The future of retail: Bricks blast back at e-commerce

The future of brick and mortar retail is somewhere in the swamps of Jersey. Buried beneath a virtual sea in a place once called Xanadu is an underwater version of New York, a nautical Times Square where marquees scream “Piranha of the Opera,” and “Krill Grill.”

It’s suburban mall culture reimagined as anything but a mall. It’s also a sign of how Amazon, Uber and Apple's under-the-hood hold on automatic and personalized shopping, ordering and paying are sparking another revolution that payment processors will have to adjust to in the years ahead. As big box stores, point of sale terminals and cash fade, merchant acquirers will have to consider a broader experience than just an easy digital payment.

“Shopper expectations and purchasing habits are shifting significantly,” said Luke Griffiths, general manager at Klarna U.K. “Successful paytech will increasingly need to deliver on convenience and empowerment. Customers expect to get what they want, when they want it, on their terms.”

The American Dream mall in New Jersey will soon sport a New York-themed Sea Life Aquarium and an indoor amusement park to augment traditional shopping mall staples. The Decade-and-a-half old megamall project, which at one time was called Xanadu, has gone through several incarnations ahead of its opening. The concept is not entirely new — the Mall of America in the Twin Cities has had an aquarium and indoor rides for years. But a record high mall vacancy rate creates pressure to make shopping as entertaining as it is a place to browse and buy.

Globally, traditional shopping centers and main street or high street stores are changing culture and design.

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Outside of New Jersey, the Philadelphia Fashion District, a renovation of the old Gallery Mall, opened this fall with an alternative mix that includes an interactive candy store, a showcase for local artists, and an entire floor of entertainment that's integrated with the more traditional stores and the Jefferson Station transit terminal.

The European sports retailer Decathlon has created a virtual climate to mimic Mount Snowdon in a direct attempt to link the experience of trying outdoor sporting goods with faster checkout. Barclays is partnering with Decathlon to power the store’s shopping and payments technology, which is part of the bank’s broader strategy to aggressively experiment with payment technology, placing it in jewelry, gloves, and myriad other connected devices.

“It’s about addressing a society where we’re shifting from using cash to being cashless,” said Will McClelland, a co-founder of Elizabeth Street Ventures, a New York-based early stage investment firm that looks for emerging retail brands that are focused on multi-channel services for digitally-focused consumers, such as the Museum of Ice Cream, an interactive digital ice cream brand that has opened a handful of retail store fronts; or Current, a youth-focused payment app that uses APIs to allow its clients to offer financial education for an multi-channel economy.

These brands are designed to assume a knowledge of digital, with an adjustment for a storefront, the opposite of how most people have adjusted to online retail.

“If you’re born into a digital environment, you are going to assume all of that function is built in,” McClelland said.

For payment companies and fintechs that want to acquire merchants, the pressure will be to include different payment options and mobility. The trend toward providing store staff with viable checkout-free technology and flexible financing options will mature, leaving hesitant merchant acquirers on the sidelines.

A new installment

Klarna's core product is an alternative to credit card revolving debt. It offers installment payments as a way to encourage larger purchases. The model has attracted more than 130,000 merchants and enough interest from fintech investors to vault Klarna's valuation to more than $5 billion making it one of Europe's largest technology companies.

Klarna is at the fore of a new tie-in between retail innovation and alternative payments. As the installment market has become competitive as other fintechs such as Splitit and Affirm loom with their own alternative credit models, Klarna is adding a dash of retail innovation in an attempt to differentiate.

Klarna has opened a series of pop-up stores, including a "House of Klarna" in Manchester, U.K., that featured beauty and lifestyle brands; and a "Pup Up" store in Manhattan's meatpacking district that included Jess Rona, a celebrity dog groomer who's called the "Oprah" of dog grooming.

“The pop-ups form an important part of our mission to make shopping as seamless and stress-free as possible,” Griffiths said.

