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Episode 12: Virtual reality and the future of the retail industry

From Sears to Toys 'R' Us, stores across Canada have been impacted by rapid change in the retail landscape. Some have faltered and closed their doors while others have adapted.

In this episode of Like Nobody’s Business, Mark Lee, interim director of the School of Retail Management, discusses what he foresees for the retail industry this year and how virtual reality and artificial intelligence will impact shopping.

Virtual reality and the future of the retail industry

Nadine Habib:

From the corner of Bay and Dundas in downtown Toronto, this is Like Nobody's Business, a podcast of thought leadership and business innovation.

I'm your host Nadine Habib. From big box retailers like Sears and Toys R Us to specialty stores like Nine West, 2018 saw many popular retail brands either close locations or file for bankruptcy. On today's episode of Like Nobody's Business, I sit down with Mark Lee, associate professor and interim director at the Ted Rogers School of Retail Management. We discuss retail trends shoppers might see in 2019 and how the retail industry is rapidly changing with the rise of e-commerce.

Mark Lee:

I think we're starting to see an evolution in retail in a variety of different ways, and one of the most exciting trend that we're starting to see is this area of phygital retail. And that is this integration of physical stores with digital retailing.

And what I mean by that is e-commerce has existed for quite a bit. We're starting to see evolution of Amazon becoming a dominant force in the industry, but that's done in a very separate way, and we're starting to see big box retailers also succeed. But what we're starting to see as the formation of big box retailers, these physical stores integrating the digital components into their stores. And so we're starting to really acknowledge that becoming phygital is the way of retailing in the future.

So not just worrying about what's on the shelves, but how can we leverage social media, how can we leverage online marketing tactics? How can we leverage different platforms that we have, whether it's Instagram shopping, Facebook, Kijiji, all of these different aspects that you can leverage.

Rise of the physical and the digital retail era is a sort of the trend that we're looking out into the future. E-commerce is always willing to grow, but the physical channels is going to be the most important channel for retailers. Even in Canada, e-commerce only takes up about 10 to 15% of all the shopping activities that exist, which is surprising because we assume that online stores are really taking over the physical stores, but that's not necessarily the case.

The physical stores are starting to integrate these technology capabilities such that there's this integration of omnichannel retailing that's forming, so that's definitely been a strength in 2018, and it's only going to be more enforced in 2019 and onwards.

But one of the big trends in 2019 and onwards that I'm starting to see is this idea of a personalization privacy paradox. And what I mean by that is most customers are wanting more personalized and customized options for them. When we watch Netflix, we like the fact that movies are catered to our interest and it's personalized directed to us. When we shop on Amazon, the recommendations are provided in such a way that is personalized to us.

Research has shown that at least two thirds of consumers do want these personalized and customized options. However, in order to get these personalized options, it is important to give more information to the retailers, and more and more customers are becoming wary of how their information is being used. With data breaches that's been going on a different variety of retail stores from big companies to small companies. People are becoming more sensitive about how their information is being used. And we're not just talking about demographic information or credit card information, we're also referring to information such as their behavior or how long they're shopping or how many items they put in the shopping cart.

 So on the degree to which people are becoming more aware of how their information is being shared, is going to be a trend. So there's this conflict that retailers are experiencing because to provide more personalization we need more information. But to ask for more information, people might become more sensitive and becoming less willing to provide that such information. So that's definitely one of the trends going forward.

Another trend that we're starting to see is alternative payment systems. So, our credit cards and debit cards are becoming a force in the industry. People have talked about how it's starting to become more of a cashless society, but retailers are starting to take that even a step further. So I'm not necessarily referring to cryptocurrencies in any way, but I'm more or less referring to different types of payment systems such as WeChat, UnionPay, Alipay.

With a lot of Chinese consumers in Canada, we're finding different forms of mobile payments to be popular other than using credit cards and debit cards. So we're starting to see more alternative payment systems arise. I know even in Toronto there's a popular C2C marketplace called Buns and people can share, people can post items that they no longer want and find value. Now Buns have started this, their own currency called bits, which can be used towards purchasing. Also bits can be used at certain retail stores.

So for example, Drake General store accepts bits as payments for some of their products as well too. So we're starting to see more alternative payment systems rise and that would be the next evolution of how we pay for and how we consume goods.

Nadine Habib:

Wow, that's really interesting. A lot of changes.

Mark Lee:

Yes.

Nadine Habib:

Potential for change. Okay. So we talked a little bit about 2018, 2019. What about what do you think's going to happen for retail in the longterm? So what's the future of retail looking like? A lot of people are really worried about big stores or big e-commerce places like Amazon and eBay, but you just said that only 10 to 15% of Canadians actually are doing e-commerce. So what are your thoughts about that?

