How do you buy your stuff? Do you get in your car, or type with your fingers?
Since last year, e-commerce surged +14%, while brick-and-mortar sales fell by -3.5% over the same period.
What could possibly save Malls and Shopping Centers? Enter the surging experience economy.
In the next decade, AI-driven personalization, AR/VR interfaces and sensor-geared smart environments could turn today’s “shopping center” into a booming, invisible platform for education, entertainment, digitally enhanced community, and new business models we’ve never even imagined…
So what is the future of physical retail? Let’s dive in…
The Future Marketplace
It’s April 2026, a cold, rainy day in Chicago. You’re supposed to meet your mother for lunch, but forgot your coat. On the Uber autonomous ride downtown, a quick online search reveals a shop selling those new eco-friendly vegan leather jackets you’ve heard so much about — a leather grown from stem cells, no cows harmed along the way.
You click the “interested” button on your screen, slide the phone back into your pocket, and forget about it. The store’s AI interfaces with your phone’s AI and automatically redirects your driverless taxi.
You arrive outside one of those throwback “craft retail” shops where they still employ actual humans. A woman named Sylvia meets you at the door, holding the vegan-leather coat you selected.
The jacket fits perfectly — which isn’t a surprise. A couple months ago you used the modified Wii sensor in your phone to map your body precisely. Most shoes have weight sensors these days, so as your waistline fluctuates, the body map automatically adjusts.
No need to wait in line to pay for the item either. A variety of cameras and sensors track both you and the jacket, so as you walk out the door, the price is instantly deducted from your bank — or cryptocurrency — account.
Plus, because these sensors know that this is your first trip to the store, they try to tempt you into a second shopping round by texting you a digital coupon that will deduct 25% off your next purchase.
While your transaction settles, sensors built into the rack where your jacket once hung simultaneously alert the store’s AI. Instantly, the AI orders another jacket from the manufacturer and texts an employee to restock the now empty hanger.
But turns out you weren’t the only one with your eye on the product. As it happens, this is the third vegan leather jacket sold in two days. The inventory control system, in turn, identifies the pattern and orders a couple backup jackets in popular sizes, notifying the company’s marketing AI to pick up on the trend.
What’s remarkable is that the above scenario doesn’t remain that far off. In fact, it requires little beyond the ever expanding impact of IoT on our world, one that will grow in importance almost automatically as more and more devices connect to the internet.
And it’s quite an impact. By 2025, according to research done by McKinsey, IoT is projected to have a potential value impact on retail of between US$410 billion and US$1.2 trillion. Even better, most of this technology has already arrived.
Go, Go, Gone Are Cashiers
Automatic checkout, which frees customers from the drudgery of waiting, is already here. Amazon, for one, introduced the concept to Americans in January 2018, when its initial Go store opened for business in Seattle.
To date, Go now has 13 stores, 4 more on the way, and up to 3,000 new ones potentially planned for construction by 2021, according to a Bloomberg report. The New York Times describes passing through the store’s turnstiles as “similar to entering the subway, with an [in-store] experience that is more closely akin to shoplifting.”
Upon entering, visitors scan QR codes with their phone, and AI does the rest. Cameras track customer movement down the aisles, and weight sensors built into shelves do the same for store products. Just grab what you want, drop it into your backpack and head home. On your way out the door, aggregate costs are automatically charged to your Amazon account.
Once again, this is about frictionless shopping. Long lines deter customers. And cashiers cost money. By reducing staff requirements — the only employee in an Amazon Go store is the single human checking IDs near the liquor section — McKinsey estimates automated checkout will save retailers US$150-$380 billion a year by 2025.
Which is why Amazon is not the only company chasing this cashier-less future. San Francisco-based startup v7labs, for instance, now helps any retail store make this same transition, while Alibaba’s cashier-less Hema stores were tested in China a full two years ahead of Amazon.
Or take startups AiFi and Grabango, both of which are developing autonomous systems for major retailers in competition with the likes of Amazon.
