Thursday, January 13, 2011

The "Connected Store" and the future of retailing

Intel and a number of partners, including Adidas, Procter & Gamble, Best Buy, Kraft Foods and the MIT Media Lab, are showcasing a two-story, 2,400 square foot "Connected Store" at this week's National Retail Federation Convention in New York. Intel is using large flat-panel, touch-sensitive displays to showcase how its processors can be used to improve the retail "experience".

The Adidas demonstration uses three displays to showcase Adidas' entire shoe line. Shoes that aren't in stock can be delivered to the store for pickup or directly to the customer's home within 48 hours. The Best Buy demo, built in conjunction with MIT's Media Lab, enables customers to get a demonstration of any product on any vertical surface in the store.

These demonstrations go far beyond the digital signage systems found in many retail stores, in that consumers can interact with them instead of simply passively watching them. These systems could help drive a trend to downsize retail locations. For decades in the U.S., there's been a proliferation of "big box" stores, led by Walmart, Target, Costco and Best Buy. The problem is that real estate is leased based on square feet, and bigger stores means higher real estate costs, as well as higher costs for utilities and more employees needed to staff the physical space.

The "big box" cost problem is very clear at Borders and Barnes & Noble. They've built bigger and bigger bookstores, even as print book sales have declined. Many consumers still like to look at physical books in bookstores, but they then go home and purchase them online as eBooks. Bookstores can recreate the "books on bookshelves" experience using much less floor space with big-screen touch-sensitive displays. Consumers can open "books", page through them, and make a purchase decision right there. eBooks can be sent to their portable devices for immediate download, and the sale is made by the retailer, not by Amazon or another competitor.

These systems will also enable consumer electronics retailers to shrink their stores. They can keep the most popular products in stock in the stores for immediate delivery, yet let consumers interact with and order the same assortment of products that they already carry on their websites. One might argue that consumers can do that already from home on their personal computers and tablets, but closing the sale in the store means that those customers won't compare prices with other online merchants and buy at the lowest price.

In short, the era of the "big box" store isn't over, but "little box" stores enhanced with interactive digital technologies will take their place in many markets and segments.
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