“The next five years will bring more change to retail than the last 100 years,” says Cyriac Roeding, CEO of Shopkick, a location-based shopping app available at Macy’s, Target and other top retailers . With new technology inevitably come new consumer tastes and hence new retail strategies—but they’re not what you might expect. With rapidly changing business models, Wal-Mart is pushing its online presence while Amazon is building more brick and mortar locations. These five trends in shopping capture the latest responses by retail giants to adapt their strategies to changing technology and consumers.
1. The Death of the Big-box Store
Currently, only 8% to 13% of retail shopping in the U.S. is done online, but that’s going to change, according to this piece in USA Today:
Within 10 years, retail as we know it will be unrecognizable, says Kevin Sterneckert, an analyst who follows retail technology. Big-box stores such as Office Depot, Old Navy and Best Buy will shrink to become test centers for online purchases. Retail stores will be there for a “touch and feel” experience only, with no actual sales. Stores won’t stock any merchandise; it’ll be shipped to you. This will help them stay competitive with online-only retailers, Sterneckert says…
“Every waking moment is a shopping moment,” says Steve Yankovich, head of eBay’s mobile business, which expects to handle $10 billion in transactions this year. “Anytime, anywhere.”
We have long seen in-store retail on the decline as online retailers pick up their lost sales, but what you might not have anticipated was that you might still be shopping at the same retailers, just in a different format. With the proliferation of smartphones, you might still shop at your favorite brick and mortar stores but check out on your smartphone and have your order shipped to you.
2. Stores with Smart Search and Your Information
Another advance for in-store retailers is using customers’ personal data saved on their smartphones to appeal to their individual tastes. From USA Today:
By the time you walk into a store in the near future, the employees there will probably know what you want to buy, based on information on your trusty phone or tablet. Merchants will know your gender, age, race and income, analyst Sterneckert and others say…
All of this will be made possible with so much personal data on smartphones, and the ability of merchants to parse it to gauge who is just browsing and who’s on a mission to buy. The clerk greeting you at the door will be able to make targeted suggestions. Sound Orwellian? All of this is done online today through search engines and cookie technology. Putting a personal touch on one’s in-store experience could mean big bucks for bricks-and-mortar retailers, according to John McAteer, head of retail at Google.
If brick and mortar retailers are able to adapt to consumer preferences the same way online retailers have, they might be able to compete. As one online shopping expert puts it,
“The first 15 years of online shopping was about making it easier for people to find and purchase items they were looking for,” says David Fisch, director of platform partnerships at Facebook, which is working closely with retailers. “Now, it’s about helping you find what you may not know about, based on your social (media profile).”
The first wave of big-box retailers is doing just that, starting with Wal-Mart, which is trying to move its in-store success online.
3. Wal-Mart’s Online Advances
This Thursday, Wal-Mart introduced Polaris, a comprehensive internal search engine to that completes your thoughts just like Amazon.com’s A9. With this small addition, the world’s biggest retailer has already seen a 10-15 percent increase in shoppers completing purchases after searching . Built by a small but experienced team at @WalmartLabs, the search platform Polaris is designed squarely at the e-commerce giant Amazon. Though Wal-Mart is still by far the largest retailer in the world with 2012 sales at $444 billion, it “is growing about five times more slowly than Amazon and only generates about 2% of its revenue from e-commerce,” even though studies have shown that online and in-store prices are often lower at Wal-Mart than Amazon . The company describes its new software:
Searching for a shopping result is very different from conducting a general search. Polaris is based on the Social Genome project, a platform that connects people to places, events and products giving Walmart a richer level of understanding about customers and products. The new search engine uses advanced algorithms including query understanding and synonym mining to glean user intent in delivering results. When a user types in the word “denim,” it returns results on jeans or “chlorine tablets” returns results related to pool equipment.
Polaris focuses on engagement understanding, which takes into account how a user is behaving with the site to surface the best results for them. It delivers a new and intuitive results page when browsing for topics instead of giving a standard list of search results allowing shoppers to discover new items they may not have considered. When a user types in “patio furniture,” they get a colorful page with multiple patio set options for the backyard along with a banner showing featured items on sale.
