on its logistical capabilities.
There are two competing assumptions driving the development of retail logistics:
i. People don’t want to leave their houses. Ever.
ii. People want to leave their houses for new experiences. Always.
The first assumption drives logistics, with various startups focusing on last-leg drone and robot delivery services. The second drives retail as an experience in itself, especially true in consumer electronics. If you have no dedicated sales team or exhibition space then you’re probably done for. If it stays in the box, it will gather dust.
The easy solution is to have stores as simple exhibition spaces with the bare minimum of stock and trust in your logistics network to rapidly deliver the product to your customer once they have had a chance to play around with it themselves.
Easier said than done if you don’t have access to the following…
Logistics is heading down a path of total automation, with the work within Amazon warehouses increasingly done with KIVA robots, for example.
Nourish or Perish
Obviously this won’t work with food, which may partly explain Amazon’s purchase of Wholefoods. You need a lot of well spread out refrigerators to keep your perishable goods in good condition. Fully automated groceries call for an even more futuristic set of solutions…
i. Wheelys, has developed the store that drives to you full of products. The Moby Mart premise is simple, you register your bank card details on an app and scan the bar codes of products you want to buy. Sensors on the shelves track any movement of unpaid for items and cameras capture your biometric profile and link it to your app.
Oh, and the store also drives itself around.
ii. Amazon Go, is a slightly more traditional concept for a store — it doesn’t move — but it does utilise biometric and object-sensing cameras to allow customers to simply walk in, pick up and walk out. An app will automatically register their purchase and the cameras will associate and track their biometric data to that account until they leave the store. Presumably the store inventory data will be used to alter the stock to match the individual profiles of the shoppers by area. This also has interesting knock-on effects in our cultural attitudes towards shopping, as it effectively banks on a cashless retail future.
Amazon Go’s flagship store is nowhere near ready enough to expand across the globe but it still represents a possible blueprint for the future of retail. One with wide reaching societal implications as threatening to the United States’ 10 million Retail workers as Otto’s driverless trucks are to its Truckers.
III. Predictive retail
Death of a middleman
Online platforms and Brick & Mortar retail are very different gladiatorial arenas. In one, the brand rules a certain shelf space, in the other, consumer perception is guided by platforms and algorithms. Around 55% of product searches are now conducted using Amazon, not Google. As new channels emerge like Amazon Alexa’s voice-enabled shopping continues to grow in popularity, we will see a further eroding of the power of brands unable to take advantage of the conditions of that channel. Prof Scott Galloway of L2 Research shows how Amazon’s low price home brand generic products are favoured by Alexa. And once buying in this manner becomes an unconscious reflex, it will be very difficult for other generic brands to compete.
Middleman, the rebirth
Although e-commerce may be seen to be immediately connecting consumers with products, the middle-people are now those running the platforms. Tech has always billed itself as being about cutting out the middle-person between business and consumer. Yet in retail Tech has killed the middle-person only to replace them in a less visible way.
For the customer: your online preferences will betray you
It’s plausible that soon your browsing data, sensors in your home products and a seamless logistical supply chain will be combined under one roof. Then your search history will potentially become individualised, real-time market research.
For the startup: the bottom line
Your brand is in danger of being one of the mediating elements swept away by a callous algorithm. As Prof. Scott Galloway states, as a brand or business, you may feel aggrieved paying 30%+ to retailers (plus 15%+ margins to distributors) but they will still be your partners and have a vested interest in seeing your product succeed.
Your brand must be robust enough to provide an experience. Without a narrative others can buy into you won’t be able to leverage it into a good online presence. The nature of the internet as a medium for shopping will be to continually score your product, rate your company and weigh it in order to individualise your customer’s experience in line with their individual preferences. Your brand must fight for you, not just on the shelves but on the mathematical index in which you’re product is now weighed.
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