Navigating the Future of Retail

Dive into the future of retail with expert insights on how technology is reshaping the industry for Gen Z and beyond. Discover how machine learning, AI, and Web 3.0 are not just buzzwords but pivotal elements driving personalized shopping experiences, efficient supply chains, and innovative marketing strategies. Explore the potential of extended reality (XR) to create immersive, interactive retail environments that captivate younger consumers. Stay ahead of the curve and learn how to leverage these cutting-edge technologies to transform your business and thrive in the ever-evolving marketplace.

Context 

The following blog post was written for a privately held sales and marketing agency that provides a comprehensive suite of services encompassing business intelligence, headquarter sales, retail solutions, e-commerce, and workflow optimization tailored for consumer packaged goods manufacturers across five English-speaking countries. The company facilitates coordination between manufacturer clients and retail customers, playing a pivotal role in optimizing business activities to drive product sales and revenue growth. Among the agency’s clients are food manufacturing industry giants, while customers or “retail partners” include  Walmart, Costco, Walgreens, Rite-Aid, and CVS. 

Industry Overview

Retail trade in the United States produces a revenue of $7.7 trillion with Walmart as the single biggest player at 4.7% market share and $359.8 billion in revenue according to the IBISWorld annual report (2023). The retail industry report suspects that in the future, retailers need to target younger consumers with cutting-edge technology that includes AI for inventory management and augmented and extended reality for customer experience (IBISWorld, 2023). The push for innovation has been expedited because of the pandemic and companies were forced to adopt advanced technology or become irrelevant and inaccessible to customers within weeks. Online shopping, omnichannel marketing, automation, and diversification are keeping the industry growing despite challenges with an industry anticipated compound annual growth rate of 3.8% over the next five years (IBISWorld, 2023).

Technology For the Future of Retail 

Understanding the future of how people shop, especially Gen Z and Gen Alpha, in retail stores is imperative for companies. to maintain relevance and competitiveness in the ever-evolving retail landscape. With the rapid advancements in technology and shifting consumer behaviors, traditional modes of shopping are undergoing profound transformations. Building beyond omnichannel retailing, personalized shopping experiences, and seamless integration of online and offline channels is crucial to meet customer expectations. In a business and technology journal, Dhingra et al. (2024) conducted research that found that companies on the leading edge of the digital revolution have delivered three times the return to their shareholders as compared to the Luddites of business. Dhingra et al. (2024)  write that “strong DevOps and developer tooling, modern engineering practices, best-in-class product development life cycles, and structural and strategic alignment toward products” exhibit “2.2 times greater return to shareholders, as well as 40 to 45 percent higher customer engagement and brand awareness, compared with those that have little or no technology operating culture.” By staying attuned to emerging trends and leveraging data-driven insights, retail businesses can adapt their strategies accordingly, enhancing customer engagement, optimizing operational efficiency, and ultimately driving sustainable growth in an increasingly dynamic market.

Now, visualize existing, working, playing, and shopping in 2030 and beyond. In the next decade, the convergence of machine learning, artificial intelligence (AI), and Web 3.0 technologies are going to revolutionize the retail shopping experience for Gen Z and Gen Alpha consumers. These technology terms are not just pervasive buzzwords, but a glimpse into the future of scalable customer experience. Imagine efficient supply chains, streamlined back-office solutions, immersive product displays, automated customer service, fully integrated software, and instantaneous results all making way for more meaningful work for employees and employers and more satisfaction for customers. People do not innovate just to make day-to-day life easier and more convenient, but to make way for fulfilling work, deep purpose, and full presence. The demand for XR technologies, machine learning-driven solutions, and privacy-conscious online experiences is expected to increase significantly in the coming years to holistically combine technology and business. 

Extended Reality in the Future of Retail

Extended reality (XR) will shape the future of the retail experience. XR is a technology that combines a physical and virtual experience and it is the overarching term for augmented reality (AR), virtual reality (VR), and mixed reality (MR). AR imposes computer-generated visuals over someone’s view of the real world, whereas virtual reality fully immerses someone in the virtual world. Mixed reality is a technology that intuitively blends the virtual and physical worlds so that someone can interact with both, says Bernard Marr, a strategic business and technology advisor (2019). Although XR has existed for a while, humans are just scratching the surface of how realistic the technology can be and what it can offer. In the future, it may be possible to experience the five senses through XR (Dhingra et al., 2024). Imagine being able to smell a product before it is bought. XR offers retailers an exhilarating realm where immersive experiences foster engagement. Its potential to revolutionize the shopping experience is promising. IBISWorld reports that brick-and-mortar stores are still essential to the customer experience since they drive customer acquisition (2023). True integration of the digital and physical worlds is of the utmost importance to attract younger customers like Gen Z or Gen Alpha. 

