London, United Kingdom- A dark basement with rails and developers hanging around is the new chosen spot in Hackney for the newest physical retail format. The retail “unicorn” Farfetch has plans to develop a new physical store format which will complement their thriving online marketplace. The marketplace, which pairs high-end buyers with various boutiques and luxury retailers has grown to over $800 million in gross online merchandise volume. Given this figure, the company will take in revenue of nearly $200+ million as the company takes a 25% cut of all products sold through the platform. This is not very much unlike any other marketplace, Amazon included which provides eyeballs, for a % of all merchandise moving through their platform. Through the success of their online efforts, Farfetch will seek to expand the online offering to stores, creating what Jose Neves, Farfetch’s founder, and CEO has coined an “operating system for physical retail stores.” This is a bold step in an era of retail apocalypse where nearly 2000 stores will be shuttered in 2017 alone throughout the United States. So, what is in store for this new format, and how can we expect the classic retail model to be switched up because of it?
To understand the move it’s important to look at the guiding reasons why Jose has chosen to go offline in a world of dying breeds. Farfetch has identified their leading position in the luxury market but has also come to the realization that, according to estimates, online shopping in the luxury segment — currently at 7% of total online sales — will cap at roughly 20% by 2025. Now, who knows for certain whether this will come true, but for now at least, Farfetch is betting a physical format for the future. Make no mistake about it though, Farfetch is not planning to build out a classic brick and mortar store, they will instead use their engineering and retail excellence to provide customers the most unique shopping experience available. Like Amazon Go teased prior, Farfetch will create a store centered around technology including RFID to detect which items have been added to the “cart,” sensors to detect which pieces have been removed from the rack by customers, as well as an app to track it all. The company is one of the first aiming to create an operating system, which will allow third parties to develop applications on top of the platform to enhance the experience even further, as a risky move in the luxury sector.
As we’ve seen so far, the model for traditional brick-and-mortar retail has remained largely unchanged since it’s inception. The new retail model will transform the usual unsatisfactory visit to a popular retailer with one predicated on technology. Even as we’ve seen more and more retail technology enter the scene, it has yet to truly “take-off” and presents more of a question mark in consumers heads rather than a usable method of making the shopping experience something to be enjoyed. Modern in-store retail technologies such as mannequins with a screen to view how items might look, or sensors for adding products to cart, have been more gimmicky stuff that’s likely to increase PR exposure instead of actually making a difference. Will this all change in the Store of the Future?
What’s important to keep in mind about all these steps, is that Farfetch is not simply an eCommerce company. No, in fact, the company is a marketplace. So, how do they deal with the physical stores if they are not actually taking ownership of many of their items, they leave it up to the boutique partners to “plug and play” with the retail technology. As Jose has mentioned it’s more of a platform, where the real innovation will come from the retail-based apps built on top of the Farfetch platform. In this sense, Farfetch will create a sort of app store for boutique partners to utilize the apps, in whatever way they see fit to operate their stores from. Handing over the keys to a Ferrari might not be a bad idea in this case, as each Ferrari can be specialized for one type of rider. This, of course, being an analogy to the Farfetch platform being developed and used by their retail partners, for benefit of their individual customer segment.
While the new store formats will offer an operating system to grow on, Farfetch is providing the groundwork including a universal login which will track when and where a person walks into an enabled boutique, RFID sensors on clothing racks to detect what a user does with this item, a digital mirror which lists wish list items and allows her to summon new sizes and colors, as well as a new mobile app which will allow a frictionless checkout much like Apple stores. This will be the foundation which boutiques can grow upon. At the foundation it provides a unique experience, at the high level, it’s a convenient way of gathering all the necessary data to make more purchases happen. As Farfetch has already stated, they will control the data and flow of data, which developers can then utilize to build apps on top of which leverage the data in their own way.
As for what will be delivered on top of the operating system for physical stores, it is up to anyone’s guess at this point. There are certainly shortcomings in the retail system, and this might just point to an easier way of overcoming them. Below you will see a few highlights from the interview between Business of Fashion and Jose Neves who sat down together to discuss the Store of the Future and it’s forthcoming expectations:
BoF: Why did you decide to launch Store of the Future?
