The ability of technology to disrupt the retail market is well-known, but does the emerging trend of online to offline suggest that things may be changing?

Far from it. The trend of blurring the physical and the digital is, of course, being driven by investments in technology and the insights garnered from billions of pieces of data on consumer behaviour by giants such as Amazon and Alibaba.

These businesses dominate the headlines, but when it comes to the future of technology in retail there are three tech-led models where we are seeing strong investment activity.

Direct to consumer

Innovative brands are disrupting the market by cutting out retailers and selling directly to consumers, using social media as their shop window.

“Food delivery business HelloFresh’s success is based on using technology to analyse what customers say about products on social media and predict what they want”

Like Amazon and Alibaba, these are tech businesses which operate in the retail space – but they focus on niche markets where the strength of the technology enables them to use algorithms and artificial intelligence to personalise products and enhance customer experience to increase conversion rates.

Food delivery business HelloFresh’s success is based on using technology to analyse what customers say about products on social media and predict what they want.

Start-up subscription razor company The Dollar Shave Club follows the same model. It has transformed the razor market; Unilever snapped it up for $1 billion last year – one of the largest multiples ever paid for an ecommerce start-up.

Marketplace

Businesses based on the marketplace model provide a website with a captive audience to sell products from other brands. The model is particularly well-suited to fashion sites such as Matchesfashion and Farfetch, but is also used by general merchandise and gifting site Notonthehighstreet.com.

To the layman these are retail businesses, but scratch away the surface and it’s clear they are full-blown tech businesses. Their market value is being driven by the potential for growth their businesses offer, which all stems from technology.  

These tech-savvy businesses also recognise that the future of retail is not purely online. They have seen that you only get big by going multichannel and incorporating a physical experience, supported by technology.

That’s why Missguided and, more recently, Farfetch have begun acquiring stores.

Brand aggregators

An extension of the marketplace model, aggregators bring together brands in a particular segment. The best example is The Hut Group.

The business is completely focused on health and fitness and has been acquiring brands in the space to plug into its ecommerce platform.

“These models prove that investing in technology has not lost its ability to disrupt. While traditional retailers still dominate in terms of volume of sales, the market capitalisation of tech-led retailers continues to rise”

These types of businesses have invested significantly in technology to maximise conversion rates. This includes everything from software that can model and analyse customer eye movements across their website to analysing which banners, fonts and images on the site yield the best results.

These models prove that investing in technology has not lost its ability to disrupt. While traditional retailers still dominate in terms of volume of sales, the market capitalisation of tech-led retailers continues to rise.

In a seminal moment for UK retail, Asos’ market value is about to overtake that of M&S.

With multichannel set as the future for retail, the challenge for traditional retailers is to invest enough in their online offer to make it as good as that of tech-focused firms.

Importantly, they need to make sure that their excellent in-store experience translates seamlessly online in order to win back market share from the pureplays.

James Sawley

James Sawley is national head of retail and leisure at HSBC