SOURCE
Alexei Kuzovkin on retailers using the latest technology to foster growth
The retail sector is perhaps among those hardest hit by the COVID-19 pandemic. While the extent of the impact on major retailers across the world will become apparent as they release their financial reports, the fact that many non-food retail outlets have not reopened after the lockdown speaks volumes, as do the recent forecasts that a number of major shopping malls could be demolished in Moscow and perhaps elsewhere.
However, the changes are not limited to bankruptcies and store closures. The lockdown period, called "self-isolation" in Russia, reshaped the retail sector. Demand for e-commerce and home deliveries surged as companies and consumers were forced to do more business online. This was the most visible effect.
That being said, the coronavirus crisis merely accelerated the digitization of the retail sector. Many of these processes started long before the COVID-19 pandemic, although it has to be noted that the Russian retail sector has been in crisis for the past six years, considering the state of the economy. In 2019, Inga Mikayelyan, head of analytics at RBC, said during her talk at the Retail Day conference that over the past five years household income dropped 11 percent, while prices increased 42 percent, and offline shopping fell 14 percent.
Against this backdrop, e-commerce rose markedly. In mid-2019, it accounted for 4 percent of the Russian retail sector. Now, 64 percent of fashion retailers have their own online stores, and retail aggregators like Wildberries and Lamoda saw substantial growth. For many major traditional retailers, online sales account for more than 15 percent of the total now, reaching 40 percent for Petrovich DIY stores.
Most internet retailers have a website and an official mobile app, ideally offering a wide range of functions, including an online storefront with voice search, targeted advertising (this is where big data come into play), choice of delivery window, and package tracking. Not every store can support all these capabilities, but those who can (for example, Utkonos), saw a substantial increase in revenue during the pandemic.
Just last year, online shopping was projected to grow four to five times over the next 10 years, but the pandemic may accelerate the transition away from brick-and-mortar stores. In fact, it's already happening.
In the early days of the lockdown, there was a surge in demand for various products, including both food and non-food products, from refrigerators to gaming consoles and sex toys. However, this was followed by a considerable decline (about 30%) in consumer activity.
To make matters worse, the government ordered offline stores selling non-essential items to close. Non-food retailers either had to close down indefinitely (without any guarantee that they would be able to reopen), or quickly get up to speed with e-commerce and home delivery, preferably contactless to minimize interaction between delivery person and consumer.
Food retail was also affected by the demand for minimal contact. VC.ru has recently pointed out that 94 percent of X5 Retail Group's employees (Pyatyerochka, Perekryostok, Karusel retail chains) work from home. Moreover, X5 started experimenting with self-serve stores a few years ago with the addition of self-checkout lanes. The company also uses big data and machine learning to automate shelf stocking and monitor fruit and vegetable freshness with the aid of video cameras.
In May, X5 announced that it will use virtual reality to train Perekryostok staff to limit contact with one another and with customers. The company has made official its intention to expand this pilot project to cover the entire national chain, and intends to buy 1,000 VR headsets (Pico G2 4K), training stations and licenses, sourcing content from a number of developers.
It may well be that other retailers will adopt this training method over time. The key challenge here is the price of VR headsets. The Pico model mentioned above costs 35,000 rubles in Russia, which is actually relatively inexpensive compared to the competition. But that means that 1,000 headsets come out to 35 million rubles. Not all companies can afford the luxury.
Another retail chain, Magnit, announced plans to equip its stores with Selfietopay contactless payment terminals that use facial recognition software, ending the need for cash or cards, let alone cashiers. Still, customers will have to download an app and scan their face if they want to pay with biometric data. Papa John's and Cofix already use the technology.
There is, however, the question of how well protected this payment method is from fraud, for example, using photos or tricks out of Mission Impossible.
At the end of the day, the trend is clear: automation, smart technology, and remote services. These are the three pillars that can keep retail afloat at present, especially major retailers.
What comes next? It is hard to be optimistic: we will learn more about the economic fallout from the lockdown in the months to come. So far, all the evidence suggests that incomes will decline, while prices have already increased substantially. Unemployment is also on the rise. So, while retailers release upbeat reports about automating operations, rank-and-file workers have little to celebrate.
