Insights and Drinks: Retail, E-Commerce & Logistics

Coresight Research, together with Hong-Kong-based Vectr Ventures, a venture studio working with entrepreneurs, co-hosted an event “Insights and Drinks: Retail, E-Commerce & Logistics” on April 11 in Hong Kong. At the event, business leaders, venture capitalists and industry experts shared their views on retail, e-commerce and logistics. Louisa Zhang, Vice President of Vectr Ventures shared her views on e-commerce and Deborah Weinswig, CEO and Founder of Coresight Research, pointed out the growing importance of artificial intelligence (AI) and the potential wider application of smart robots.

E-Commerce—A New Business Model

Incumbent retailers are trying to build their own e-commerce capacity in this wave of digital transformation. However, simply setting up an online storefront does not in itself equate to the successful digital transformation of retail. Louisa Zhang, Vice President of Vectr Ventures, pointed out that an online retail business also needs to consider brand building, after-sales services, logistics and all other functions that a brick-and-mortar retailer would need to. Most importantly, e-commerce is more about solving the pain points of existing retail channels with a new business model. Take online startup Stitch Fix for example. The company charges subscribers a $20 styling fee to deliver monthly subscription boxes that contain personalized fashion items. Subscribers need only buy the items they like or find suitable and can return any unwanted items. Using a style quiz to determine a subscriber’s style and tastes, Stitch Fix is then able to curate a portfolio of fashion products specifically suited for that subscriber. With its flexible returns policy, Stitch Fix is able to better understand the preferences of its subscribers, which helps it further tailor its curation for each subscriber. Founded in 2011, the company is now valued at over $2 billion.

AI in Retail

The market for AI is growing rapidly. Market intelligence firm Tractica forecasts that the market for AI will reach $2.2 billion by the end of 2018 and expand at a compound annual growth rate (CAGR) of 50% to $36.8 billion by 2025. Although there is currently under investment in AI in the retail sector, venture capitalist (VC) funding for AI more than tripled to $14.2 billion in 2017 from $4.2 billion in 2016, according to Venture Scanner, an analyst and technology-powered startup research firm. Deborah Weinswig, CEO and Founder of Coresight Research, pointed out that AI is expected to gain traction, as is evident from the increasing number of documents from retailers that reference AI and machine learning.

  Note: As of April 4, 2018; YTD – year to date Source: Girata

Smart Robots—The Next Wave of Retail Transformation

Currently, AI is manifest in retail in the form of human-less stores, most notably Amazon Go in the US. Weinswig says that we could see increasing manifestation of AI in smart robot applications as soon as later this year. Looking at a breakdown of venture capital (VC) funding in 4Q17, the most funding over $800 million went to smart robots. This indicates that a growing number of venture capitalists are seeing value in smart robot applications and are channeling resources to develop startups in this category.

Note: ML denotes machine learning, and NLP denotes natural language processing. Source: Venture Scanner

One pioneer in AI and retail technology applications is Walmart, the largest US retailer, which launched autonomous scanning robots to scan shelves for empty spots and to check price tags. The machine can scan an isle in about 90 seconds, just a fraction of the time it takes a human employee to do the same job. Walmart is currently testing the robots in 50 stores across four states. The industrial application of smart robots could drastically improve the operational efficiency of retail stores.

Source: CBS

Takeaways

E-commerce involves more than simply setting up an online storefront. It is more about a new business model to solve the pain points of existing retail channels. AI, which is forecast to grow to $36.8 billion by 2025, could bring a new way of transformation to retail, as evident by the surge in AI investment in 2017, with VC funding reaching $14.2 billion. Currently, AI is manifest in retail in the form of human-less stores. Smart robots could be the next wave, with Walmart launching autonomous scanning robots to improve operational efficiency as just the beginning.