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Technology has long played a vital role in the transformation of the retail sector. Never before, though, has it exercised such a dramatic impact on the customer experience. With the emergence of the omnichannel, we've seen retailers scrambling to keep pace with online buyers' demands for unprecedented selection, product quality and speed of delivery. The P.R. and social marketing agency Walker Sands Communications, in its annual study on the future of retail, examines three technological innovations - drones, mobile payments and virtual reality – that promise to alter the merchandising landscape. In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, Dave Parro, senior account director and retail technology practice lead with Walker Sands, discusses how these revolutionary concepts are taking hold - and what they mean for the future of retail.
Q: Tell me about the “Future of Retail” study. What were you getting at with that, and how long have you been doing it?
Parro: We do the study at Walker Sands every year, so the 2015 study was the second annual one. We’re in the process right now of starting the research for the 2016 report. We do this report to identify trends in retail technology. This year we covered some online shopping habits as a baseline. Then we got into some of the emerging technologies that we expected to be topics of conversation in 2015. That included drones, mobile payments and virtual reality.
Q: It sounds like a good number of consumers are ready for drones.
Parro: That’s right. We were really surprised to find out how many consumers are excited and eager to see drone deliveries. Keep in mind that this study came out in early 2015. At the time, only Amazon was talking about that. Since then, we’ve seen Google get into the game, and Walmart announce that it’s testing drones. It’s taken on a life of its own this year, and become a huge news story. I’m guessing that when we do the study again, the numbers will be even bigger.
Our study showed that about 80 percent of consumers would be more likely to shop with a retailer if it offered drone delivery. About two-thirds expect their first drone-delivered package within the next five years, and 33 percent said the next two years. So there’s an excitement and expectation on the part of consumers, even though they’ve never actually seen a drone deliver a package.
Q: The study asks a “yes-or-no” question. Did you have the chance to sit down and talk to people about how they see this happening in a practical sense? Do they envision drones coming down in front of their houses? It’s hard to envision exactly how they would perform.
Parro: I don’t think consumers really know what to expect, beyond what they’ve seen through videos and photos from Amazon and some of the other players. The expectation is, whether you live in a rural area or a city, that a drone is going to be dropping a package on your front porch. I’ve seen some videos where the drone doesn’t actually land, and they drop the package through some sort of line from the drone to the porch. In other cases it might go closer to the ground or land. The truth is, I don’t think anybody really knows for sure.
Q: The salient point here – and I guess this is going to come as a relief to retailers – is that, at least for once, consumers are saying they’re willing to pay for the use of drones as a delivery device.
Parro: Right. That was surprising to us as well. Among the other questions we asked was what would incentivize you to shop more online. And one of the big things they value most was free shipping. So it’s kind of counterintuitive that consumers are willing to pay for drones. About three-quarters said they would be willing to pay something for drone delivery if – and this is the big caveat – they got the delivery within an hour. Speed is the key to consumers being willing to pay for it. About half of consumers said they would pay at least $5, and about a third said they would pay more than $20. If Amazon, Google and Walmart can deliver on speed, I think there’s some money to be made here.
Q: As long as it’s exotic and new. But when drones become a regular part of the delivery landscape, will consumers start to ask, “Why are we paying for this?” Or what if Amazon decides that it’s going to offer free drone delivery, thereby spoiling consumers for that experience?
Parro: And then they expect it from everybody else as well. That’s the pattern that we’ve seen with e-commerce shipping in general. It used to be that 24-hour or two-day shipping was something that you paid a premium for. Now it’s expected – if you have Amazon Prime, getting something in a day or two is kind of the norm now.
Q: Certainly free shipping is considered the ticket to admission just to be an online retailer these days, unless it’s one-hour delivery.
Parro: Right. Free shipping has almost become a marketing expense. It’s the cost of doing business in e-commerce.
Q: Do you see any obstacles to the advancement of drones as a delivery mechanism?
Parro: I do. One of the reasons the FAA has been moving slowly is that there are a lot of concerns out there right now. Our research shows that safety is number one, among consumers who say they have some reservations about drones. The FAA is concerned, too – about the safety of people on the ground, of other aircraft getting in the way of commercial jetliners and firefighting operations, and [drones] being in the proximity of airports. That’s a big. It’s where a lot of the testing that Amazon and others are doing has been focused.
