As the world is becoming more digitally connected, the retail sector is transforming like never before. Technologies such as artificial intelligence (AI), augmented reality (AR), blockchain, and the Internet of Things (IoT) are driving this change. So, what lies ahead in the retail landscape?
At TechBlocks, we are always looking ahead to identify technology trends shaping retail’s future. With our expertise in digital transformation and product development, we offer unique insights into the technologies that will drive the industry forward into 2023 and beyond.
That being said, this blog delves into the top 7 technology trends shaping the future of modern retail — from personalization to datafication and the integration of IoT devices for a seamless in-store customer journey. These trends will redefine how retailers conduct business in the digital age.
Before we proceed, let’s define retail technology and its current market setting.
What is Retail Technology?
According to a study by ResearchandMarkets, the global smart retail technology market is anticipated to grow to $68.8 billion by 2026, expanding at a CAGR of 24.9%.
Retail technology, often referred to as retail tech, comprises an array of innovative digital tools both physical and online retailers use to enhance and streamline the shopping experience. It ranges from basic point-of-sale (POS) systems in stores to sophisticated AI and automation software in retail companies’ front and back offices.
According to Forrester Research, retail sales are projected to reach $5.5 trillion by 2027, with online sales accounting for 30% of the market. Despite challenges like post-COVID recovery, rising inflation, and supply chain disruptions, the retail sector is poised for robust expansion.
After COVID-related restrictions were lifted, the study further indicates that a substantial number of consumers returned to brick-and-mortar stores, contributing to a remarkable 14% year-over-year growth in offline US retail sales in 2021. And by the end of 2023, nearly 75% of total retail sales in the US will happen offline.
And that’s not all — A study by McKinsey highlights that omnichannel customers shop 1.7 times more frequently than those who stick to a single channel, leading to higher spending as well. This underscores the significance of ‘everywhere commerce‘ and the cultivation of omnichannel presence. Retailers that adopted this strategy early on were successful during the pandemic.
These forecasts indicate that the rise of digital technologies for gathering, storing, analyzing, and disseminating information has ushered in a new era of digital transformation in the retail industry.
Top 7 Retail Technology Trends for 2023 & Beyond
Let’s delve into the innovative technologies that retailers should be aware of and consider investing in as they seamlessly integrate their online and offline businesses.
1. Impact of AI & ML in Modern Retail
AI and ML technologies have made their way into every industry, and retail is no different.
In fact, the retail sector has long served as a testing ground for AI solutions. Amazon pioneered this trend with its recommendation engine in the article ‘Recommendations: Item-to-Item Collaborative Filtering over two decades ago. The company’s personalized product recommendations, driven by AI, reportedly account for 35% of their purchases. These ML algorithms recommend related products to customers based on their shopping history, location, and the buying preferences of similar customers.
“Retailers should leverage ML and AI to analyze data across various channels. ML algorithms can optimize assortment, innovation, pricing, inventory, and supply chains.“
– Brad LaRock, VP of Marketing, Datasembly
A study involving B2B marketers suggested that 58% found predictive analytics as the most effective AI-powered technology for hyper-personalized strategies. This suggests that retailers can leverage predictive analytics and consumer data to transform their personalization efforts.
AI also forms the core of next-gen retail tech, potentially generating a value of $400 billion to $800 billion annually for the industry. For instance, computer vision (CV) is the foundation of facial recognition, visual search, and autonomous delivery vehicles. Large language models are core for conversational AI chatbots and voice assistants.
Another AI technology retailers should invest in is generative AI tools, driven by rapid advances in deep learning models like ChatGPT.
Guy Elliot, EVP of Retail at Publicis Sapient, said that “the possibilities are so abundant that describing them is nearly impossible.”
“Retailers gain powerful insights into their business and product development through deep data analysis on purchase patterns, customer reviews, sentiment analysis, promotions, and returns data in real-time. This accelerates everything from product lifecycle to purchasing, inventory, and routing,” he claims.
Given this dynamic momentum, retailers should embrace AI tools to avoid getting left behind.
Related Article: How Artificial Intelligence (AI) is Transforming Businesses Worldwide
2. Subscription Models and Personalized Services
Personalization, convenience, and cost-effectiveness have become the baseline for customer engagement. This demand for tailored experiences has turned the subscription model into a game-changer in retail. In turn, retailers are embracing subscription-based models and tailored services to cater to evolving consumer preferences. These models also offer product discovery and a consistent revenue stream for businesses.
