Shoptalk has quickly emerged as the prominent event for retailers to gather and share developments in their digital transformation journeys. This year's show had a deep focus on the role of contextual experiences in helping retailers improve customer interactions and regain control over their relationships. In this report, we discuss several of Shoptalk's biggest announcements, and place them in the context of broader industry trends.

The 451 Take

In just its third year, Shoptalk has become the must attended event for digital transformation in retail. Contextual experiences dominated this year's show, with a heavy focus on using technologies like virtual reality (VR), voice assistants and native apps to enhance customer engagement across the shopping journey. Retailers increasingly understand that to remain relevant in the face of evolving customer preferences, delivering a digital experience is table stakes. To truly differentiate and enhance competitiveness, a deeper commitment to interactions that weave in context, convenience and control is mandatory.

As shown in the figure below, 32% of retailers claim to have a formal digital transformation strategy, and are actively digitizing business processes and technologies. A similar percentage are in a significantly less advanced stage (either considering or completely lacking a strategy), and roughly 35% are planning but not yet executing.

This mixed bag means that retail is often stereotyped as an industry that is devoid of innovation and digital adaptation. Shoptalk provided clear evidence that while retail may be in early innings from an evolutionary standpoint, many of the largest players are aggressively embracing digital technology to reimagine their businesses, and the way they deliver value to customers. Here, we provide a glimpse into some of the transformation strategies and trends being pursued.

Retailers are in varied states of digital transformation

From brick & mortar to brick & mobile

Retailers must understand that their physical storefronts can be an asset not a burden, to be used to drive customer engagement. To do so, a heavy infusion of digital technologies that augment and elevate the shopping experience is required.

At Shoptalk, Macy's shared several of the new initiatives it will be rolling out this year as part of its brick and mortar digital transformation strategy. One element of its approach is targeted at what Macy's CEO Jeff Gennette called its customers' number one pain point – checkout lines. The retailer plans to integrate an in-store checkout feature into its mobile app, effectively converting it into a digital wallet to allow shoppers to self-scan and pay for items directly from the app prior to having security tags removed by an associate at an express line. This checkout experience is expected to be available at 450 of its roughly 650 stores. Our Q4 2017 Leading Indicator VoCUL survey shows that 'faster checkout times' is a top three factor that would encourage consumers to use a digital wallet.

In our 2H 2017 VoCUL Corporate Mobility and Digital Transformation survey, 24% of retail respondents told us their organization planned to use augmented reality (AR) and VR over the next 24 months. Macy's is among the earliest movers, with plans to bring VR into 50 of its stores this summer. The VR initiative is intended to give shoppers an immersive furniture shopping experience without requiring Macy's to dedicate the floor space to display physical products.

We believe VR and AR will play an important role in building stores of the future, which will be smaller and experience-oriented. Nordstrom, for instance, discussed its pilot project in Los Angeles, called Nordstrom Local. It's a mere 3,000-square-foot store that only offers services, such as styling and alterations.

Walmart discussed the importance of 'buy online and pickup in-store' as a means of increasing the effectiveness and utilization of its physical stores. It plans to add 1,000 pickup locations by year-end, adding to the 1,200 locations it already has live. We believe buy online and pickup in-store has powerful strategic implications, with more than one in three respondents to our Q2 2017 VoCUL Representative survey stating that this would increase their loyalty to a specific merchant.

Amazon was also on the main stage, discussing early findings from its recently launched Amazon Go store in Seattle. The e-commerce giant noted that the Amazon Go app has played a powerful roll in collecting real-time customer feedback, which it utilizes to guide its inventory assortment. For example, using information collected via the app, Amazon heard from vegan customers who were displeased to see cheese mixed into salads, which it quickly addressed by serving up cheese on the side. This simple example underscores the need for more retail apps to offer two-way customer communication.

Google flexes its contextual commerce muscle

Google is well-positioned to play a more pervasive role in commerce, but to date, many of its attempts to expand its influence across the shopping journey have been limited in success. The search giant unveiled its latest commerce play at Shoptalk, called Google Shopping Actions, which we believe has potential. We also view it as the most important announcement stemming from the show.