Since deploying its sophisticated A9 software, Amazon’s quarterly revenue growth has averaged almost 40% for the past two years—almost five times more than Wal-Mart’s. If Amazon’s success at luring shoppers onto its site, getting them to complete purchases, and then also make related purchases is any indication of what smarter search engines can do for revenue, Wal-Mart could become a major player in e-commerce and move its in-store success online. However, Amazon is a moving target.
4. Amazon’s Physical Locations
Amazon has been the world’s largest online retailer for several years, but its latest move actually involves building new brick and mortar locations in many U.S. states. Its reasons are twofold. Farhad Manjoo writes in Slate:
Amazon has long enjoyed an unbeatable price advantage over its physical rivals. When I buy a $1,000 laptop from Wal-Mart, the company is required to collect local sales tax from me, so I pay almost $1,100 at checkout. In most states, Amazon is exempt from that rule. According to a 1992 Supreme Court ruling, only firms with a physical presence in a state are required to collect taxes from residents. Technically, when I buy a $1,000 laptop from Amazon, I’m supposed to pay a $100 “use tax” when I file my annual return with my home state of California. But nobody does that. For most people, then, most items at Amazon are significantly cheaper than the same, identically priced items at other stores. 
Many U.S. state legislatures and courts have tried to tax online retailers in recent years, and Amazon has understandably been one of their fiercest opponents in these measures since tax-free sales are a major advantage in their business model. However, as states have gotten even pushier, Amazon is finally caving in to the sales tax war, but its not out of weakness:
Why would Amazon give up its precious tax advantage? This week, as part of an excellent investigative series on the firm, the Financial Times’ Barney Jopson reports that Amazon’s tax capitulation is part of a major shift in the company’s operations. Amazon’s grand strategy has been to set up distribution centers in faraway, low-cost states and then ship stuff to people in more populous, high-cost states. When I order stuff from Amazon, for instance, it gets shipped to California from one of the company’s massive warehouses in Kentucky or Nevada.
But now Amazon has a new game. Now that it has agreed to collect sales taxes, the company can legally set up warehouses right inside some of the largest metropolitan areas in the nation. Why would it want to do that? Because Amazon’s new goal is to get stuff to you immediately—as soon as a few hours after you hit Buy.
It’s hard to overstate how thoroughly this move will shake up the retail industry. Same-day delivery has long been the holy grail of Internet retailers, something that dozens of startups have tried and failed to accomplish. (Remember Kozmo.com?) But Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.
According to Manjoo, Amazon is investing millions in new distribution centers around major cities and hiring tens of thousands of new workers—all to get you what you want faster than if you went out to get it yourself. And this service will likely be a game-changer. As Manjoo writes, “For $5 extra [in same-day shipping], you can have that laptop waiting for you when you get home from work. Wouldn’t you take that deal?”
5: The Death of Cash
“And almost all of it will be paid with… your phone,” according to Jon Swartz. Consumers’ means of payment, one of the most important aspects of shopping, is going to change. Swartz writes:
“Cash will still exist, but no one will use it,” says Jim Belosic, CEO of ShortStack, a self-service, social-media platform that lets users create custom Facebook tabs. “Carrier payments and the swipe of a smartphone will do the trick.”
If credit cards diminished use of cash in the 1950s, powerful smartphones and tablets will hasten its demise. Both are reshaping the relationship between merchant and customer as newfangled wallets, and each is edging toward becoming credit card readers and (cash) registers.
“Cash has dug in its heels for small-value transactions, but with the arrival of each new tech offering (providing) an alternative way to pay for little stuff — text your parking payment, Starbucks mobile app, Square, etc. — cash is being further and further marginalized,” says David Wolman, author of the book The End of Money.
The first stage of this transformation has already begun, with formerly online-only payment methods like Paypal and Google Wallet now being accepted at brick and mortar stores of major retailers via a simple scan of your smartphone’s screen. This might not seem like a major advance yet, but in the next several years retailers will certainly try to outcompete each other by adopting these digital and increasingly convenient forms of payment.