The innovators driving the future of retail

Episode transcript, edited for clarity

[00:00:35] Bill: Welcome to Retail Gets Real, where we hear from retail's most fascinating leaders about the industry that impacts everyone, everywhere, every day. I'm Bill Thorne from the National Retail Federation, and on today's episode, we're talking to Seth Webb. He's the executive vice president of Tusk Strategies. Hello, Seth, how are you?

[00:00:55] Seth: Good morning. It's nice to be here, Bill.

[00:00:57] Bill: And welcome back. And we're also talking to Sucharita Kodali, vice president and principal analyst of Forest Research and a veteran of Retail Gets Real. Welcome back, Sucharita.

[00:01:08] Sucharita: Thanks, Bill. Glad to be here.

[00:01:10] Bill: Now, we're going to talk to Seth and Sucharita about transformative trends, innovative technologies and emerging solution providers in the industry. And you know, as well as I, that you have to have transformation and innovation if you want to be successful in the retail industry. So let's get right to it. Sucharita, tell our listeners a little bit about the report that you all did related to innovation and technology.

[00:01:37] Sucharita: Yeah, so this is essentially a recap of the Innovators Showcase, which is a section at the NRF Big Show of 50 of the most innovative companies. There were certain criteria they had to meet with respect to their age and their size and their tenure in the retail industry and the number of clients that they have.

[00:02:00] But for the most part, it was essentially a way for people who are attending Big Show to get a view of the smaller companies in the retail world that are shaping a lot of the themes and trends of how people are shopping and where CIOs and CTOs are investing.

[00:02:19] Bill: Yeah. And there is so much innovation in technology, and there's so many people engaged in this area. Seth, how do you pick these vendors? What was the criteria?

[00:02:29] Seth: It's really interesting because I work with Sucharita on the innovation advisory committee for NRF, and we helped curate this section, which is really the only curated part of the show in terms of exhibition floor. And we were trying to answer the massive question that media and members had every year, which is, what's new? What's next?

[00:02:51] What's driving this tech transformation of our industry? And we created a series of criteria. This advisory committee, which is actually a representative of venture capitalists, tech accelerators, retail experts like Sucharita, and we look for companies that are solving significant issues for retailers that must be addressing a real pain point, that they've leveraged the latest advancements, whether it's an AI extended reality, machine learning, facial recognition, robotics or something else.

[00:03:22] And we want to see that they've actually exhibited market fit. So what does that mean? They've gone through a pilot or a full deployment with a retailer and they're actually ready to scale.

[00:03:32] Because when people are coming to the Big Show in New York, they're looking for things they can activate tomorrow. And we want to make sure that they're ready to scale. So we look for those technologies that have been introduced in the last three years, and we're always trying to make it exciting and make sure they're going to have a compelling visual display. It is New York after all.

[00:03:51] So those are some of the criteria that we look at when we're considering that. And by the way, this is a section where you actually have to apply. And your application gets reviewed based on those criteria, and then you're invited based on how you meet those criteria and how you shape up.

[00:04:07] Bill: Seth, you've been involved in helping NRF do this for a number of years. When you started on this path to identify these companies, to recognize the technologies, how has it evolved? In terms of what you've looked for, how has that evolved over the years?

[00:04:25] Seth: It's a great question, and I think there's a couple of parts to the answer. First, it's been really interesting to see where innovation is coming from. Back in 2017, '18, when we really started doing this, a lot of the innovation was coming from startups that were funded by venture capitalists, that were facilitated by accelerators. And they were experimenting because they could be risky and come up with new things for sourcing, supply chain, new things for product awareness and consideration, engagement, payments, whatever it might be.

[00:04:56] And what we've seen over the years is a lot of those companies, they went on to be acquired. They went on to raise subsequent rounds and become big operators themselves, or they secured these sort of game-changing partnerships with national and global brands. And then it becomes endemic.