For subscription-focused enterprises, payments offer a lucrative growth opportunity. Payment orchestration enhances overall business performance, reducing declines and combating fraud. In fact, 89% of retailers said having multiple digital payment options was effective for retaining customers.
Moreover, a study by UnivDatos Market Insights said that the global subscription ecommerce market will reach $2.64 trillion by 2028. This provides a prime opportunity for retailers to integrate subscriptions and tap into the advantages of this model.
To fully harness the power of technology, retailers must tap into robust retail data analytics and insights platforms. Challenges like fragmented data, legacy infrastructure, and data sharing limitations often impede retailers from unlocking the full potential of analytics.
Integrating granular store-level data gathered from online and physical stores offers retailers unprecedented insights. These insights can fuel personalization, optimize product management and pricing, and streamline store and warehouse operations, ultimately boosting sales.
Retailers need to evaluate where they stand and identify processes that can be improved with better analytics of existing data. To accomplish this, retailers can utilize cloud data integration solutions and ecommerce data integration software to combine data from diverse channels. They can translate this data into actionable insights by leveraging AI and ML-powered analytics platforms.
Also Read: The 6-Step Process to Migrating Legacy Applications to the Cloud Faster
4. How AR/VR is Transforming the Shopping Experience
Augmented Reality (AR) is the next big thing for retailers, having already gained significant traction in the industry. However, post-pandemic, the importance of AR technology has surged as consumers strive to bridge the gap between virtual and in-store shopping.
A study by TCS reveals that 60% of millennials are inclined to shop more or spend extra with retailers offering virtual fitting rooms or virtual staging capabilities. Take L’Oreal, for instance, which has AR apps enabling customers to try various makeup products without actually trying them on. H&M is also testing smart mirrors for virtual try-ons and styling in their stores.
Statistics underscore the benefits of AR. A remarkable 56% of shoppers express heightened confidence in a product’s quality with an AR experience. Retail businesses that deploy AR in their operations will witness:
Embracing virtual and augmented reality can open new sales and revenue channels. With the increasing VR and AR user base, retailers can tap into immersive technologies to broaden their customer reach, foster online sales, and ensure steady business expansion.
5. Robotics and Automation
Another domain retailers must invest in 2023 is automation — the use of technologies to execute repetitive tasks with minimal human involvement. Constant labor shortages have fueled the need for automation across the retail sector, from warehousing, inventory management, and order processing to consumer-oriented features like contactless payments.
McKinsey’s research states that 52% of retail activities can be automated using existing technology. This initiative reduces human errors, enhances service quality and speed, amplifies employee efficiency, and saves expenditure. Notably, automation can generate 300 to 500 basis points of additional margin, a boon for retailers experiencing margin pressures. This makes automation not merely an option but a necessity in the hypercompetitive retail landscape.
6. Integration of IoT Devices for a Seamless In-Store Customer Journey
IoT connects everyday objects to the internet, creating a network of smart devices. In retail, the global IoT market is projected to reach $35.5 billion by 2025, expanding at a CAGR of 19.6%. Currently, only 8.5% of the world’s active interconnected devices are used in retail, so where do innovations need to be made for stores to benefit truly?
IoT allows retailers to create personalized and interactive customer experiences. Sensor-equipped smart shelves capture data on customer behavior, including which products are picked up or returned. This data enables customized recommendations, promotions, and discounts across physical and online stores. By delivering personalized shopping experiences, retailers can drive engagement and foster lasting loyalty.
Additionally, retailers can leverage IoT-powered security systems, such as facial recognition and video surveillance, to strengthen store security, eliminate theft, and ensure the safety of both staff and visitors.
7. Bridging the Gap Between Online & Offline Retail
As the ultimate trend on our list, “Bridging the Gap Between Online & Offline Retail” is set to shine as retailers increasingly look to combine digital and physical shopping experiences.
This trend revolves around finding ways to use technology to elevate in-store shopping. It involves augmented reality try-ons, in-store kiosks, and personalized product suggestions from online browsing patterns.
Through this bridge between digital and physical realms, retailers can create a seamless experience for their customers, urging them to return for more.
The Bottom Line
In an era where consumers demand flexibility, personalization, and promptness, embracing new technologies is vital for retailers to thrive and outshine competitors. Major retail businesses are already moving fast, while others are trying to catch up to avoid missing out on the benefits tech offers.
As a retailer, the decision is yours: adopt and flourish or risk falling behind.
Learn more about retail technology and how TechBlocks can help you deliver exceptional retail experiences!