Clicks into bricks

Is the future of retail offline?

E-commerce giants are going offline, opening up checkout-free stores using sensor fusion, deep learning and smart shelving tools. Will new technology shift the retail business back offline?

(from left) Dean Samuels, Ricky Wong, Derek Ng and moderator George Tee

CityU MBA SHARP Forum hosted a lively discussion “Cashier-less Stores Initiative – The Arrival of New Era of Shopping?” in May 2018 featuring Dean Samuels, Head of Solutions Architecture, Hong Kong and Taiwan, Amazon Web Services, Ricky Wong, Chairman Hong Kong Television Network Limited, and Derek Ng, CEO of CRMG Holding Limited, the parent company of Pricerite. The Forum was organised by MBA students with the support of the MBA Office.

Dean Samuels, Head of Solutions Architecture, Hong Kong and Taiwan, Amazon Web Services (AWS), leads a team of solution architects who advise customers, including retailers, on cloud computing services. Amazon opened to the public its first checkout-free store, Amazon Go, in January 2018.

Ricky Wong, Chairman of Hong Kong Television Network Limited, is a telecom and media entrepreneur. In 1999 he established Hong Kong Broadband Network Limited, building a territory-wide fibre network. In 2015 he launched online shopping platform HKTVmall, and in 2016 opened his first bricks-and-mortar HKTVmalll store in North Point, Hong Kong.

Derek Ng, CEO of CRMG Holding Limited, CASH Retail Management Group was founded in 1986 and holds a diverse portfolio of home furnishing and lifestyle brands, including Pricerite, one of the largest home furnishing specialists in Hong Kong. CRMG has recently developed Omni Channel offering e-shopping channels to a variety of digital devices.

Moderator George Tee, CTO, Hong Kong Science and Technology Park (HKSTP), shapes the development strategy of technology clusters and application platforms, as well as oversees the laboratory services and HKSTP's IT team.

The panel discussion below is an edited transcript by City Business Magazine.

What technologies are going to change your retail space in the next couple of years?

DN: Technology that can help us capture data and do the analysis, and from there we can deliver a personalised service to our customers.

RW: If I may twist your question, it is not so much the technology as the mindset of the retailers. I use Salesforce, a technology engine, and say to my marketing people “Why don't we do targeted marketing?” They tell me, “That's not the way, Ricky.” Salesforce already knows what to do. They will generate the appropriate emails automatically. You can just go home and do nothing. The question is, “Can I give up my Ricky Wong intelligence in marketing and let the black box do the job?” It's a psychological question, an ego question. Because I am useless. Big data can do everything. So, it is not whether the tech is there (it is). It's whether the boss is willing to use it.

DS: That summarises it pretty well. It's information and it's customer experience. It's not the technology that is going to drive it, that's just the enabler. It's what the customer wants. The customer wants that seamless experience, that unique experience. They want to walk into a store and still have that customised experience, using for example image recognition to know who you are, and greet you personally, maybe make some recommendations based on your purchase history. Walking around the store using location-based services and doing promotions based on your preferences. Having the ability for that seamless purchase, where you don't have to line up for a cashier. Through image recognition for payment, you can just grab that item and walk out. It's really the collection of information and how to analyse it. We're really only at the tip of the iceberg with artificial intelligence.

How do you deal with privacy concerns?

DS: Amazon and AWS are vigilant about our customers' privacy and we have implemented very sophisticated technical and physical measures to help our customers prevent unauthorised access. AWS customers retain ownership and control of their content stored in AWS. So, it's really important that customers implement controls to restrict access to that content, and that's something that my team help with, either through encryption or logical access control or other methods. How the content is stored is also important. So, for example with image recognition your face is represented in a computational algorithm. It is not a photo, and it is not possible to work backwards from that and generate a photo.

RW: We are very concerned about privacy, so we don't keep any credit card information on our servers. We work with Paypal, with Google Pay, etc. so we rather put the burden on those companies. But this is a digital age. If you are my customer, I know everything about you. I don't want to scare all you guys. Just keep on buying from us! But we know if your family has any elderly, we know if you have a baby, we know the size of your body based on what size clothes you order, we know how many friends you have. When you ship to an address that is not the GPS location of where you slept last night, we know how many girlfriends or boyfriends you have!

DN: We outsource these kinds of security issues and datacloud to the big guys. Currently we use SAP and they teach us best practice in terms of data security.

Derek, Pricerite started from an offline model. Is there anything stopping you from going to an online model?

DN: The most difficult thing for a traditional retailer is the data construction. We are a 31-year old company. At the beginning we didn't have any mindset about the data structure. It was a painful experience for us to restructure the data, and in some cases we had to ask our customers to reinput the data. For a decade now, we have seen a lot of the older generation use multiple devices to do research online. They just don't check out online. So we need to work with this trend and get more of the younger generations to check out online.

Ricky, how do you justify investing these millions of dollars to your shareholders?

