Trends Changing Retail Part 2: Predictive Technology and Dynamic Pricing

Last week, we looked at two recent trends changing retail: webrooming and experiential retail. This week, we look at two more, predictive technology and dynamic pricing, and consider their impact on commercial real estate investors.

1. Predictive Technology: Predictive technology uses tools like computers, robots, algorithms, and more to predict the shopping behaviors and buying habits of consumers. Like predictive models used in economics and finance, predictive technology is used in retail to make decisions about customer service, inventory, pricing, and location.

Cameras, kiosks, and mobile apps are expected to take over the role of customer service representatives. Using these tools, retailers can analyze their customers’ shopping patterns and make suggestions about products and brands tailored to each individual.

Similarly, cameras and robots will help retailers analyze the movement and behaviors of shoppers in their stores to determine the optimal shelf locations for products. This same data will help retailers manage inventory more efficiently. Experts predict that with smarter inventory management, some retailers will be able to downsize their store footprint, keeping in stock only the items that shoppers are likely to purchase based on predictive technology.

Finally, geo-data from smart phones allow retailers to analyze how much and how often people spend in specific neighborhoods. With this information, investors and retails can accurately identify and price out lucrative real estate opportunities.

Predictive technology is expected to make a significant impact on retail in the next 5-10 years. A report by Transparency Market Research estimates the market for predictive analytics software to grow to $6.5 billion in the US by 2019.

When looking into a potential retail investment opportunity, consider how that location and property might be able to benefit from and support predictive technologies now and in the future.

2. Dynamic Pricing: One of the advantages of ecommerce is the speed and intelligence of pricing changes. With a plethora of information about website visitors, and their purchasing behaviors, retailers can change prices in real time according to advanced algorithms. Dynamic pricing allows online retailers to list prices according to changes in demand and market conditions, maximize sales and profits, and move inventory quicker.

Arguably, brick-and-mortar retailers have always had a dynamic pricing strategy using deals, specials, and pricing changes. A 2013 report by Profitero revealed Wal-Mart changed its store prices about 50,000 times per month. But with changes in technology and access to more data, retailers now have the same opportunities to respond as quickly to market changes as ecommerce sites. Electronic shelf labels (ESLs) allow for digital pricing that is easy to set and change in real time. ESLs can connect to the internet and depend on the same data ecommerce retailers use to set their prices. This is especially helpful for retailers with perishable items, like grocers.

For the real estate investor, consider how a property does or does not provide favorable conditions for technologies like cameras, sensors, kiosks, and ESLs as retail enters a new era of technology.