Shopping Actions is aimed at making it easier for consumers to shop and buy through Google search and Google Assistant, its voice interface. When searching for products via Google, shoppers can add products from multiple retailers to a universal shopping cart, and complete the purchase via a Google-hosted checkout flow. Shoppers can link loyalty cards from select retailers to their Google account, which Google uses to provide a higher level of personalization in their search results. Google is also enabling one-click reordering as part of Shopping Actions.

Retailers that have participated in Shopping Actions, such as Target and Ulta Beauty, have seen a 30% average lift in basket size, according to Google. Shopping Actions operates on a pay-per-sale model, meaning retailers only pay when a sale takes place.

Voice commerce garners attention for speed, convenience

While it's still early on, voice interfaces are seeing growing use by consumers. Our VoCUL Q4 2017 Representative Survey shows that 19% of consumers are using Amazon's Alexa on at least a weekly basis, and 21% are doing the same with Google Assistant. By 2027, 451 Research expects the average person will have more daily conversation with bots than other humans in their work and personal lives. This change in interaction preference has profound implications for how retailers must engage with shoppers and enable purchases.

Google is fast becoming the partner of choice for retailers in voice commerce. Mark Berinato, Panera Bread VP of digital experience, noted that voice ordering via Google Assistant is already yielding promising results for the restaurant by decreasing average order times by 80% compared to ordering via its app or website. Panera is considering furthering the personalization of its voice interactions with customers by bringing in professional writers to help it better define and convey its brand personality.

Sephora and Walmart have also launched voice commerce experiences on Google's platform recent months. Sephora launched its app on Google Assistant in France late last year, allowing shoppers to book beauty services, with plans to expand functionality further this year. Walmart currently allows consumers to shop more than two million Walmart products via Google Assistant.

Alternative financing goes omni-channel

As we have reported, alternative financing is an emerging area in payments that is helping online merchants drive favorable business outcomes by enhancing customer choice at checkout. We had a chance to catch up with Klarna at Shoptalk, one of the major players in the space that has been investing heavily in its North American expansion. Since launching in the US in Q4 2016, Klarna has signed up north of 500 online retailers, which include Microsoft, Lenovo and Overstock.

What we especially like about Klarna is its transparency in interest rates, and the added flexibility it provides shoppers in funding their purchase. These factors have helped Klarna's merchants increase order value by an average of 58%, drive up conversation rates by 30%, and increase repeat purchases by 25% compared to other payment methods, according to the company. Klarna has plans to broaden its financing offering to the in-store POS in the US (it's already live in Europe) later this year.

Affirm is another major player in the alternative financing space that intends to extend to physical storefronts with the launch of Affirm InStore. Retailers can directly integrate the Affirm InStore API with their POS system; or for those preferring the path of least resistance, allow customers to pay via an Affirm virtual card provisioned in Apple Pay.

Affirm cited Simply Mac as a partner that has seen a 20% increase in average order value since integrating Affirm InStore. Interestingly, Simply Mac chose to ditch its private-label credit card program when it went live with Affirm InStore, signaling the growing threat that alternative-financing providers pose to large private-label providers like Synchrony Financial and Alliance Data Service.
Jordan McKee
Principal Analyst, Payments

Jordan McKee is a Principal Analyst leading 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers. His research helps vendors and enterprises assess the key implications of emerging technologies driving the digitization of the end-to-end shopping journey.

Research Director, Customer Experience & Commerce

Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.

Matt Aslett
Research Director, Data Platforms & Analytics

Matt Aslett is Research Director for the Data Platforms & Analytics Channel at 451 Research. Matt has overall responsibility for the data platforms and analytics research coverage, which includes operational and analytic databases, Hadoop, grid/cache, stream processing, search-based data platforms, data integration, data quality, data management, analytics, machine learning and advanced analytics. 

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