[00:05:12] And at the same time, as the tech matured, retailers started hiring big teams of engineers. So some had acquired startups, some had become investors themselves, some had teams of engineers, and they were just, like, "Hey, look, the venture market isn't dealing with this problem I have, so I'm going to have a build-only strategy, build and not buy."

[00:05:33] And that evolution has been really interesting to see that it's now coming both from the startup community and from the bigger retailers who have made these types of investments.

[00:05:42] Sucharita: The other thing I would add from my observation is the level of internationalization. NRF and the Big Show in general is a very international show, but also, a lot of the companies that are exhibiting are entrepreneurs from outside of the United States. And in fact, of the 50, there are 50 more innovators that will be showcasing through the rest of the year with a show in Paris and a show in Asia.

[00:06:08] And a lot of these, I think for the most part, they're all companies that are endemics, so to speak, to their regions. And I think that that's an interesting point as well, because I think that there's a bias toward believing that American startups are the biggest and the best and the most innovative.

[00:06:25] But I think a lot of what we have observed is that there is quite a bit of innovation that is global and that is not native to the United States. And that's certainly been reflected in a lot of the applications we receive and certainly in the companies that have been selected.

[00:06:42] Bill: Yeah. It's a global industry, and there are global needs. It's not just based in America. So you're exactly right. And along those lines, Sucharita, when you think about trends, trends from the past to the current and in the future, what do you think the trends will be the most transformative for the retail industry moving forward?

[00:07:01] Sucharita: When I break out the retail industry, a framework that I will typically use is solutions that are consumer-facing, solutions that are field worker-facing, and solutions that are back office-facing. And much of the innovation over the years and some of the most transformative technologies are in fact back office-facing.

[00:07:22] One of the things that is unique and special about the Innovators Showcase is that we make a concerted effort to try to find technologies that can be visually communicated. So I think that's a lot of the reason that that part of the shelf floor gets so much store traffic, is that, as much as focusing on the back office and that there's certainly a lot of solutions providers that are using everything from generative AI and agentic AI to improve functions that may happen in a procurement group or in a finance group, there's a lot of visually interesting examples as well.

[00:08:02] And those can be robots. It can be just visual illustrations of wearables that store associates may be able to use to identify when inventory's out of stock or to be able to get a prompt for a script, for instance, when they're, talking to a new shopper.

[00:08:23] So a lot of the Innovators Showcase examples are consumer -acing. Many of them are field worker-facing, and it often makes for a really interesting and colorful experience that people will both remember and take back to them as, oh, these are interesting new ideas and things that we may want to think about integrating into our store experience.

[00:08:47] Bill: It's really interesting as a non-retailer, but having worked for retail. But when you go into the showcase, it's so intriguing. It is so interesting. You really almost see the future of retail as you're walking through, as you're having the experiences, as you're talking to the people. But you dropped the bomb, not the bomb, but it doesn't take long.

[00:09:08] When we talk about retail, we talk about trends, and we talk about technology, where the two letters of the alphabet always pop up, A-I. So AI is changing the landscape of just about everything, and particularly retail. I was telling somebody just the other day that every inch and every corner of retail is impacted by AI.

[00:09:29] So when we look at the showcase, and the operations, the retail operations, why is AI so significant and so important? I'll throw that to you, Seth, and maybe Sucharita you have some thoughts about it as well.

[00:09:42] Seth: I think it's because it's impacting every portion of the industry, like you said, from sourcing and supply chain, all the way to loyalty and retail operations. I used to think like, okay, AI is going to be something that's going to drive these personalization components or these convenience aspects for consumers, and that is true.

[00:10:01] And I'll give you lots of examples of how that's happening, but now you're seeing AI even break out into regulatory compliance. We had a company this year called Borderless that does AI-powered border fulfillment so that if you're an ecommerce company, you can ship from China to the U.S. in six days, which can be very costly and inefficient.

[00:10:22] And they're using powerful AI models and predictive analytics to make this thing happen. So I've been interested in some of these new use cases and also new revenue sources because there's a company we had this year in the report, which is called Particular Audience, and they have an AI platform that actually helps unlock new revenue opportunities through serving up content to customers both in store and online.