From a strategic perspective, innovative technology is not only a way to foster growth, it is essential to surviving in a highly competitive environment – and that goes for retailers at all scales. While the smaller among them are understandably much more vulnerable, technology can help them better adapt to the ongoing crisis.
However, the changes are not limited to bankruptcies and store closures. The lockdown period, called "self-isolation" in Russia, reshaped the retail sector. Demand for e-commerce and home deliveries surged as companies and consumers were forced to do more business online. This was the most visible effect.
That being said, the coronavirus crisis merely accelerated the digitization of the retail sector. Many of these processes started long before the COVID-19 pandemic, although it has to be noted that the Russian retail sector has been in crisis for the past six years, considering the state of the economy. In 2019, Inga Mikayelyan, head of analytics at RBC, said during her talk at the Retail Day conference that over the past five years household income dropped 11 percent, while prices increased 42 percent, and offline shopping fell 14 percent.
Against this backdrop, e-commerce rose markedly. In mid-2019, it accounted for 4 percent of the Russian retail sector. Now, 64 percent of fashion retailers have their own online stores, and retail aggregators like Wildberries and Lamoda saw substantial growth. For many major traditional retailers, online sales account for more than 15 percent of the total now, reaching 40 percent for Petrovich DIY stores.
Most internet retailers have a website and an official mobile app, ideally offering a wide range of functions, including an online storefront with voice search, targeted advertising (this is where big data come into play), choice of delivery window, and package tracking. Not every store can support all these capabilities, but those who can (for example, Utkonos), saw a substantial increase in revenue during the pandemic.
Just last year, online shopping was projected to grow four to five times over the next 10 years, but the pandemic may accelerate the transition away from brick-and-mortar stores. In fact, it's already happening.
In the early days of the lockdown, there was a surge in demand for various products, including both food and non-food products, from refrigerators to gaming consoles and sex toys. However, this was followed by a considerable decline (about 30%) in consumer activity.
To make matters worse, the government ordered offline stores selling non-essential items to close. Non-food retailers either had to close down indefinitely (without any guarantee that they would be able to reopen), or quickly get up to speed with e-commerce and home delivery, preferably contactless to minimize interaction between delivery person and consumer.
Food retail was also affected by the demand for minimal contact. VC.ru has recently pointed out that 94 percent of X5 Retail Group's employees (Pyatyerochka, Perekryostok, Karusel retail chains) work from home. Moreover, X5 started experimenting with self-serve stores a few years ago with the addition of self-checkout lanes. The company also uses big data and machine learning to automate shelf stocking and monitor fruit and vegetable freshness with the aid of video cameras.
In May, X5 announced that it will use virtual reality to train Perekryostok staff to limit contact with one another and with customers. The company has made official its intention to expand this pilot project to cover the entire national chain, and intends to buy 1,000 VR headsets (Pico G2 4K), training stations and licenses, sourcing content from a number of developers.
It may well be that other retailers will adopt this training method over time. The key challenge here is the price of VR headsets. The Pico model mentioned above costs 35,000 rubles in Russia, which is actually relatively inexpensive compared to the competition. But that means that 1,000 headsets come out to 35 million rubles. Not all companies can afford the luxury.
Another retail chain, Magnit, announced plans to equip its stores with Selfietopay contactless payment terminals that use facial recognition software, ending the need for cash or cards, let alone cashiers. Still, customers will have to download an app and scan their face if they want to pay with biometric data. Papa John's and Cofix already use the technology.
There is, however, the question of how well protected this payment method is from fraud, for example, using photos or tricks out of Mission Impossible.
At the end of the day, the trend is clear: automation, smart technology, and remote services. These are the three pillars that can keep retail afloat at present, especially major retailers.
What comes next? It is hard to be optimistic: we will learn more about the economic fallout from the lockdown in the months to come. So far, all the evidence suggests that incomes will decline, while prices have already increased substantially. Unemployment is also on the rise. So, while retailers release upbeat reports about automating operations, rank-and-file workers have little to celebrate.
From a strategic perspective, innovative technology is not only a way to foster growth, it is essential to surviving in a highly competitive environment – and that goes for retailers at all scales. While the smaller among them are understandably much more vulnerable, technology can help them better adapt to the ongoing crisis.