Privacy and theft were the two other concerns that consumers have. There’s this fear that drones are flying over my house with video and photo capabilities, that we’re giving up our privacy for convenience. With regard to theft, it’s potentially easier to steal a package from a drone on a front porch.
Q: Or shoot one down.
Parro: Which is a worst-case scenario – if somebody shoots a drone out of the sky to steal a package. That’s a scary thought.
Q: Do you have a sense of which of those e-commerce giants might win the drone race?
Parro: A lot of it depends on how quickly the FAA moves. Earlier this year, it looked like it might be a couple of years before it issued rules to allow commercial drone flights. Now FAA is saying they could move within as soon as 12 months. If we’re looking at 2017 or 2018, there’s a likelihood that Amazon, Google and Walmart will all be able to launch drones at once, because that’s a long time for them to test and work the bugs out. If we’re looking at a twelve-month period, and talking about 2016, then I think it has to be Amazon. They’ve been talking about drone delivery since 2013 – they’re ready to go now, as soon as FAA gives the green light. Whereas Google has been talking more about 2017, and Walmart seems to be just getting started on testing, so I’m guessing that they’re a little bit further behind on the technology.
Q: You don’t hear much about other big retailers like Target or Kohl’s getting into drones. I imagine they’ll have to get in line at some point, unless you have an independent drone service that can do this on behalf of multiple retailers. That might make sense at some point.
Parro: I think we’ll see a lot more of that. Not all retailers are equipped to launch their own drone-delivery services. We’ll start to see the rise of some third-party logistics providers.
Q: What about the issue of mobile payments? There’s sentiment among consumers favoring their increased use, right?
Parro: We saw in our study that the use of mobile payments has skyrocketed over the last couple of years. The launch of Apple Pay legitimized the market in the eyes of consumers. We did this research initially right after Apple Pay launched last fall. I’m guessing now that mobile payments have gone even more mainstream. There are still a lot of challenges to adoption, because there are so many options. Point-of-sale terminals aren’t consistent, in terms of what they accept and don’t accept. It’s definitely an area of growth, and something that consumers are increasingly willing to embrace. But there are still some concerns around security that need to be addressed.
Q: It would have to be a standardized system, wouldn’t it? If you have half a dozen different mobile payment systems, a retailer at point of purchase would have to be able to “talk” to all of those. Or is just a matter of using your phone, and not worrying about what system the retailer has?
Parro: One of the biggest challenges right now is that some retailers aren’t willing to swap out their point-of-sale hardware. You could theoretically have a POS system that accepts Apple Pay and Google Wallet, and takes NFC [near-field communications] payment, but retailers have been slow to change. There’s some confusion out there right now among consumers about which system is going to prevail, in terms of the technology that’s widely adopted.
Q: Respondents didn’t offer an expected timeline on that one?
Parro: We didn’t ask specifically about when they expect it to go mainstream. Because we’ve done the study two years in a row, we found that in 2013 about 8 percent of consumers had used some form of mobile payment, whether it was Apple Pay or another app. In 2014, that jumped to 40 percent. I think we’ll see that number rise well above 50 percent this year. It’s just a matter of which technology is going to be the winner. That’s something that the market will decide.
Q: The ultimate question is, how far away are we from a cashless society?
Parro: That’s a really good question. We did look at the use of cash. We found that it’s on the decline. We’ve had a lot of scandals with point of sale through credit cards and debit cards, with consumers getting hacked and their data being compromised. Those two things are going to drive [the pace of] mobile adoption.
Q: But how soon, nobody seems to know at this point.
Parro: Yes. There are certain things that consumers still pay for with cash, like street vendors or at a bar. Where we’re seeing the increased use of mobile payments is for retail purchases, grocery shopping and restaurants. People hold on to cash for small purchases, but for some of the bigger ones they’re going to shift to mobile payments over the next couple of years.
Q: What about alternative methods of online payment– cryptocurrencies like bitcoin? Have you had any discussions with consumers about that?
