Can AI save brick-and-mortar retail?
With the increased penetration of e-commerce, declining in-store traffic, and retailer bankruptcies, brick-and-mortar retail is experiencing tremendous headwinds. Neiman Marcus has recognized that digital innovation is critical for the future viability of retail and is seeking to optimize and personalize the customer experience at every touchpoint using advanced analytics, artificial intelligence and machine learning.
What is the future, if any, of brick-and-mortar retail? With recent headlines such as the Sears bankruptcy and the penetration of e-commerce, traditional brick-and-mortar retail has experienced serious headwinds. The retail industry is “undergoing a major renaissance” that has been “fueled by exponential advancement in technology”.[1] With a background in real estate private equity covering retail and studying this transition, I have a fascination with what this retail future might look like. Kristina Lake, Stitch Fix’s CEO, noted the necessity for retailers to invest in the future of their business or they “might suffer Blockbuster’s fate”.[2]
Neiman Marcus, the luxury department store retailer, is seeking to combat these retail headwinds through technological innovation, leveraging artificial intelligence (“AI”) and machine learning to create a seamless and personalized experience for its customer. They are using innovation as a competitive advantage in a future where some believe traditional retail may cease to exist.[3] According to Business Insider Intelligence, spending by retailers on AI is expected to reach over $5B by 2022, with AI projected to boost profitability by nearly 60% for retail by 2035.[4]
Neiman Marcus is using AI to triangulate data acquired about their customer by leveraging “digital exhaust,” data from daily interactions people have with their devices, as well as in-store information to produce a highly personalized shopping experience.[8] Personalization is important in creating brand loyalty, increasing likelihood to buy, and creating a frictionless shopping experience. In the near term, Neiman Marcus is attempting to synthesize all of the data sources it has about its customer to provide a highly personalized and seamless experience through every channel.
Currently, Neiman Marcus has primarily utilized machine learning to focus on process improvement of the shopping experience. One suggestion in the near term is for Neiman Marcus to continue to converge the best things about an online and in-store shopping, using the data and predictive suggestions that are available online to also be available to a consumer in a store, such as suggested items based on past shopping. Looking forward, Neiman Marcus should also consider the use of AI for product development. Through their multiple touch points with the customer, they are getting feedback on what their customers are interested in and can use this information to predict the patterns and styles they should be offering to their future consumer to support product design.
Investing in digital innovation and focusing on the customer experience is critical for the future success of retailers and Neiman Marcus has been a leader in adopting innovation as a competitive advantage.
Yet questions remain:
- Is there any future for a brick-and-mortar department store to exist in a world of same day delivery and e-commerce?
- What does the future store, if there is one, look like and how is the future shopper engaging with brands?
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[1] Lobaugh, Kasey, Christina Bieniek, Bobby Stephens, and Preeti Pincha. 2018. “The Great Retail Bifurcation“. Deloitte Insights. https://www2.deloitte.com/insights/us/en/industry/retail-distribution/future-of-retail-renaissance-apocalypse.html.
[2] Lake. Stitch Fix’s CEO on selling personal style to the mass market Harvard Business Review 96, no. 3 (May/June 2018): 35-40.
[3] Rayome, Alison. 2018. “How Neiman Marcus’s Top-Down Innovation Strategy Transformed Retail And Increased Revenue | Zdnet”. Zdnet. https://www.zdnet.com/article/how-neiman-marcuss-top-down-innovation-strategy-transformed-retail-and-increased-revenue/.
[4] Keyes, Daniel. 2018. “The Future Of Retail 2018: Artificial Intelligence“. Business Insider Intelligence. https://www.businessinsider.com/intelligence/future-of-retail-ai?IR=T&utm_content=leadgen_content_marketing_text_link_the-future-of-retail-ai-2018-8&utm_campaign=content_marketing_leadgen_link&vertical=ecommerce.
[5] “Q2 2018 In Review & Path Forward”. 2018. Neiman.Gcs-Web.Com. http://neiman.gcs-web.com/static-files/152ef6f2-bb34-4fe9-b293-06fb08076707.
[6] Thau, Barbara. 2018. “Why The Neiman Marcus ‘IT Guy’ Is My New Retail Hero“. Forbes. https://www.forbes.com/sites/barbarathau/2018/03/02/why-the-neiman-marcus-it-guy-is-my-new-retail-hero/#33acd2046588.
[7] “How Neiman Marcus Is Turning Technology Innovation Into A ‘Core Value‘”. 2017. Retail Dive. https://www.retaildive.com/news/how-neiman-marcus-is-turning-technology-innovation-into-a-core-value/436590/.
[8] Thau, Barbara. 2018. “Why The Neiman Marcus ‘IT Guy’ Is My New Retail Hero“. Forbes. https://www.forbes.com/sites/barbarathau/2018/03/02/why-the-neiman-marcus-it-guy-is-my-new-retail-hero/#33acd2046588.
[9] “Snap.Find.Shop. At Neiman Marcus”. 2018. Neimanmarcus.Com. https://www.neimanmarcus.com/c/nm-snapfindshop.-cat52160740.
Is there any future for a brick-and-mortar department store to exist in a world of same day delivery and e-commerce?
First off I really enjoyed this post. I think that given the concerns you have raised, the only way brick-and-mortar department stores can exist in the world of same day delivery and e-commerce is if the service-driven experience one has at a brick-and-mortar store is able to deliver something beyond the convenience of an e-commerce experience. This is where Machine Learning could come in, by identifying the preferences and purchase history of customers that walk into the store and offering them tailored products and services based on their tastes.
KMS-I hadn’t heard of Neiman Marcus innovating in this space, so thanks for choosing such a cool topic! I think you’re right that the future of retail absolutely depends on seamless integration of the omnichannel experience. The technology that allows a consumer to find things in their daily life and bring it back to Neiman’s suggested purchases seems like a very powerful tool against retail irrelevance.
I do wonder how this angle at confronting the future stacks up against other retailers’ approaches. I know that other stores are focusing less on digital and more about making the brick-and-mortar a destination full of value-add services (ex. nails, coffee, etc.) I also wonder if this AI investment engenders real brand loyalty to Neiman’s, as the brands they carry can easily be found at other outlets. I’m not convinced their AI investment, as laid out here, will be strong enough to justify brick-and-mortar survival.
Really interesting to see how more antiquated retailers are adapting to and leveraging technology to serve customers more efficiently. To your second question regarding the store of the future, your article had me thinking of how machine learning could further bolster the in-store experience to continue to attract customers. I wonder, could the app technology you mentioned with personalization recommendations replace much of the salesforce? Would customers want a more technology driven in-store experience, or would this alienate the customer set that still shops in store? I think that using machine learning could be an interesting way to steal back share from the digital channel, if done right.