The 9 Biggest Retail Innovations of 2022
Retail is growing a new (and thicker) skin.
If 2020 was a year of businesses reacting to disruption, 2021 was one of acting and adapting. Who would have expected scanning QR codes at a restaurant? Or being able to try on beauty products without going to the store? We charted some of the biggest retail innovations of last year in our year-end post.
2021 saw the promise and possibilities of merging retail with technology, evidenced by the rise in fintech solutions and augmented reality. In fact, funding for retail tech startups in the US reached nearly $27 billion by the end of Q3 of 2021. The year also saw significant acquisitions and partnerships between retail and tech companies.
E-commerce players are excited about these retail innovations and want to push the limits on digital, especially in physical stores. We expect 2022 to continue blurring the lines between online and offline spaces.
Retail has proven to be resilient, mainly because of retailers’ ability to keep up with evolving consumer demands. As we enter 2022 with a better idea of what we need to strengthen, namely last-mile fulfillment and commitment to sustainability, we present our list of the 9 biggest retail innovations of 2022.
1. Brands will invest in the supply chain.
One of the biggest challenges that retailers are facing is the supply chain disruption, which has had a negative or strongly negative impact on 75% of companies. Mass factory closures, labor shortages, and higher demand, among other factors exacerbated by the pandemic, created a perfect storm for bottlenecks in the global supply chain. In response, retailers enlisted emergency measures, like air shipping, and maintained communication with customers about delays.
However, the pandemic demonstrated how pervasive the consequences of the weakened system can be. As Accenture states in its report, “The scale of its impact eclipses anything most supply chain leaders will have seen before.”
Instead of being purely in survival mode, retailers should recognize the importance of rethinking and investing in the supply chain in 2022, not only in terms of reducing the cost of operation but also with regards to sustainability. With increased public and industry-wide expectations for sustainability, it is the perfect time to innovate with attention to environmental impact.
“The difference between good and great is going to be those brands, those businesses, that really understand how to pivot their supply chain toward [the] customer and that DTC model,” says Under Armour COO Colin Browne in an interview with Retail Brew.
2. Brands will optimize last-mile delivery with tech-fueled fulfillment.
The part of the supply chain that customers arguably care about the most is last-mile delivery, namely when their products are delivered timely to their front door. Amazon is reputable for its two-day shipping, which it upheld even during the pandemic.
The majority of businesses might not have the same capabilities as Amazon to create their own containers and work independently from the global supply chain, but we’re seeing several retail innovations that can help optimize last-mile delivery in different ways.
- DoorDash is expanding into retail delivery and has already partnered with JC Penny to deliver products to customers within the same day.
“Smart” Boxes for Grocery Deliveries
- Walmart and HomeValet
- Bell and Howard
3. Brands will continue to bridge the gap between physical and digital shopping spaces with experiential retail and other engaging retail innovations.
There’s no better way to shop than by going into the store and trying out the items for yourself — except for maybe being able to do the same thing but from the comforts of your home.
That’s what beauty businesses tried to do when the pandemic kept customers indoors. Cosmetics brands have tapped into augmented reality (AR), which places virtual objects within real-life environments, and are now offering virtual try-ons (VTO) for beauty products. Fashion and furniture brands have also incorporated AR experiences into their online stores, with other specialty goods following.
How brands are elevating the digital experience with AR:
- L’Oreal uses an AI-powered device that allows shoppers to create personalized lip colors. The brand also launched the first virtual mirror app called Makeup Genius, which has been downloaded over 20 million times, that allows users to try on makeup shades. Both innovations are part of L’Oreal’s technology incubator.
- Eyewear brands like MOSCOT, Warby Parker, and Bailey Nelson have integrated VTO capabilities that allow shoppers to complete a thorough evaluation of the fit. Since these AR integrations, MOSCOT reported that its overall revenue increased by 174%. Bailey Nelson has seen a 600% increase in online conversion rates since rolling out its VTO offering.
- Furniture stores that use AR can help customers determine if the product has the correct sizing. IKEA paved the way for using AR in the industry with its IKEA Place app launch in 2017, with other furniture retailers following.
While AR capabilities with clothing are still limited, experts are optimistic about AR’s universality. Daniel Beauchamp, principal engineer of VR/AR at Shopify, says, “Within the next five years, we’re probably going to get to the holy grail: really high-fidelity AR try-on clothing.”
Why augmented reality will become an essential in e-commerce:
- Increases customer confidence and lowers return rates
- Provides a more engaging way for brand storytelling
- Offers more flexibility to the customer
For shoppers who are nostalgic for the physical stores, they can expect elevated in-store experiences with AR-powered systems, as well as other engaging retail innovations like hands-on encounters and in-store app functionalities.