Smart shelf technology is already here, employing RFID (radio frequency identification) tags and weight sensors to detect when an item has been removed. The innovation deters theft, automates restocking, and ensures that inventory is always in the right spot.
Today, Intel’s version has a screen built into the shelf. Tomorrow, smart shelves will be AI-enhanced and capable of conversation. Is the sweater you’re holding dry clean only? Just ask the shelf.
Perhaps the biggest shift in retail will be one of efficiency, especially in supply chain management. Back in 2015, a Cisco study found that IoT solutions will have more than a US$1.9 trillion impact on the supply chain and logistics sector, and for good reason.
AI can detect patterns in data that humans cannot. This means that every link in the supply chain — inventory levels, supplier quality, demand forecasting, production planning, transportation management, and more — is being revolutionized.
70% of retail and manufacturing companies currently digitize every aspect of their logistics operations. More importantly, all this disruption is occurring even before the robots arrive in retail (we’ll discuss the robot transformation in a later blog).
Retail’s Last Hope: the Experience Economy
In “Welcome to the Experience Economy,” an article for the Harvard Business Review, author Joseph Pine tracks 200 years of economic development via a curious metric: the birthday cake:
As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now, in the time-starved 1990s, parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to “outsource” the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for their kids — and often throws in the cake for free. Welcome to the emerging experience economy.
By replacing premade ingredients with premade experiences, the experience economy is a new kind of disruptive business model satisfying a new kind of need.
For most of history, we didn’t want pre-packaged experiences because life itself was the experience. Just staying safe, warm, and fed was adventure enough.
Technology changed that equation.
At the turn of the Industrial Revolution, the richest people on the planet didn’t have air-conditioning, running water, or indoor plumbing. They lacked automobiles, refrigerators, and telephones. Let alone computers.
Today, even folks living below the U.S. poverty line draw on these conveniences. Those better off draw on them much more. So much, in fact, that we’ve started to take our stuff for granted. As a result, for many, experiences — tactile, memorable, and real — have become more valuable than possessions.
And retailers have capitalized on this trend.
Starbucks made bank extending the familiarity of the local coffee shop to a global scale. Outdoor retailer Cabela’s turned their showrooms into faux outdoor adventures complete with waterfalls. And now converging exponentials will take the experience economy to new heights.
Consider the Westfield shopping center group’s ten-year vision for the future of retail: “Destination 2028.” Replete with hanging sensory gardens, smart changing rooms, and mindfulness workshops, Westfield’s proposed shopping center will be a “hyper-connected micro-city” with an incredible amount of personalization.
Smart bathrooms will provide individually customized nutrition and hydration tips; eye scanners and AI can personalize shopping “fast lanes” based on prior purchases; and magic mirrors will offer virtual reflections of you wearing an entire range of new products.
Combining entertainment, wellness, learning, and personalized product-matching, Westfield’s “Destination 2028” aims to help make you a better you — and they’re betting that this is worth the inconvenience of leaving home to do your shopping.
It’s a big bet. In the U.S., there are over 1,100 malls and 40,000 shopping centers. Minnesota’s Mall of America is a small town, spanning 5.6 million square feet and housing 500 stores. China’s largest mall covers over 7 million square feet and is larger than the Pentagon. An upgraded experience economy might mean these malls have a chance of staying in business.
But it’ll be a very different type of business.
If successful, retail will become a convergent industry, where time spent at the mall pays multiple dividends. Shopping becomes healthcare becomes entertainment becomes education and so forth.
Or we take avenue B, whereby our malls become a distant memory, and shopping itself becomes another task outsourced to your AI.
Brick-and-mortar retail must be re-imagined in order to stay alive… and fast.
Personal AIs will draw in new customers, populating stores equipped with virtual try-on mirrors, clothing pre-tailored to fit us perfectly, and cashier-less checkouts.
Meanwhile, an exploding convergence of sensors and 3D printing will add even more value to in-person experience, as ultra-fast body scans enable 3D printers to create perfect products, on the spot, with zero waste.
Prepare for a future experience economy wherein time is the most valuable resource, and retail becomes so much more than what you purchase.