Klarna's Manhattan pop-up store featured social media links to share dog makeovers and other high end dog accoutrement. That may seem funny, but it's part of Klarna's messaging to its payments technology to a social-driven experience.

“Retail payment solutions of the future will need to expedite speedy and hassle-free transactions by streamlining steps in the purchase journey,” Griffiths said.

Installment payments at the point of sale will be interesting if only for the category's potential to disintermediate traditional payment providers. Consumers can spread out payments over a period of time in most cases with low or zero interest, threatening traditional credit cards, according to Rachel Huber, an analyst at Javelin Strategy & Research.

Javelin’s research shows that 35% of consumers have already used an online credit service to make a purchase in the past 30 days, so the jump to in-store usage is a natural progression, Huber said.

The big dogs

Not far from the meatpacking district is the World Trade Center, where new retailers include the checkout-free Amazon Go store, one of what the e-commerce giant hopes will be more than 3,000 locations that will open in the years ahead. Checkout-free technology promises a trove of granular data on shopping, product and payment, which is why it's attracted nearly two dozen startups that are building versions of the technology to sell to retailers in the years ahead.

In a discussion of the future of retail, it's impossible to ignore Amazon. It's usually seen as a primary threat for both online and offline sellers, given its huge e-commerce business and push into brick and mortar through its Whole Foods acquisition. Its other retail plays include its expansive delivery strategy and its own nascent supermarket chain.

But Amazon's not alone.

Ride-sharing apps like Uber and Grab are adding financial services to their core offerings; Walmart has built laboratories to develop retail innovation; and Facebook has made moves beyond its controversial Libra cryptocurrency project, such as centralizing its social payment apps, that will make it a power in the retail industry in the years ahead.

None of these giants show any signs of slowing their moves into shopping and payment technology, using their enrolled user bases to accumulate data that de-emphasizes the payment process in favor of enrollment and check-in.

This data provides an advantage that can make digital or social media companies much more influential in the brick-and-mortar channel in the decade ahead. Despite the e-commerce revolution, storefronts remain vital places to build brand awareness and relationships, according to John Bennett, vice president of operations and corporate development at Signifyd, a San Jose, Calif.-based e-commerce technology company.

For example, Bennett mentioned Stance, the online/social apparel company that works with celebrities such as Rihanna and James Harden. Stance has opened stores in New York, Southern California and elsewhere.

“If you buy online and go into a store for a pickup and return, the average lifetime value of that consumer is higher,” Bennett said. “You’re almost willing to take a loss online to get them into the store.”

Making contact

The intersection of point of sale technology, online shopping and nontraditional user experiences is perhaps best demonstrated by the Apple Card, which launched in 2019 in partnership with Goldman Sachs.

The Apple Card uses Apple Pay's enrolled base to provide support for the App Store, streaming content and in-app and contactless payments through a relationship with Apple. And like Amazon, Facebook and Walmart, Apple's scale and brand recognition make it a force based on that alone.

Apple's credit card puts the technology company in a position to compete with both banks and fintechs in the next decade by offering to enroll and authenticate users in multiple retail environments and experiences. Apple's efforts will also spur deeper advances in contactless payment technology.

“Instant payments at the POS is still in its infancy, but installment loans and contactless are the most ready to deliver consumers value in the near-term,” said Javelin’s Huber.

For merchants and issuers, contactless provides a better consumer experience and is also more secure because the risk of skimming is gone, Huber added.

“Contactless has the ability to offer consumers faster checkout times while also priming them for future mobile wallet use," Huber said. "I think of contactless as a backdoor way to get people to finally adopt mobile wallets en masse by introducing them to the technology through a proven, trusted form factor."

These contactless cards, including Apple Card, are the “new bridges” that will promote digital wallet usage in the years to come, according to Phil Tollison, group president of card processing solutions at Jack Henry & Associates.

“As the shift begins, consumers will expect point of sale options to be readily available,” Tollison said. “Phones, tablets, wearables, contactless cards and even voice need to be supported as the point of sale, as the cardholder expects merchants to be able to use their channel of choice.”