[00:10:49] And then we have new revenue opportunities with AI-powered resale, which is basically — we had a couple of companies who are doing pre-owned luxury designer bags or even an entire white label solution, which, if you want to start selling resale items, it's a different inventory, pricing, supply chain.

[00:11:10] It's a different consumer information and distribution and return channels. And all of these things have been made possible with AI. So those are some of the things. And one of the things that I want to point out that Sucharita referred to earlier was, it's interesting how AI is augmenting. Because there's this big discussion, is it going to take away jobs or is it going to augment employees?

[00:11:31] And I think one example that we saw in this report was there's a company called Augmodo. They have this smart badge that employees could wear in grocery stores, in big box stores, and in apparel stores, and it basically helps track out of stock. It improves their compliance, it helps them optimize their supply chain. But it's an example of where technology is enhancing the workforce and not replacing it. So that's been an interesting example too.

[00:11:59] Bill: Sucharita, your thoughts?

[00:12:00] Sucharita: AI isn't new to retail. I don't think it's new to the world and most of business. I think that retail, any sector where you have lots of data will have probably invoked some form of machine learning over the years. I think that what's different about retail, is that retail is one of the most competitive industries in the world.

[00:12:22] There is virtually very little regulation, and it's a sector that is just hyper-competitive. And many pieces within retail, many verticals within retail are extremely low margin, like grocery. So when you do have data from suppliers or you have pricing data or store data, or customer data or shopper data, you are at a competitive advantage if you can figure out ways to drive incremental revenue or incremental profit.

[00:12:50] And retail, as a result of both having its data and its competitive nature, is one that I think has been earlier to adopt AI than maybe other sectors like perhaps health care or education where they're less competitive, where there may be regulatory issues. I think that retail has all along been a very, very early adopter of solutions like machine learning and even, to a large degree, deep learning because things like fraud detection have been around for a long time.

[00:13:19] And there are some very, very sophisticated algorithms that are neural network-driven to support retailers and reducing the amount of fraud that they may see. But what we are seeing that's new, as Seth had pointed out, is a lot of generative AI solutions. I think the jury is still out on just how transformative as an industry, or how transformative to the entire retail industry generative AI may be.

[00:13:42] But there are places for sure where there is incremental benefit. Two of the Gen AI companies that were featured in this year's showcase, one is called Nibble, which is a really interesting. It's a chat bot, which is a negotiation tool, where if there's, say, for instance, excess inventory, that a shopper and the bot can go back and forth to figure out a price for that.

[00:14:07] So that's a use-case to help liquidate inventory at high margin, where there's a win for the merchant and also a win for the shopper. There is another company called Raspberry AI, and actually another company called Lilly AI too, that we featured in the showcase that they both have these great solutions to generate content based on photographs or based on existing product sheets or line sheets that may exist from either a merchandiser or a supplier. And that helps to reduce a lot of the laborious, just manual work in creating things like content. So those are definitely some of the things that we've seen that are new. One of the big themes at the Big Show overall was just agentic AI, which is really almost automation on steroids. I expect that we'll see this as a topic, AI as a macro topic in retail and certainly at the Big Show, and definitely within the Innovator Showcase, probably for the next decade.

[00:15:15] Bill: It's interesting, with all the technology, and so you're dealing with these technologists, but when you get to the consumer and just say the public at large, probably one of the biggest concerns that you hear first and foremost is privacy and what are they doing with the data? These providers, are they answering that straight up when you ask them what their technology does and how that would impact data security?

[00:15:39] I think everybody talks about it. Is that a requirement that they show that they have as one of the tenets of their businesses to ensure data security for whatever the use is? And I'll go to you, Seth, on that one.

