Keeping Bricks and Mortar Relevant

Keeping Bricks and Mortar Relevant by David Stukus

We all know that e commerce continues to be a force to be reckoned with, With e-retail sales accounting for 14.1% of all retail sales worldwide, ecommerce continues to grow at a speedy rate despite global economic uncertainty. What’s more, Statista forecasts that these figures will keep growing and reach 22% in 2023.

My family is certainly a contributor to this incredible growth, and rarely does a day go by in which we don’t have a delivery from one of those ubiquitous blue and gray sprinter vans.

But, I am still old school, and since I have over 25 years in traditional brick and mortar retail experience - I am rooting for bricks and mortar retail to remain relevant. Sure, we are always probably going to need to run to the store, but with the pace of technology - who knows what’s in store (pun intended) in the next decade.

One area of technology that retailers are quickly embracing is Artificial Intelligence (AI) and Machine Learning (ML). According to a recent article in the Wall Street Journal, the Covid-19 pandemic has accelerated corporate digital transformations, with many companies now relying more on AI algorithms to forecast demand, make products smarter, improve the customer experience and boost other business functions. Many retailers are using AI and ML for online analysis, merchandising and product recommendations. But there are also many retailers, particularly in the grocery channel using AI and ML to help keep bricks and mortar relevant, which is music to my ears. Many of these power players are using AI to help with retail execution, most notably with inventory and out of stocks.

There are a lot of statistics out there, but the general consensus is that retailers lose 3-5% of sales on store level issues like out of stocks and planogram (POG) compliance issues. Below are some other facts supporting the need to implement AI out of stock tracking programs and automated software that detects non-compliance of POGs:

· Research from Grocery Manufacturers of America attributes 70–90% out of stock to poor shelf replenishment practices. An empty shelf does not necessarily mean a lack of inventory at the store, but it is still not on the shelf, which accounts for a lost sale.

· According to the Category Management Association, 28% of items do not meet planogram placement requirements.

· According to Cognizant, less than 60% of retailers have a way to measure compliance and most product categories are less than 50% compliant with POG.

· RIS estimates that lack of compliance and poor retail execution are responsible for $1 to $30M in lost sales for each retailer in the US. Additional findings from an RIS study from July 2013:

· In a P&G study from Gruen and Corsten conducted for FMI, they found that a 10% change in planogram compliance resulted in a 1% change in the level of out of stocks (OOS). So those retailers with low compliance levels could lower their OOS by addressing POG compliance.

I have done significant research in this area, and in the last few years, dozens of companies have emerged and are partnering primarily with supermarkets utilizing some form of AI to help improve OOS positions (and thereby preventing customers from having to order the item(s) online). Different approaches are being used by many different companies, including:

  • Deploying cameras on shelves to monitor in stock position and POG compliance.

  • Utilizing robots with cameras that travel the store.

  • Piloting drones to capture shelf images.

  • There are many simpler versions in which AI is used to analyze POS data to help determine where the greatest OOS and POG issues are occurring.

Regardless of which system is used, bricks and mortar retailers in all channels need to ask what they are doing to stay competitive in this omni-channel world we are living in. I think we are going to see more retail technological advances in the next decade than we saw in the nearly 50 years since that first UPC scan of a pack of Wrigley gum was made in the great state of Ohio in 1974.