An example of XR for consumers is creating a virtual clothing try-on experience to enhance confidence in purchasing decisions. Old Navy launched a virtual try-on feature on its fully responsive website where customers can pick the usual size of their clothing, upload their body measurements, and then view a 360-degree simulation of their body in the piece of apparel with texture and all. Huifang Mao, a consumer behavior researcher, reports that these virtual dressing rooms can help decrease returns and encourage sales, but they can also backfire if consumers are uncomfortable or hyper-critical of themselves seeing a 3D model of their own body (2023). In the research, sales increased for people with a low BMI and sales decreased for people with a high BMI (Mao, 2023). To negate this, Mao says that companies can represent different body types and beauty standards in their brand messaging, use a face other than the consumer on the simulated body to psychologically distance themselves from the model, offer an opportunity for “pro-social” contributions like donating money to a charity during checkout since this bolsters self-esteem, and by pairing the virtual dressing room with luxury items in the same screen to increase the perception of value and quality (2023). L’Oreal, the large cosmetics company, has also launched a virtual try-on by letting consumers scan their faces on the company’s website to experiment with different makeup and hair colors. It can be fun for consumers to be able to see themselves with purple hair and also makes for shareable content on social media. Dhingra et al. say that L’Oreal actually acquired the ModiFace VR company to implement the aforementioned technology along with them and that they tripled their conversion rate and doubled their brand engagement (2024). 

Another way XR can be incorporated into retail is through gamified content and metaverses. Gucci made a metaverse that simulates a fashion exhibit, Lego made a VR game for kids to engage with the brand, Gap created storefronts in virtual reality games, and Oreo launched a virtual reality world called “Oreoverse” where users can put on their VR headset to explore and play games in a Willy-Wonka-esque world that keep Oreo’s products front-of-mind (Dhingra et al., 2024). L’Oreal strategically acquired the software company “Digital Village” that develops metaverse simulations (Dhingra et al., 2024). Five years ago, it would be difficult to imagine that a cosmetics company would acquire multiple VR and XR software companies. This is the business of the future. Much is to be explored with these technologies. 

Business owners can help clients and customers unlock the powerful marketing power behind VR and metaverses, projected to reach a market size of $678 billion by 2030 (Belova, 2023), by acknowledging their business applications and following some best practices. In marketing, metaverses can be used for marketing by designing branded NFTs, designing virtual storefronts, providing customer service, launching advertising campaigns, and hosting brand events, according to PixelPlex, a technology advisory firm (Belova, 2023). The consultants recommend having a clear marketing plan and purpose for the metaverse, thoroughly researching which platform to use, planning an effective budget, and optimizing user security and data protection (Belova, 2023). Overall, XR offers exciting possibilities for the future of retail shopping and engaging the younger generations. 

Machine Learning in the Future of Retail

Machine learning (ML) is another technology that leverages AI and is poised to revolutionize the future of retail shopping for Gen Z, both in physical stores and online platforms. With ML algorithms capable of analyzing vast amounts of consumer data, retailers can personalize the shopping experience to a degree previously unimaginable. AI-powered recommendation systems can suggest products tailored to individual preferences, enhancing engagement and driving sales. Moreover, it enables retailers to optimize inventory management, ensuring that popular items are always in stock while minimizing overstocking of less-demanded products. In physical stores, AI-driven technologies such as facial recognition and sensor networks can streamline checkout processes, offering seamless and contactless transactions. Ultimately, by leveraging ML, retailers can deliver highly personalized, efficient, and immersive shopping experiences that cater to the preferences and expectations of Gen Z, shaping the future of retail in profound ways.

Machine learning is an offshoot of AI. IBM writes that it “focuses on using data and algorithms to enable AI to imitate the way that humans learn, gradually improving its accuracy” (n.d.). The algorithms become more sophisticated and learn from themselves the more they interact with humans (IBM, n.d.). This technology is very useful because large amounts of data can be analyzed and processed, making way for predictive analytics. The technology can execute tasks without definitive instructions (IBM, n.d.), which helps reduce workload. Thought leaders recommend investing in generative AI to help nix time-intensive tasks, develop an agile work culture with rapid iteration, and develop product managers with up-to-date skills in the industry (Dhingra et al., 2024). 

Companies outside of the software realm are using ML for business insights and to use data as an asset or the currency of the future. Dhingra et al. report that Walmart's Luminate analyzes consumer data to offer suppliers greater insight into competitive positioning (2024). Starbucks’ Deep Brew is an AI platform that analyzes data related to its coffee sales. PepsiCo's Digital Lab platform provides food service businesses with various digital tools that include ML apps and resources to help the companies improve their operations and customer experiences (Dhingra, 2024). In the Personal Selling & Sales Management journal, two business scholars say that ML algorithms use past sales data, market changes and trends, and online search data for demand prediction which facilitates operational planning (Glackin & Adivar, 2023). Overall, the data extracted using the software helps analyze customer behavior and then this information can be applied to marketing plans and sales strategies. 