RW: I don't. It's just a dream! Just like when I built the Hong Kong Broadband Network 17 years ago, I still remember all the users saying, “Why do you need to upload?” We were just downloading all the data. We didn't even have Amazon yet! If you ask me how I am going to get even, I don't know. But I see three business opportunities. Firstly, e-wallet. Yesterday HKTVmall app had more than 210,000 customers. So just think if we put an e-wallet in our app, this would be the largest e-wallet in Hong Kong. Secondly, targeted marketing. As I said, we know everything about you. So, if you are an advertiser, we will use our customer list to help you make a higher return on your digital advertising. Thirdly, retail distribution. Right now, we have 200 trucks on the road with three temperature compartments – frozen, chilled and room temperature. We have ordered another 50, so we expect that by the end of this year we will be the largest logistics company in the residential areas. Whenever you need to do ecommerce in Hong Kong you need couriers. In the new era, distribution is the key to ecommerce.

Dean, what distribution technology is Amazon looking into?

DS: Before I go into that, I must say that Ricky is spot on. Two years from now, the way that we get revenue streams is going to be totally different. Amazon took many years to build to the company we are today – we accepted that we had a product where we were willing to be misunderstood for quite a long time. But who would have thought that an online bookseller would get into cloud services? It is really the willingness to experiment and the willingness to fail. Does anyone have an Amazon Fire Phone? No, exactly, it's something we failed on dramatically! But it was a great learning experience because that's how the Amazon Echo product line came about. How about Amazon Auctions? Another failure, but our learning from that introduced the Amazon Seller. So, it is a willingness to be agile in approach, always think about what the customer needs, and make those decisions very quickly.

How about drones?

DS: In terms of distribution there are a wide range of things we are looking at. The most publicised is Amazon Prime Air, the idea that we will use drones to enable same day delivery for certain products. The drones are autonomous, meaning no human involvement, and use artificial intelligence technologies to navigate the skies and take appropriate action based on the environment variables at the time. It's not so much the technology that is holding us back as the regulations. For example, in the US the Federal Aviation Administration has strict regulations that any autonomous flying device must remain in line-of-sight of a human. It kind of defeats the purpose of an autonomous drone. But we actually did our first private trial about 18 months ago in the UK.

Another initiative is the Amazon Key in-Car Delivery. The idea is that you as the consumer can receive delivery to the boot of your car when you are not home. This is trying to get away from the courier having to leave the package at your door when you are not at home. That follows on from something we introduced last year, which was the Amazon Key delivery to your home. In logistics we are also developing our own delivery service, looking at the way we can use perhaps driverless trucks to guarantee same day delivery.

Is Hong Kong falling behind in technology and regulations?

DN: I think that is to do with the mentality of our people. Rental costs, staff costs are really increasing. These sorts of external factors force you to rethink your business model. We all know that if we don't change traditional retailers will be dinosaurs in five years' time. For us you will see that every year our total sales area is dropping. We will find ways to convert offline sales to online, so that we can use our traditional stores more as an experience store rather than just a place to make transactions. Most traditional retailers know they have to make a change, but they have no idea about which kind of technology they should start with. The government should play a role and bring some direction to retailers, especially SMEs.

RW: I recently went to a seminar in Singapore called Money 20/20 Asia. There were about 3,000 attendees from all over South East Asia, and hardly anybody from Hong Kong. There were regulators from Malaysia, the Philippines and Singapore, but no one from Hong Kong Monetary Authority. It opened my eyes. Two young guys from Malaysia with a virtual bank, 13 million bank accounts. All the technology is available. It is the retailer mindset, the regulator mindset. You ask me is Hong Kong behind? Hong Kong is dying. It is hard to see how we can catch up with even Vietnam and Cambodia, they are moving so quickly.

Were any of you shopping in Korea 15 years ago? I doubt it very much. Why are Korean cosmetics so hot today? It is the impression; the Korean culture gives you the impression that they are more advanced. Hong Kong is a so-called shopping paradise. Are we? Look at the image. The only cashless thing is the Octopus. We are talking about a 20-year old technology. It's a feeling. People came to Hong Kong in the past. Are we still more advanced? I doubt it very much.

Could each of you give a key message to share with us?

DS: Don't be afraid of failure, embrace and encourage a willingness to experiment. Make sure that you lower the cost of failure, bring ideas to market very quickly, and get feedback from your customers. And either pivot or iterate based on that feedback. It's something you have to do. A lot of organisations feel comfortable and like the status quo. And a lot don't exist now because they failed to innovate and failed to experiment.

RW: If you are over 45 years old, you can ignore technology because you've only got ten years left to work. But if you are below 45, you have to keep up because technology is shaping our life.

DN: We have a lot of discussions with our management, with new technologies coming up every day. Two important things: You have to know your customers' pain point. What kind of job do you want to help your customer complete? The second thing, your positioning. Which type of customer do you want to serve? Technology is not the solution itself. It's an enabler to help your customers enhance their experience.