JN: today over 90% of transactions take place offline, by 2025 it will still be around 80% which is still 8 out of 10 sales. Although digital is already influencing most consumption behavior — and that’s where the eyeballs are; it’s the new TV, it’s the new print, it’s the new everything — when it comes to actually purchasing fashion, there will be a plateau in online sales. Fashion is not downloadable, which makes it very different from movies or music.
So, three key facts: number one, digital is completely influencing consumer behavior and the creation of desire; number two, online is growing much faster than offline; but three, offline is still — and will be — where the vast majority of transactions take place. So how do you make sense of all this?
It’s really about creating the luxury experience of the future. We’ve been omnichannel from day one. From the very start, we essentially connected physical inventory to a digital platform. The first step is a single view of the inventory. Then we launched more omnichannel propositions, like same-day delivery in 10 cities, click and collect in store. The Store of the Future is the next step, using the physical store as a service point. It’s post-omnichannel, or what we call “augmented retail.”
The physical store is going to survive and is going to remain the center-stage of shopping, but it’s not going to be a physical store as it exists today. The disconnected store as opposed to the connected store — won’t be around. Period. And the biggest evidence of this is actually Farfetch itself because once we connect a boutique to the platform, we account for about 45% of sales. We’re like OpenTable for boutiques — they know every empty table, we know every shoe that is sitting on every shelf unsold. We know how much offline is moving and how much online is moving. And just by making your physical inventory available 24/7 to a global audience, you massively boost your economics.
BoF: So what exactly are you unveiling?
JN: The store of the future’s built on three principles. The first is human touch. If you go into a store today, the sales staff are doing things machines should do: they’re checking if they have your pair of shoes in the back room, or they’re asking your name and looking you up in the database. Is this empowering human touch? Not at all. The store of the future is fundamentally about releasing customers and shop assistants to focus on the human side of the interaction. It’s about empowering the staff in the shops to stop being inventory controllers and start being in-store influencers. Right now, they are inventory controllers.
The second principle is being modular. We absolutely do not believe there is one store of the future. There will be 1,000 stores of the future. Think about the way a brand commissions an interior designer and differentiates the space, the smell, the experience, the merchandising. What we do not want is cookie-cutter experiences. So some components will be suitable for some brands and not for others.
And the third is open architecture. We don’t want to come up with all the innovation ourselves. The idea is to create a “Store of the Future” platform and then invite start-ups and brands themselves to come and build on top of it.
BoF: Are there core applications that you are developing yourself?
So, the core data label is ours. That’s the glue that glues all the bits together. All these systems should talk to each other. That is one of the big problems that you see with in-store technology today. It’s all disconnected. The digital mirror doesn’t talk to the checkout, which doesn’t talk to the website. For example, take our digital mirror. The hardware itself was built by another company, but we built the software which pulls right from our database, so if you are shopping for a brand like Thom Browne and you have something in your wish list on the Thom Browne website, it will be on your wishlist on the mirror in the store.
Data is the common denominator. What’s built on top of this can be built by Farfetch, a cool new startup, Orkiv :-), or by a brand. We are working with RFID companies, we’re working with hologram companies. It’s not like we’re going to build all this stuff ourselves. It’s a bit like building an operating system for a shop — you build the apps.
One essential component is what we call the “Shop Floor” app. That’s the app that shop assistants will have. With this one, we will tend to do everything in-house, because it’s what handles all the data from the various points.
BoF: And what about on the customer side of the equation?
JN: On the customer side, we have the Farfetch app, which works with Store of the Future. But in the future, we will also create white label apps for brands or just provide the API, so they can integrate this into their own apps themselves.
BoF: Of course, when Apple launched the iPhone, it was hard for anyone to imagine all the apps that people would build on the iOS platform. But what are the kinds of things you think people might build on top of this (or Epic Commerce)?
JN: To your point, it’s very hard to imagine. Who knew Shazam was going to let you recognize music on the spot and direct you to the iTunes Store, or that you’d have dating apps… What we are demonstrating is a few use cases, which for us are quite simple yet powerful. Being recognized as you come into the store, which is either via Beacons or via a wallet like your Apple Wallet, scanning in like you would with a boarding pass for a flight. Then, there’s what we call “offline cookie,” which is a technology that automatically adds products to your wish list on your app as you touch it in the store, without having to scan anything.
BoF: How does it work?
