Shopper Experience

Retailers are the new tech companies

Brands and retailers are making plans to double down on digital approaches as stores reopen.

a shop on top of a computer keyboard

As ecommerce rose over two decades, it was often painted as an antidote to in-person retail.

The internet brought a reinvented shopping experience. Ecommerce platforms offered a wide range of goods available at low prices, ordered and delivered without leaving the house. Simultaneously, direct-to-consumer (DTC) brands brought fresh approaches in particular verticals that didn't change in years, and simultaneously setting the tone with style. They even made packaging fun. As with so many web-based businesses, they were characterized as disruptors setting out to replace the established incumbents.

Two years of acceleration during the COVID-19 pandemic made shoppers more comfortable with this mode. Ecommerce boomed. Not only were more shoppers turning to digital channels for purchases. Brands and retailers born in the analog era were now growing online businesses, too. With more exposure, the tactics of digitally native brands offered lessons for their larger counterparts. The era of disruption gave way to one of wide adoption.

Now, as pandemic restrictions pull back, ecommerce is returning to its pre-pandemic growth trajectory – steadily gaining share of retail spend year by year, but no longer gaining a decade's worth of growth in a single quarter. Yet, as shoppers are heading back out to stores, they are taking the expectations and habits of online shopping with them.

As UPS CEO Carol Tomé put it on the company's recent earnings call:

Retailers are more attuned to this than ever, and they are making adjustments in kind. Digitally native brands, facing increased competition with the growth of ecommerce, are interested in exploring the in-person route, offering an additional channel to meet shoppers.

What's next is not simply a return to in-person, but a combination of physical and digital shopping.

DTC brands are becoming more prominent at ubiquitous stores and growing their retail own networks, while brands that were already brick-and-mortar mainstays are opting for DTC strategies. Stores are fulfillment centers. Groceries are ordered via app, then picked up at the store. Ads are getting served in the aisles. Malls are getting built in Roblox.

Before, the store came to the internet. Now, the internet is coming to the store.

The era of blanding is giving way to one of blending.

This puts the more established brands and retailers in a unique position. They already have scale, and sizable store footprints that can be adapted. Yet, given the nature of the internet, they must also constantly innovate in response to what customers want. This means they will need to keep adding technology capabilities. They will do so by growing teams from within, and looking beyond their own walls. This is evident in the hiring and investment plans being laid by several consumer companies.

Transformative hiring

Lego plans to triple its tech team in three years.

Brands and retailers are scaling tech teams quickly.

With an increasingly digital business that combines its stores and an online marketplace with a growing number of third-party sellers, Walmart has a foundation for blended retail in place. Now, it is hiring more than 5,000 technologists this fiscal year, and setting up hubs in Toronto and Atlanta.

“We have a world class organization including technology, product and operations teams that we believe, combined with our retail strength and scale, will allow us to build a mutually beneficial flywheel that unlocks new revenue for Walmart while improving the customer experience for everyone,” Anshu Bhardwaj, Walmart SVP of Strategy and Tech Commercialization, told The Current.

Nike, which doubled down on a DTC and digital strategy that has brought growth, is set to join the company as a tech talent magnet in the Georgia metropolis next year. The athletic brand is planning to open a technology center that’s set to focus on supply chain and logistics, AI that improves shopper experience and cybersecurity.

Lego, long a primary proponent of building with one’s hands, is set to nearly triple the size of its tech team to 1,800 employees over three years. In the first building block to get there, it recently opened a new office with room for up to 400 team members in Copenhagen, and is planning three more.

“Our digital transformation is one of the single largest investments the LEGO Group will make in a generation,” said Atul Bhardwaj, Chief Digital and Technology Officer at LEGO, in a statement. “We’ve been blending physical and digital experiences for many years and are excited by our progress, but we have big ambitions so are accelerating our investment and expanding our digital team.

Rise of the retailer VC fund

robots in a warehouse Amazon is setting aside $1 billion to invest in robotics and other fulfillment tech. (Photo courtesy of Amazon)

In tech, small companies with big ideas and focus have huge advantages. Collaboration is a must in order to grow. Retailers must also be mindful of the startups bringing new products, and seek opportunities for partnerships that will yield mutual benefits. For particularly promising companies, there will be chances to support them, as well. There may be more room for retailers to play a bigger role in the startup ecosystem as venture investment among institutional firms cools off.

The Home Depot appears to recognize this. On Tuesday, the home improvement retailer announced the creation of Home Depot Ventures, a $150 million venture capital fund that’s designed to support technology that will “advance The Home Depot's ability to provide a seamless interconnected shopping experience, develop new and differentiated capabilities, and extend its low-cost provider position,” according to a news release. In particular, it is interested in backing technologies that can support homeowners, home improvement businesses, Home Depot associates and drive “operational excellence.”

The fund builds on The Home Depot’s past investment in startups such as freight technology company Loadsmart and same-day delivery platform Roadie, the latter of which was acquired by UPS in 2021. It comes amid signs that tech is being elevated at the company. It recently promoted Matt Carey to the newly-created role of EVP of customer experience and Fahim Siddiqui as CIO.

"With Home Depot Ventures, we're lending our support and expertise to enable rapid scale of innovation," said Richard McPhail, executive vice president and chief financial officer of The Home Depot. "This is an exciting opportunity to find and scale the next big ideas in technology and retail."

In the food sphere, Chipotle recently launched a $50 million venture fund to invest in restaurant technology. Known as Cultivate Next, the fund is set to back technologies that can assist in running restaurants, improving its food offerings and expanding access and convenience for consumers. In the first two signs of investment, the company is testing an AI-powered robot called Chippy to cook tortilla chips, and experimenting with RFID to track ingreidents.

"We are exploring investments in emerging innovation that will enhance our employee and guest experience, and quite possibly revolutionize the restaurant industry," said Chiptole CTO Curt Garner in a statement. "Investing in forward-thinking ventures that are looking to drive meaningful change at scale will help accelerate Chipotle's aggressive growth plans."

Ever mindful of staying ahead, Amazon has its own plans to invest in new robots as it seeks to back fulfillment technology that pushes logistics forward. With the new $1 billion Industrial Innovation Fund, the ecommerce giant has already backed five startups. With a massive fulfillment network built out (excessively, it turns out, at least for now) to keep up with demand, more investment is coming.

Going forward, it will be less and less surprising that strategies taken by the top ecommerce retailer and a chain known for its massive brick-and-mortar stores are sounding some similar notes. After all, they’ll be looking to reach many of the same shoppers, wherever they prefer to be.

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