[00:15:52] Seth: I think that's definitely a big concern that companies are having to address right away, and it depends on how it's being used. I've seen a lot of companies that are using cameras or sensors, and they could be accused of tracking people. And the way that they have managed that is they have the rights to the anonymized, aggregated data in order to power their algorithms or to deliver their service.

[00:16:15] And so they can grab this data and keep it anonymized, and they show the different security measures that they take in order to do that. And so that's one workaround. A lot of the companies, because we have such an international footprint too, it hasn't been an issue because they're also operating in the EU, where there is a national privacy regiment which doesn't exist here. We're having an emerging state-by-state patchwork. What would you add, Sucharita?

[00:16:42] Sucharita: I'm not as worried about privacy. Well, I'm worried, of course, about privacy. I'm not within the context of showcasing companies that have X levels of PI compliance. I don't know that that's as much of the obligation of the Innovators Showcase, and I'll tell you why. Because I've never met a retailer that does not have a very large legal team.

[00:17:07] And before any of these companies even get to pilot phase, as they make their way through a vetting process within a retailer, they will have gone through the ringer. And if they are not already buttoned up in every way that the retailer data needs to be protected, the shopper data needs to be protected, I don't think they're going to get very far.

[00:17:27] And that's frankly been, I think, one of the inhibitions to innovation within retail overall, is that retailers are rightfully very cautious. You're dealing with shopper data. Perhaps only health care and maybe education or financial institutions have more sensitive data. But retailers, I think, are pretty good about asking the questions that need to be asked.

[00:17:52] Bill: Yeah.

[00:17:53] Seth: And there's a part that we're leaving out, which is the consumer. The consumer is time and time again opting in to give [their] data up in order to have a more personalized experience or more convenience. And so there is a lot of opt-in happening from the consumer. I remember one of my favorite tools was this combination that FindMine and Slice did where it was an AI-powered platform that developed personalized styling recommendations.

[00:18:21] And I could combine that with Slice's product locator. So I could take a picture of, "Hey, I like these shoes that I saw on Instagram. Tell me where I can buy these." And then FindMine, they'll say, "OK, here's some other things you could wear." And that was back in like 2017, '18. And so these keep progressing. It's interesting to see how consumers are actually getting something out of it.

[00:18:43] Bill: Yeah. Retail and change just go hand in hand. And I just think about where we were five to six, seven, eight, 10 years ago, and where we are today and where we anticipate being tomorrow. It's astounding as an industry that all of this innovation has happened and always, really, with the consumer top of mind.

[00:19:02] So I want to ask you a quick question because it's about robotics, robots. We started out and we said, "This is augmenting. This isn't replacing." But I think when people think about robotics in retail, they think about cyborgs going up and down the aisles, pulling things for them or checking out and stuff. What is the role of robots in a physical store?

[00:19:26] Seth: I've seen robots deployed, and we had AI-powered robots called BionicHIVE last year. Israeli startup. It's been backed by Amazon. It's scaled. This is a robot that actually is not in the store. It's in the warehouse. And unlike the other robots that you've seen before, like the Kiva robots or Locus Robotics that are walking around and packing, these are actually climbing the shelves and packing.

[00:19:52] So it's taking away dangerous jobs. But then you've had companies like Badger Technologies that we've had, which actually have robots that roam the aisles, and they do out-of-stock inventory, or they do cleaning. We've seen drones that have been built into shelving in order to scan products, to get customer reactions, to provide data, to help run store operations, to help personalize experiences. There's all kinds of robots.

[00:20:21] Sucharita: Yeah, Pensa, Metro Labs. Yeah, Pensa used to have a drone solution, and then I think it's more of a roaming robot now. Metro Labs was another one this year. So yeah, I think that the robotic space is constantly evolving. I think that we as an industry definitely owe it to a lot of the innovation of Amazon in adopting it.

[00:20:43] It's incredible how much the warehouses are now, essentially, almost entirely automated with robots. But Bill, to your question, what does this mean for the physical store? I haven't seen robots deployed in a physical store experience at scale yet.