JN: It’s basically RFID and your phone’s radio frequency. It detects you as the person closest to a piece and that piece has moved. And so just by moving it from the rail, you’re adding it to your wish list. Then there is the fitting room experience of the pieces you liked. Want to try them all on in 5 minutes? They’re there. Using the mirror, you can also request different colors, different sizes. You come out with the pieces you want. Then there’s the payment part, which is completely mobile in the middle of the shopping floor, so you don’t need to do it by the register. And by using your app to pay, you are also connect with the shopping assistant in the shop, which whom you can enter into dialogue and keep in touch. These days, it’s very common you go into a store and connect on WhatsApp. Connecting with customers has become a major tool for shop assistants, but it’s still a bit quirky and they ask you to fill out bits of paper. Here, that becomes automatic.
It’s all very millennial-style negotiation: I’ll give you my data if you give me something in return. That’s what we do every time we open Instagram, every time we open Facebook. We know those guys are gathering all this data, but the exchange makes sense. Data is currency and I expect something back. This needs to be an absolute practice for the “Stores of the Future.” But once you get a consumer to [share their data], it’s gold dust (much the same reason we collect and actionably use customer data within Epic Commerce)… You’ve asked permission from the customer to drop a cookie. It’s a brick-and-mortar cookie. And you will be able to know everything: how long the consumer was in the store, which products were picked up, what did she try on, what were the sizes that fit and the sizes that didn’t fit, what are her preferred payment methods, does she have it delivered to her house, her hotel… and that cookie will be linked to the online cookie as well.. So then you have a real single view of a customer.
What you can do with that data is offer a super-personalized experience, both online and offline, it also makes your company much more efficient. Take marketing; imagine targeting a customer on Instagram because you know that five hours earlier they’ve been to your shop and they’ve picked up a certain bag. And, let’s remember this is currently where 90% of the action is happening.
BoF: How are you charging for all this?
JN: The commercial model is not defined yet. The philosophy of Farfetch has always been win-win. Our platform is a pure revenue share model. There’s no minimums, no set-up fee. Black & White is mostly a revenue share model as well. Store of the Future obviously involves physical hardware, which involves set-up costs and stuff like that. But we will never be a hardware company; we will never be a software licensing business. We’re in the business of revolutionizing retail and being a positive force for the industry. If we do that, there will be money to be made for everyone. And then how we split it needs to be win-win for both sides.
That’s quite an impressive vision for the future of retail, and I agree with much of what was said. The store of the future is much more personalized, much more data driven, and far better at using machines to make our jobs easier. The technology is already available (right within Epic Commerce in fact) to take advantage of this revolution in retail, it’s about connecting the pieces to make it all work nicely together.
In-store technology has, in my own opinion, not even begun to take shape. Luckily there will be plenty of extra store space to experiment with in 2017… All jokes aside, it really is a very telling time for the future of retail. Technologies which are able to spread quickly, entice customers with a proper experience, and deliver a more efficient process for retailers to utilize will be the foundation to build the new retail format. Like Jose said, the consumer is in a position where they are willing to share their information, as long as there is a proper trade-off. If the trade off happens to be a more enjoyable, cost effective retail experience, completely personalized to her preferences this is a truly engaging shopping experience that will, in fact, over-power the online equivalent. Though I just said online equivalent, the online and offline experience will continue to become more and more aligned with the consumers wants. This convergence can bring a whole new era of retail shopping with surprises at each different brand.
Unfortunately, many retailers, due to a variety of reasons but primarily from an underutilization of technology will not survive to see the new retail format. They have failed their consumers with a less than impressive retail buying experience, and a lack of understanding the true needs of consumers in this ultra-connected world. Though this is the trend, there exist solutions that can solve many of these problems, transforming the store into something people enjoy again, combining the strengths of an online and offline presence. We have set out to build this platform, and it has taken shape just the way we imagined. Not only do we look forward to the future of retail, we’re powering it. Exciting times lay ahead for the retailers willing to adapt quickly and efficiently to meet the consumer expectations.
If you’ve got questions about the future of your retail presence, be sure to reach out. If not for a full-fledged solution but to chat about your own ambitions and how we can help make it happen. Looking forward to seeing some comments and as always reach out with comments, questions, or statements… email@example.com | 401–300–4653