Machine learning is also being used to prevent supply chain issues. Gary Forger, a supply chain management director, says “Seventy-six percent of shoppers leave stores and sites without items they intended to purchase with 49% blaming stock outs (2023),” but ML can create inventory awareness contemporaneously. Imagine if orders were placed automatically without human prompting. ML can decide to purchase stock and then make sure its transportation and delivery are seamless (Forger, 2023). Being proactive is the goal to increase customer satisfaction and ease the work burden for employees. Research is even behind done for websites to automatically update based on eye-tracking data collected and outputted by ML to increase e-commerce sales (Glackin & Adivar, 2023). This would be a profound development to heat map technology that marketers and user experience designers use to optimize web pages for usability and convertibility. 

Retail companies can invest heavily in software engineers who specialize in ML and marketing data analysts to get ready for the future of data and marketing functions combined at scale. Stakeholders will benefit from more accurate and optimized insights. 

Privacy, Personalization, and the Implications of Web3 in the Future of Retail 

Web 3.0, powered by AI, is another technology that will change the online retail experience for Gen Z in the future. Web 3.0 is a concept of the third generation of the World Wide Web characterized by “individual control of personal data and the use of cryptocurrencies and blockchain” along with “a vision of a decentralized and open web with greater utility for its users,” according to Investopedia (James, 2024). Developing a more comprehensive internet is important because of the prioritization of privacy and data security along with personalization and ownership. These are somewhat conflicting paradigms but will be very applicable to Gen Z consumers. McKee et al. contributed to the Journal of Consumer Behavior with a study about Gen Z’s consumer preferences and the existence of a “privacy vs personalization paradox” (McKee et al., 2024). Trust and transparency are and will remain paramount values for the digital native Gen Z consumers because they have growing concerns about data security, online privacy breaches, identity theft, cyberbullying, and discrimination. Online privacy and data hygiene practices are a good place to start to win over the trust of customers in the future. McKee et al. (2024) state that Gen Z will trade their data for personalization of their online experience but they are also very likely to evade marketing tactics. McKee et al. also write that “Research shows Gen Z increasingly uses digital blocking software, private browsers, and disables geolocation tracking, among other avoidance tactics, particularly when they feel a brand's personalization efforts fail to align well with preferences” (2024). To be effective, companies need to balance the “perceived privacy risks versus benefits associated with personalized marketing” (McKee et al., 2024).

Many business professionals are fretting over the “cookieless future” since it has major implications for how marketers, businesses, and website developers advertise online. In favor of online privacy and security, Google and other technology companies are spearheading the movement to phase out third-party cookies, according to marketing professional Jeremy Holcombe (2024). “Cookies” help track website visitors, collect data, target customers for ads, and improve user experience on websites, but they are not placed by the website owner (Holcombe, 2024). They are placed by an outside company that may not have the consumer’s best interest in mind. Web 3.0 can be a solution for this. To adapt to the cookieless future, Holcombe recommends technology that Web 3.0 incorporates like contextual targeting, blockchain-based universal IDs, cohorts, and on-device solutions (2024). The outdated yet effective measure of contextual targeting involves simply showcasing ads on relevant websites and channels, bypassing the need for user consent and privacy protection measures. Universal IDs are a type of cookie that exchanges information with the server to provide a persistent, encrypted, unique user ID that is only shared with first parties (Holcombe, 2024). The other method is cohorting, which groups users based on shared characteristics, interests, or behaviors, providing targeted advertising without relying on individual tracking through third-party cookies (Holcombe, 2024). Cohorting is a method to group users based on shared characteristics or behaviors for targeted advertising, while contextual targeting places ads on related marketing channels without individual user tracking. On-device solutions can further enhance cohorting by limiting the data shared with third parties to classify users. This approach maintains user anonymity while enabling marketers to deliver personalized experiences grounded in verified user activity. Improved SEO can also prepare marketers for a cookieless future by emphasizing organic search visibility and content relevance, allowing them to attract and retain website traffic without relying heavily on third-party cookies for tracking and targeting. 

Overall, market research shows that “The global Web 3.0 Market is projected to grow from USD 0.4 billion in 2023 to USD 5.5 billion by 2030, at a CAGR of 44.9%” (MarketsandMarkets, 2023). Acosta can help its clients and customers leverage Web 3.0 to adapt to the change in how cookies are used and how to better SEO and AI technology to make up for the lack of cookies. 

Search Engine Optimization 

The possibilities for the future of retail are diverse and exciting. It is important to have research and theory behind recommendations, but it is also important to develop a plan based on the research and theory. 