Parro: A little bit. We asked them what form of payment they feel is most secure. Fifty-six percent said cash – there’s still the perception that cash is safe, short of being stolen from your pocket. What’s interesting is that 3 percent of consumers consider cryptocurrencies such as bitcoin to be the most secure form of payment, while only 1 percent said mobile payments. There’s a perception that mobile payments are more vulnerable to hacking than something like bitcoin, which the vast majority of consumers have never used.
Q: That is really interesting, especially since many people have questions about the value of bitcoin at any given moment. I would think that uncertainty would cause some concern.
Parro: That speaks to the challenges that mobile payment providers are up against when it comes to adoption. If consumers don’t consider it safe, then that’s certainly going to slow it down.
Q: What about virtual reality? I find it really interesting that you address that topic in your study. I can’t conceive of how it would apply to retail. What do consumers think about it?
Parro: Virtual reality, when it comes to retail, is about being able to get the in-store experience at home or on your mobile device – somewhere outside of the physical store. It’s about being able to virtually try on clothes, or mix and match products, using a device like Oculus Rift, or perhaps through your mobile phone with some 3D technology. It gives retailers an opportunity to upsell matching accessories. We found that consumers are really interested in the idea, even if it’s still a foreign concept. Like you, they don’t know exactly what it looks like. About a third said they would shop more online if they were able to try on a product virtually.
Q: Not just try on. Virtual reality could be a means of putting you in the store. You could walk down an aisle, look at shelves, see and inspect particular items on display. Is that a possibility?
Parro: Sure. You could have an in-store experience at home, interact with sales representatives. It’s one of those areas where the possibilities are endless. Virtual reality up to this point has been limited to gaming and a few other niche applications. But there’s interest in it as the technology evolves. I definitely think there are applications beyond even retail – things like real estate and virtual tours of properties. Just being able to visit other places and experience them vicariously, and experience them through the Web.
Q: When you reached out to the sampling in your survey, were you trying for a wide demographic variety, in age and other factors?
Parro: This was limited to people who have shopped online.
Q: So automatically, the sample skews a little young?
Parro: It was a broad range of ages, but it did skew a little young just because it was people who have shopped online over the past 12 months. It was 1,400 consumers, all based in the U.S., and we made sure that it covered all of the different ages and genders.
Q: I doubt that these things we’ve been talking about – drones, mobile payment and virtual reality – are even on the radar of most people over a certain age.
Parro: It depends on the technology. Something like mobile payments has probably been adopted by more than than younger shoppers, just because smartphones have become so ubiquitous. As for drones, people who shop online are going to be more excited about them than those who don’t. And you’re probably right about virtual reality in particular – that’s something that younger shoppers are more excited about, maybe because they have experience with V.R. through gaming. Or they’re more willing to shop for products online that traditionally you would have to try on in the store. There’s more of a willingness of younger people to order online, then return [the item] if they have to.
Q: Do you plan to tweak the study in 2016? Are there different questions that you might ask, or different approaches you might take?
Parro: Right now we’re in the midst of formulating the research for next year. There are definitely some topics that we’re going to revisit – the three that we’ve covered will continue to be relevant. But there are a few that we asked about last year that we thought might be hot, and it turned out that they weren’t quite on consumers’ radar yet. One of them was social commerce – specifically, social “buy” buttons. It was something that we asked about last year, and found that consumers either weren’t aware of them, or weren’t excited about them.
Q: Do you mean buttons that are on social platforms such as Facebook?
Parro: Right. It would be one-click purchasing that you might experience on Amazon, but on social media. A brand could advertise a product on Facebook, the consumer would click a “buy” button and their credit card and address information would be already stored. In the past year, we’ve seen Facebook, Pinterest and Twitter announce the ability to purchase straight through the social channel. I think that topic will be more relevant heading into 2016, now that there’s more consumer awareness about it than last year.
Q: And more consumer comfort over the idea of giving retailers all this personal information.
Parro: I would agree with that, as long as there’s a tradeoff that consumers are getting value. Whether it’s convenience or discounts, I think consumers will be willing to trade at least some of their information for some of those incentives.
Walker Sands Communications
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