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Innovation vs. the retail apocalypse: the future of brick & mortar as the "edge" of th

I grew up in a small town in Northern Maine where my family has owned an eponymous store selling grocery and apparel for over a hundred years. It is shocking how little has changed in physical retail over time, even two decades into the rise of e-commerce. Goods are ordered, often by hand, shipped to stores in trucks on pallets, placed by hand onto shelves/hooks/displays, tagged with bar codes printed on paper and labeled with printed price tags that are static and hard to change. Customers buy with cash or cards leaving a transaction history that is often totally disparate from their identity, confounding marketers and stifling personalization. Manufacturers and brands are left with precious little insight into what happens in the store- reducing ubiquitous retail knowledge work- ranging from shipping retail displays to allocating shelf space to buying inventory to discounting- into educated little more than educated guesswork, much as it was decades ago or more. This can all work out okay in a small business where a proprietor or two understands the ins and outs of everything with the fanatical attention to detail and motivation that comes from earning a livelihood in retail, or in a sprawling chain where procedures and sheer scale make up for rampant moral hazard, but in either case the situation is far from perfect and fundamentally little changed in decades.

This lack of innovation comes against a backdrop of disaster for retailers, in an economy that should have them feeling their best in a decade. This is flirting with obvious territory so I'll be brief: Brick and mortar retail is in disarray at an industry level. Business Insider went through the trouble of tabulating the 3500 retail stores closing in the next few months alone, and there's little doubt they are missing some. Basic human psychology suggests this probably isn't nearly enough, and we'll be oversupplied with square footage until the next recession makes even harder choices the necessary ones. The negative network effect for malls, in particular, will only exacerbate the carnage. With e-commerce growth compounding merrily along, the pain will continue to increase at an exponential rate for the foreseeable future.

But there's a new path forward hidden in the carnage besetting brick and mortar retailers as they shutter stores and pour dollars into their own e-commerce sites and "omnichannel strategies:" dramatic improvements are needed in the in-store customer experience if physical locations are to earn a place in the purchase mix of consumers for decades to come. As retail management teams are fond of reiterating on earnings calls, there are still visceral advantages to a physical presence: experiential discovery, fit and feel, entrenched social patterns of shopping, forward deployment of inventory enabling instant gratification, and strong brand names built up over decades with in-person customer experiences. Though some areas of retail are blatantly a scale game where e-commerce is prohibitively advantaged, the bulk of the industry in gross profit dollars remains firmly in experiential/discovery land where good old physical stores have a fighting chance and some outright advantages.

The challenge is to capitalize on these advantages and create a shopping experience that can legitimately hold its own and even punch back as e-commerce inevitably gets better and better. At Shoptalk in Las Vegas this past week, I heard from and met with dozens of startups working on the pain points of e-commerce: simplifying returns, better predicting customer behavior, providing delightful personalized experiences, getting sizing down to a science. The message was clear (and very investable, to be clear): e-commerce, fueled by the very data brick and mortar retail is so wanting for, has plenty of room for further innovation to keep chipping away at legacy retails advantages. I also heard from a scrappy set of start-ups working to help retailers transform their stores into more modern entities: but all willingly admit there's a way to go yet, and multiple industry executives said there was still a "waiting for superman" feel in terms of the next big technology wave that can fundamentally improve the in-store experience.

I'm fascinated by the idea that some of the emerging technologies today might eventually be able to serve this purpose over time. Amazon's experiments in cashier-less stores aren't going as smoothly as they could be, but are one way to help think through where to go: with machine vision, the internet of things and the general deflation in the cost of data collection/analysis, it is easy to conceptualize many brick and mortar pain points as an information problem well within our grasp in the next decade. With the right combination of technology and investment, a new world is possible where brick and mortar inventory goes from dark matter to cyberspace and some of the pressing retail problems are solved. Here are some thoughts on what those are:

1) Customers want insight into inventory availability. "If I go to the store, will I find what I'm looking for?"

2) Customers want detailed product information surfaced easily. "What are the reviews like on this? What are answers to some common questions?"

3) Retailers and customers alike want checkout to be as painless as physically possible. For retailers, this means knowing which products have been paid for without disengaged employees having to watch semi-vigilantly for theft.

4) Retailers want full visibility into inventory, and the ability to respond to changes with dynamic discounting/pricing as needed.

5) Retailers want insight into what inventory to order in the first, so that the answer to "Will I find what I'm looking for?" is yes as frequently as possible

6) Retailers want to take grunt work away from their employees and make them more engaged, interactive and helpful to customers. "Brand ambassador" is the aspirational title for cashiers.

7) Retailers want to minimize shrink to as close to zero as possible.

8) Brands want to know what is selling and whether or not their marketing budgets and coupons are working in-stores or not.

These problems are all simple, well within the realm of the possible information problems. They require digitizing the retail environment and (as one possible approach) continued advances in machine vision, but the necessary technologies are all squarely on the horizon for in the not-too-distant future, which brings me to the bull case for brick and mortar retail. In a great podcast this past December, Paul Levine gave a set of reasons why edge computing may stage a comeback against the cloud, due in large part to latency requirements for urgent tasks like autonomous driving and rendering virtual worlds requiring processing to happen closer to user. Though the drivers will be different, in the coming decades, retail could evolve the same way, with the "cloud" being sprawling warehouses/datacenters and physical retail locations as the edges, clawing back share as they get dramatically more digitized/capable while retaining the ineffable advantages that come from products sitting close to customers in a branded physical environment. At the very least, brick and mortar best innovate urgently toward this utopic goal, because what many are calling "the retail apocalypse" is happening now despite the sunshine of a historically long economic expansion, and sooner or later economic winter is coming. The good news is that based on conversations I had at Shoptalk, retailers are keenly aware of this and eager to apply new technology to the challenges they face. The need has never clearer for startups to help retailers innovate in the face of creative destruction.

If you're a retailer with thoughts on the above or a founder working in this area, I'd love to hear from you- feel free to reach out ( or comment below.

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