Lastly, there are ways that brands can tap into experiential retail without the AR component. The psychology behind experiential retail’s appeal is the same: “The pandemic had led people to really value travel and experiences and has created a wave of additional demand that is here to stay,” says Kushal Negi, co-founder of Glimpse, a company powering experiential retail through short-term rentals. Read more about it in our whitepaper.
4. Brands will tap into headless commerce for increased agility and response time to changing trends.
It won’t be long until headless commerce becomes a core component of omnichannel strategy. Headless commerce, a long-time buzzword, is finding its way into the spotlight again—with business owners recognizing its potential, 2022 might just be its year.
What is headless commerce? A solution that decouples the frontend of an ecommerce platform from its backend. The frontend encompasses everything that is user-facing, such as the physical store and landing and checkout pages of a website. The backend is the database and code that enable a platform to function.
What are the benefits of headless commerce? The independent function of each end means increased flexibility, since businesses can personalize the frontend efficiently without changing its entire backend system. Everyone knows how important personalized shopping experiences are for customer loyalty and retention, so the ability to personalize for every customer gives businesses a competitive advantage.
Other benefits include:
- Sustainable platform speed and performance - Headless commerce allows website speeds to stay optimal, regardless of how busy the frontend is or how much traffic there is.
- Increased team performance - Almund's newsletter said it perfectly: “Most developers aren’t designers and vice versa.” By going headless, businesses give their developers and design teams room to work their strengths independently while contributing to the success of the entire system.
- Increased agility for trying out the latest retail innovations - Businesses don’t have to miss out on the latest trends in ecommerce for fear that they might not work out. Headless architecture lowers the stakes for trying out the newest retail innovations because changes made to the frontend won’t affect backend operations.
Consistent customer experience across all channels - The pandemic has turned many channels, namely social media platforms, into sales opportunities. Headless systems allow businesses to deliver consistent experiences across all channels, making headless an important part of omnichannel strategy.
“The difference between good and great is going to be those brands, those businesses, that really understand how to pivot their supply chain toward [the] customer and that DTC model,” says Under Armour COO Colin Browne in an interview with Retail Brew
5. The instant grocery delivery market is experiencing an arms race, and third-party services can expect competition as grocery retailers look to build their own delivery options.
One pandemic habit that has stuck with consumers is ordering delivery for virtually any grocery item. In big cities like New York and San Francisco, delivery workers speed on bikes, motorcycles, or in cars to deliver fresh groceries. Explosive consumer demand has led to the establishment of countless instant delivery startups.
These startups are experiencing tremendous growth. GoPuff, for example, raised $3.4 billion from investors in 2021, while Jokr became a unicorn (valued at $1.2 billion) in less than a year of its founding. Their appeal in city hotspots make sense.
“Big cities are not only easy to navigate for fast delivery, but often have a higher share of younger population, smaller households, [and] preference for ready-to-eat foods and snacks versus cooking a family dinner every night,” Inna Kuznetsova, CEO of 1010data, said in an interview with Retail Brew.
College campuses, where students with busy lifestyles and unpredictable schedules are often limited in food options and dining times, are another hotspot for instant delivery services.
The market is projected to become even more saturated as grocery retailers look to build their own delivery options. Many grocers regret handing over so much delivery business to third-party services, according to the NRF.
6. Resale goes mainstream, thanks to supply chain constraints and the growing importance of sustainability.
“Resale has undeniably gone mainstream,” says The RealReal president Rati Sahi Levesque in the company’s 2022 luxury consignment report. Luxury resale in particular has experienced an increase in adoption across all generations of shoppers. The RealReal (TRR) identifies two reasons for why resale has gone mainstream: enduring supply chain issues and the sustainability-motivated customer.
Supply chain issues. Low inventory caused by supply chain disruptions forced customers to shop outside of the primary market. TRR added that increased prices, due to rising shipping costs, also made resale a more attractive option.
Sustainability. Today’s customers are value-driven, with nearly 75% of them valuing sustainability over brand name, according to a study from First Insights and the Wharton Baker Retailing Center. Customers are looking to extend the life cycle of their products, and resale provides the perfect opportunity for buyers and sellers.
The RIW newsletter put it best: “The price point and saving money helped fuel the resale boom, but now consumers are staying for the sustainability, variety, and street cred of used apparel.” Used apparel sales are projected to reach $77 billion, according to a survey conducted by ThredUp.
7. Subscriptions will become a major DTC opportunity.
If you’ve ever used Spotify or Netflix, you’ll understand why subscriptions are so powerful. The pandemic has expanded the use of subscriptions across many industries, from entertainment to groceries and other CPG products.