Mark Lee:

Physical stores will always remain, but it's how, it's what physical stores that will remain. So physical stores that are really embodying encompassing this concept of omnichannel retailing are going to thrive and succeed in the future. If you only focus on the physical elements of the store without any integration, then it will be very tough for them to survive.

That's why analytics is becoming important. More measurements of how digital analytics, digital ways to collect information and data is going to become an important future in retailing. But if we're to look five, 10 years down the road, I think the potential is in automation.

Lot of decisions, lot of activities in retail are starting to become automated. And when I say automated, people automatically think about replacing jobs, but not in that way. Automated in terms of decision making so that consumers don't have to expend as much cognitive or affective effort in terms of what to buy, right? So perhaps it's automated delivery of certain goods that are personalized just to you. So I feel like the trend towards automation is going to be definitely the wave of the future in the next five, 10 years.

 Another aspect that I do see great potential is augmented reality. So we're starting to see that in a very small way with mobile phones and it's just starting to pick up in more of games and kind of neat tricks. But more and more you're going to see augmented reality be implemented in retail stores, such that people may get more information about the product.

So if we were to scan our mobile phone towards a particular clothing, we can even see where it was made, how it was made, right? So more information can be provided through those means and retailers have a lot more potential through that to provide access to information that consumers may not have.

Nadine Habib:

Right, I think I had heard that Ikea is creating an app where you can actually size the furniture in your room, like, you can just hold up your phone and then it shows what it would look like. So something similar to that.

Mark Lee:

Right. So that's definitely a start to get augmented reality to be real to you, right? So Ikea is one of the forefront leaders in doing that. A lot of cosmetics companies are starting to do that as well, so it's becoming more accepted, but it's not as practiced a lot in the other retailers, right? So as more and more consumers, customers become comfortable with using their phones or using other means to accept augmented reality. I think that's just going to take off.

Nadine Habib:

Right. Okay. Speaking about augmented reality, you're actually doing some research in almost at the intersect of retail and virtual reality and how virtual reality impacts your sense of pressure and patience. Maybe you could tell us a little bit more about that?

Mark Lee:

Sure. I explored different areas of research in virtual reality. One aspect is virtual reality and tourism. So I particularly look at the content that's delivered in virtual reality. So we find that virtual reality enhances the level of comprehension of memory of particular destinations.

Other research that I've explored look at a virtual reality enhancing charitable donation behavior. I've also looked at time patience, how people may become more patient within a virtual reality setting, so that alters their perception of time and how they operate within the virtual reality setting.

So a variety of research is kind of on its way currently and I'm looking to kind of find more ways how virtual reality can be integrated into a retail setting. So I haven't explored in depth on that particular aspect, how virtual reality can be used for product decisions or variety seeking behavior or buying behaviors or purchase intentions. But that's definitely in the forefront of my agenda in the future.

Nadine Habib:

Okay. And finally, the School of Retail Management is going to be celebrating its 20th anniversary in March, which is a huge accomplishment. What does this milestone mean for the school and how far has the school of Retail Management come really in the last 20 years?

Mark Lee:

This is an exciting time to be in the retail management program. The 20 year marks a history of not just the academic program developing in 20 years, but also the retail industry. The retail industry has transformed so much in the 20 years. If we think about how people shopped 20 years ago, online e-commerce was not something that people really had in the forefront of their mind, but now if you look at our curriculum, we focus on e-commerce, we focus on social media, we focus on digital retailing.

Also, I think the topics that we're starting to introduce really lines up well with the development and the evolution of retail. The 20th year anniversary also sort of marks the historical as the only program in Canada that focuses on a retail management degree. McGill just recently started a new degree as well, but we feel that we're really a prime position to talk about retail and be experts in this area.

So we're extremely fortunate to be near the downtown Toronto where we have access to a lot of the companies. We have great support from big time companies such as Loblaws, PWC, I'm not going to list them all.

Nadine Habib:

I'm sure there's many, yeah.

Mark Lee:

We have great support from major companies in the Toronto area and we feel very fortunate to be in this position. In terms of where retail management is heading, we want to outgrow our program and just recently, we recently heard that there was an uptick of 30% in the number of applications that was submitted to our program. So we're starting to see the growth. We're starting to see the interest and we just hope that we can take this program and make it to be one of the top retailing programs in the world.

Nadine Habib:

Wow, amazing. Thank you so much Mark. Really appreciate it.

Mark Lee:

Thank you.

Nadine Habib:

Like Nobody's Business is a presentation of Toronto Metropolitan University's Ted Rogers School of Management. For more information about TRSM, visit ryerson.ca/TedRogersSchool. Thank you for listening.