[00:21:00] I think it's still very early days, and I think that there's a lot that remains to be seen. I think that the bigger questions are actually around self-checkout, and that's not necessarily a robot solution. It's more of a combination of RFID and camera vision and sensors and other stationary technology.

[00:21:20] So I think that there's a lot that remains to be seen. There's no question that more store experiences in the future will be more automated and more self-serve. What does that do for our labor force? That's a great question. I don't know that anybody has the answers to that.

[00:21:39] And there may come a day, I think, that we have a philosophical conundrum ahead of us that has been raised by Nobel Prize winners and think tanks of do, eventually, we tax the robots because if they're actually taking jobs away and that becomes, part of the value equation for a company, is there an opportunity for taxation there so that negative externality is redistributed? I don't know. These are interesting questions. Right now, we're just at the level of, can you even make it work at scale consistently?

[00:22:19] Bill: Taxing robots, I had never ever thought about that, Sucharita. And it just makes all the sense in the world, because you're losing that if you don't have an employee that's paying their taxes or that you're paying taxes on the employee. That is absolutely astounding.

[00:22:37] But let me tell you, this is government. Government will always find a way to tax. And so this won't be a problem for long. You both have been so immersed in technology and innovation, and I know that this is all a part of the future of retail, and you've seen some very exciting stuff. But on a very personal level, what excites you the most about the future of retail? Let's start with you, Seth.

[00:23:01] Seth: Well, I have the one that's dear to my heart, which I'll say next, and I've talked a little bit about already, but I think what I'm, just from an intellectual standpoint, pretty interested in over the next couple of years is these autonomous AI and this move from just answering questions about products to actually taking action, which gets at the heart of the discussion we were just having, like if you can go from discovery to purchase with minimal human interaction, that is going to change.

[00:23:32] It just is fascinating to me that that could be actually automated. But more near and dear to my heart is some of the things that I talked about earlier, which is resale. I love seeing the circular economy develop. I love seeing people understanding where their products are being sourced from, and what the conditions in which those were developed or manufactured, procured.

[00:23:55] I love understanding the story and the global connections that are being made possible through technology to drive sustainability, to drive interconnectedness and to drive this circular economy. I'm really interested in those things.

[00:24:08] Bill: Sucharita.

[00:24:08] Sucharita: Yeah, resale is probably my favorite area too because I think that we definitely have a climate crisis that we are in the middle of. And yet retail is a sector that has, unfortunately, created a lot of waste and disposable goods. I think that the challenge in the next couple of decades — hopefully, probably sooner than that — is how do you balance our need for products that may improve our lives or our outlooks, and how do we reconcile that with as little waste as possible? And resale is definitely seemingly one of the solutions to generate that. I like that better than the alternative, which is just to not buy anything altogether.

[00:25:01] And there are definitely movements to do that as well and reduce consumption. But, in the interest of, I think, preserving the value that the retail industry has already created, I think that retailers need to seriously think about recycling programs and resale programs and reusing other goods.

[00:25:21] Because we want to talk about taxes. The next area of taxes within retail that likely will become a reality, if not in the United States, certainly overseas is extended producer responsibility laws, which basically embed the afterlife of a product's cost, the cost of disposal, it gets embedded into the purchase price.

[00:25:42] Bill: We're very excited to have brought under the National Retail Federation umbrella, the Reverse Logistics Association and the work that they've done. And I have a feeling, I'm not going to make any revolutionary announcements, but I would say that they're going to play a very important role in New York in January in terms of continuing the education and exploring the possibilities.

[00:26:06] So, Seth and Sucharita, it has been a real pleasure talking with both of you. Thank you for being a part of Retail Gets Real.

[00:26:14] Sucharita: Thanks, Bill.

[00:26:14] Seth: Thank you, Bill.

[00:26:16] Bill: And thank you all for listening to another episode of Retail Gets Real. You can find more information about this episode at retail gets real dot com. I'm Bill Thorne. This is Retail Gets Real. Thanks again for listening. We'll see you next time.