How do subscriptions create value? Our partner Smartrr, an e-commerce platform that powers subscriptions, provides insight. Ashley Stone at Smartrr shared with us why subscription is an important channel for DTC Brands: “A strong subscription and membership experience can impact your business in three main ways:
- Create a unique customer experience to generate strong brand affinity coupled with liftable subscriptions, rewards, or referral programs will result in your consumer base bringing their friends and family to your brand.
- Decrease churn by providing better communication around upcoming orders and clear, actionable ways to adjust a subscription.
- Provide a more convenient experience to outweigh a customer’s desire to try your competition.”
8. Live-selling, already a major sales channel in China, will become the next big thing for US e-commerce businesses.
People love to multitask and do a lot within a short amount of time. Live-selling, a combination of live streaming and online shopping, hits this sweet spot. It allows users to watch and shop at the same time, which encourages instant purchases.
Live-selling became a major sales channel in China in less than five years. In 2016, Alibaba launched Taobao Live, pioneering an innovative approach to commerce. According to McKinsey, the first 30 minutes of a 2020 presales campaign for Singles’ Day, a major shopping season in China, on Taobao Live generated $7.5 billion in transaction value.
While retailers in the West are still warming up to live-selling, early movers are recognizing the immense potential of the medium as a sales and customer acquisition channel. McKinsey analysts predict that “live-commerce-initiated sales could account for as much as 10 to 20 percent of all e-commerce by 2026.”
How does live-selling drive value?
- Accelerates Conversion - Live commerce involves selling products in real time, which involves a sense of urgency that encourages viewers to claim discounts or seal the deal. The entire shopping process, from discovery to purchase, occurs in one space, driving up conversion rates to as high as 30%, which is up to ten times higher than in traditional e-commerce.
- Creates Opportunities for Brand Storytelling - Content creators have leveraged different formats, such as tutorials and behind the scenes, to communicate a brand’s story in a way that is entertaining and informative.
- Increases Shopper Confidence in Products - Live commerce allows sellers to engage with viewers through comments, Q&As, and reactions. Sellers show how to use a product, which increases the product’s legitimacy and authenticity.
9. While Web3 is still a work-in-progress, it is a must-watch in 2022, especially for DTC brands.
NFTs, cryptocurrencies, Web3. These are new and buzzy words in the business and tech vocabulary, but Web3 in particular has been stirring the headlines. Across media outlets and platforms such as Twitter and Discord, many people are curious to know: what exactly is Web3 and what does it mean for the future of tech?
Most websites today are owned by corporations and usually need to follow government regulations. The new technical infrastructure of Web3, however, is leveraging blockchain technology, which only allows access to data by the people who own it. The infrastructure, characterized as open, trustless, and permissionless, allows interactions to take place without a trusted third party. One common example of Web3 is bitcoin, a digital currency that operates independently of any central control.
How are brands getting into Web3? While Web3 is still an emerging concept, brands are already starting to leverage Web3 and NFTs as these trends continue to become more mainstream. Established corporations especially are leading the movements within the increasingly popular market.
- This past November, Budweiser launched an NFT campaign, called The Heritage Collection, of nearly 2000 unique digital cans that sold out in less than an hour. An homage to the brand’s iconic history, the campaign was an innovative way for Budweiser to strengthen consumer relationships.
- This past December, Nike acquired RTFKT, a leading NFT and collectibles brand. The goal was to “serve athletes and creators at the intersection of sport, creativity, gaming and culture”, says Nike President and CEO John Donahoe.
- Earlier this month, Adidas announced the launch of an interactive art project, in collaboration with Prada, that will be sold as an NFT.
How does Web3 create value? The system might also play an important role in the ecosystem of DTC brands, many of which are digitally native. These brands operate without a middleman and value customer relationships immensely. Some people have identified Web3 as a powerful way to build community.
Aubrie Pagano, general partner at Alpaca VC, says that blockchain enables stronger brand-consumer relationships, and brands can use “NFTs and blockchain as incredible loyalty and membership mechanisms.”
While we can only wait and see, there is certainly immense potential for Web3 to be an extension of marketing to cultivate community.
2022 will undoubtedly be a busy year for brands and retailers. If China is any example, we predict that live-selling will likely become an important part of businesses’ omnichannel strategy. We also have high expectations for experiential retail and its ability to replicate in-store fittings as accurately as possible online.
Some of these retail innovations come with playbooks that just need updating, while others will have theirs written as the year unfolds. Regardless of the trends stage in development, we hope that these trends are moving commerce in the right direction. They signal the development of a more resilient and consumer-centric ecosystem, and we are excited to see the impacts that they have on different brands and which brands are adapting them.