How AI and automation is powering the future of retail

 

By Line Heidenheim Juul

A lipstick delivered in just 6 minutes from initial order online. Can you imagine that? By using algorithms and artificial intelligence (AI) for prediction, this is exactly what JD.com did during the last big shopping festival, Singles Day, last year. This is only possible because of predictions build on algorithms and access to understand the customers’ needs at any given time.

While the new models of retail have user centricity at the heart, they are also about how technology can empower exactly that. For brands to see and impact customers holistically and meet needs, there must be efficient, fast, and affordable availability of goods. And that does not come without tech. What is driving the delivery? Huge scale applications in real consumer scenarios and artificial intelligence-powered insights to predict demand straight from the consumers to the manufacturers. This is supported by investments in tech for unmanned warehouses, robot delivery and automation.

AI predicts user demands

With more than 471 million users, insights into user behavior can predict user patterns and demand. That also goes for a special period like COVID-19 when users’ holistic purchase patterns changed. Big players like JD.com, Alibaba and PinDuoDuo all saw a surging demand and search for masks, disinfectant, and similar protective products. The platforms were able to start predicting demand and curb the products that in extension was offered to customers.

Before Covid a customer might be offered medicine if searching for masks, whereas during and around Covid, they would now be offered hand sanitizer. Similarly, for the doomsayers, who started hoarding toilet paper, they would be offered instant noodles, as the platforms could quickly change and adapt offerings and stock because of artificial intelligence and big data analysis. The negative sides of AI are often discussed, whereas the crisis and how quickly things unfolded, showcased the value or positive side of AI and its ability to understand people’s behavior and changes in behavior.

Drive data input

The input of data comes from searches and from purchases, but platforms like JD.com also work with pro-active measures to be able to meet demand. An example is for the past few years Singles Day Grand Promotion (Nov. 1-11). Many platforms promised bigger discounts on attractive products, if consumers put down an initial low deposit ahead of the “sales period” so that come sales kick off, they could secure the product and discount. This way, the platform has a better chance to control supply and stock in automated warehouses, and this is also how the lipstick got delivered so fast.

Data input is also driven in large part by omnichannel approaches, popularly known in China as “new retail”. Physical spaces become experience centers, that employ AR, VR, and other methods to connect with phones. That allows the user to have a more holistic experience overall and brands to grasp consumer insights across venues. Loyalty programs unlock unique experiences, that optimizes and maximize the time spent on online and offline venues.

We will not go into that in this blog, but check out this previous blog on digital trends and this one on social shopping or join us for the upcoming event on The Future of Retail.

Automation and logistic is key

In order to deliver on the massive amount of data, a comprehensive distribution network is needed. One of the solutions that JD.com was early to invest in was automated or semi-automated warehouses, and they now boast over 28 nationwide smart logistic parks. Here parcels automatically sort on the sorting belt, and the robotics reduce labor intensity in the warehouse and make the process more efficient, which in turn gives the consumer a better experience, delivering faster than some of the competitors. Most orders can be delivered the same day, in some cases in only a few hours.

The driverless delivery is here

As first mover, JD.com has experimented with different forms of autonomous delivery, including pioneering drones for logistics e-commerce in 2015 and developing autonomous delivery robots in last several years. The newest generation of autonomous delivery robots can handle customer deliveries at an 80% reduced delivery time and using 50% less computing time. The robots send a text message to the receiver upon delivery, and the parcel can be accessed without touching the display, but by scanning a code with a phone.

JD.com and other tech giants like Meituan also experiment and last year launched a fleet of driverless robots to deliver groceries, while players like Alibaba attempt to implement robots in the hospitality and health care industry. The development of unmanned delivery is accelerated by the growing 5G network and IoT infrastructure that the Chinese government is heavily investing in.

Everything is not online – it´s omniwhere

While the e-commerce platforms can reach all corners of China, most of all retail still happens physically. JD.com, its peer companies and platforms that are born digitally like “The Beast” are investing in the physical stores. JD.com recently announced they are planning to dramatically expand their physical store network. According to their own surveys, two thirds of consumers also prefer a mix of online and offline, when shopping for appliances. The heavy investment in a wide network combined with advanced tech can give players like JD.com a competitive advantage against platform-based services, such as Amazon.

Can new solutions in retail go global?

There is no doubt that the scale of China cannot be replicated anywhere else, but will the Chinese solutions be able to go overseas? JD.com has made a range of strategic partnerships over the years such as with Google to develop joint retail solutions around the globe. They also have a partnership with Walmart which has become central to inventory integration and last mile delivery. The global partnerships are interesting and well worth paying attention to. JD also operates two joint ventures in Southeast Asia, JD.ID in Indonesia and JD Central in Thailand, employing a global + local approach to overseas expansion where the company takes some of the tried and true approaches from its businesses in China and tailors them to the local market working with a local partner, developing unique experiences for that market.

Others, like Alibaba are also trying to go global, but not with the same strategies as JD.com. Amazon has reached the European markets, and they are also deploying similar tech solutions, and experimenting with new retail. However, several of those technologies were implemented in China years ahead of the American giants’ attempts. That may still be the case, and there is therefore good reason to keep an eye on the Chinese tech giants, if for no other reason to get inspiration for the future of retail.

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Cecilie Kock