This coming year in 2021 will be a tipping point for high frequency retail in the adoption of AI and autonomous systems. Last year was, to put it lightly, a difficult year for retail. High-frequency retailers like food, hypermarkets and drug stores have experienced increases in sales as consumers have shifted restaurant and take-out food spend to in-home food preparation. Although experiencing this tailwind, high-frequency retailers have been challenged by available supply-of-goods issues, as well as the need to implement new instore operational processes focused on customer safety.
The current pace of change in consumer behavior due to forced lockdowns has been faster and more significant than any ever experienced by retailers. Online retailers have “stolen” a larger portion of brick-and-mortar sales in the last 10 months than they have in the previous decade. Many consumers also consolidated their brick-and-mortar visits to fewer stores with less frequency, stocking up on items. Early “panic buying” created shortages in many product categories and these new customer habits created a shift in the category mix of purchases observed by retailers.
Some of these shifts will likely be permanent although the outcome is still uncertain as the pandemic is far from over.
Some semblances of normality started to occur in late third quarter and fourth quarter in 2020 as most retailers had addressed store operational and severe supply chain issues. Consequently, retailers have been active in planning new enterprise initiatives for 2021 over the past few months. Although pandemic effects have been again on the rise over the winter in the northern hemisphere, retailers’ experience in dealing with the early pandemic has enabled significantly less disruption in the pandemic’s second wave.
Assortment Planning and Forecasting — a Key Initiative in 2021
Consumer packaged goods companies have been narrowing their assortment or range of products in response to pandemic supply chain. This assortment narrowing by CPG companies, combined with changes in consumer behavior, have seen many retailers focused on assortment planning as a key initiative in 2021.
Forecasting has also been a challenge for retailers during the pandemic as traditional time series or machine learning forecasting systems require stable historical trends and consumer patterns to be effective. Forecasting is also a key component of assortment planning. Many retailers are thus seeking forecasting systems, which can overcome the historical data challenges created by the pandemic. Improvements to forecasting systems is also a key initiative for 2021.
Retailers have feared the growth and dominance of online retailers, especially Amazon, for more than a decade. The dramatic shift to e-commerce in the last 10 months has created increasing pressure on retailers’ online channels.
Adapting to the Jump to E-commerce
The big question for many retailers is how to cost-effectively move a larger portion of their business online. Strategies to compete against online retailers or adapt quicker to an omni-channel model has become more critical and will drive many initiatives for retail in 2021 and beyond.
Changes that would have taken the next five or 10 years have been accelerated by the pandemic. Retail employee workload has increased. The pressure to drive cost out of the business will continue to increase as the mix between bricks and mortar revenues and online changes. As the pandemic tailwinds to sales recede towards the second half of 2021 the pressure to reduce cost will dramatically increase. Many retailers may realize a permanent loss of customers to competitors or online retail that has been hidden by sales increases.
Intelligent Automation Driven by AI Systems
As mentioned, 2021 will be the turning point for high frequency retail in the adoption of AI and autonomous systems.
Intelligent automation driven by AI systems (called autonomous systems) used in corporate merchandise planning, supply chain and store operations must be an imperative given all the new challenges retailers must address — challenges which cannot be solved by increased human labor. Retailers must become more flexible to deal with rapidly changing market conditions.
Planning for one future will no longer be sufficient as the velocity of change continues to increase and the exact future likely to unfold becomes more and more unclear. Autonomous planning and execution systems can react quicker to market and consumer behavior changes, allowing retailers to adapt and thrive.
Retailers must be sure to not seek solutions based on the last decade’s requirements, but they should focus on defining the future requirement set. Most AI systems are a re-hash or rebranding of existing vendor technologies that have been around for the past decade and are not designed for the next generation of retail requirements.
In summary, we see the pace of change continuing to accelerate. Autonomous technology will play a key role in helping retailers to create new assortments, improve forecasting capabilities, continue to grow into online channels and reduce the cost of planning, store and supply chain operations. It is an exciting and challenging time to work in the retail industry as it has always been!