Based on the future of retail analysis, there are recommended strategies for improving SEO ranking, attracting traffic from a Gen Z audience, estimating demand, and allocating a monthly budget for search. A defined general keyword strategy will make online material stand out without the use of third-party cookies. Using long-tail keywords that incorporate specific phrases that Gen Z consumers might use when searching for retail products or experiences, such as "virtual clothing try-on" or "immersive retail experiences" will help customers get more search traffic and conversions. Focusing on trending topics and implementing social listening practices will help the company remain relevant. Retail businesses can use social listening platforms and use keywords related to XR, ML, AI, and Web3. Brand names of popular retailers, like Walmart and Costco, that are relevant to customers can also be incorporated into the keyword strategy. Action words can also be added to encourage engagement. For example, “try-on,” “experience,” and “explore” would be effective action keywords for Gen Z. Local SEO will also be important for customers. The omnichannel experience still includes customers going to physical stores, but customers may use the internet to direct them to the in-person experience or store. Other industry-relevant keywords for the future of retail customers include the following: AR, VR, XR, virtual try-on, immersive experience, mixed reality, virtual reality, AI, machine learning, predictive analytics, personalized recommendations, facial recognition, predictive analytics, personalized, inventory management, decentralized web, Web 3.0, cryptocurrency, blockchain, online privacy, data security, and personalized web. 

Businesses can help optimize their web pages by using effective on-page SEO. Meta titles, descriptions, and headings can use relevant keywords for each company’s target audience. This will take more research since many retailers and manufacturers and will have to get to know each brand and audience well at the beginning of their contract with the client. Creating high-quality engaging content that resonates with Gen Z interests and values like data privacy, transparency, environmental consciousness, social activism, and anti-consumerism are important for Acosta’s clients. Website speed and mobile responsiveness are also essential for seamless user experience and improved on-page SEO. As for off-page SEO, businesses can focus on building backlinks from reputable websites and platforms used often by Gen Z customers, such as trending social media, blogs, and online forums. Encouraging user-generated content, social sharing, and giveaways can help increase the visibility and credibility of brands. 

SEO can cost a significant amount of money to be as optimized as possible, but the return on ad spend should be tracked and should outweigh the costs. The recommended monthly budget for search advertising will vary depending on factors such as industry competitiveness, target audience size, geographic location, and specific campaign objectives. However, considering the importance of reaching Gen Z consumers and leveraging emerging technologies, allocating a substantial budget for search advertising would be advisable. A starting point could be a budget ranging from five to ten percent of the marketing budget per month, with adjustments based on campaign performance and market dynamics.

Positioning Recommendations 

Retail businesses are in an exciting time for growth. The B2B opportunities that exist in light of new technology are manufacturers and retail clients looking to enhance customer engagement, improve operational efficiency, and stay competitive in the retail landscape by adopting XR and ML technologies. B2C opportunities that exist are retailers aiming to target younger consumers by offering personalized and immersive shopping experiences through XR and ML applications.

Existing channels for partners include manufacturers that can potentially partner with businesses to leverage XR and ML technologies to enhance their products' visibility and consumer engagement. Retail channels are established for buyers like Walmart, Costco, and Walgreens that can collaborate with businesses to implement XR and ML solutions in their stores to attract and retain younger consumers.

As for storytelling and effective communication, businesses can communicate their commitment to revolutionizing marketing technology for its clients by leveraging XR and ML technologies to create a seamless integration between physical and digital retail environments, enhancing customer satisfaction and driving growth. Businesses can use examples and create an interactive portfolio on its website to showcase its superior marketing services. Businesses should emphasize values such as innovation, customer-centricity, privacy, and data security for itself and its clients and customers. Businesses can emphasize its promises to consumers for immersive and personalized shopping experiences, improved product discovery, streamlined checkout processes, automated inventorying, effective supply chain management solutions, and enhanced data security and privacy protection. For the company’s brand messaging, a tagline similar to “Empowering Retail Evolution Through AI Innovation” can be adopted. The following positioning statement can be used: 

“At [insert business], we leverage cutting-edge AI technology to drive transformative marketing strategies for both retail and manufacturer clients. By harnessing the power of AI, including mixed reality and machine learning, we optimize customer engagement, enhance operational efficiency, and unlock growth opportunities. Our commitment to innovation and data-driven insights ensures that we deliver results, empowering businesses to thrive in an ever-evolving marketplace.”

Key messages include “Empowering Retailers to Thrive in the Digital Age,” “Streamline operations management with artificial intelligence,” and “Immerse yourself in the future of retail.” 

By aligning its messaging with the company’s values and unique attributes, businesses can effectively position themselves as a marketing agency leader in shaping the future of retail experiences for both businesses and consumers.