Virtualization Gains a Foothold in Consumer Retail

As we ring in the 25^th anniversary of The Motley Fool, the Industry Focus podcast is jumping ahead to imagine the next 25 years of investing in consumer and retail stocks.

Below, we wrap up our future-oriented show with a dive into virtualization technology. Click below to learn how companies are already making it easier -- and more persuasive -- for consumers to click "buy".

A full transcript follows the video.

This video was recorded on June 26, 2018.

Vincent Shen: The next example I'd like to bring up is with two companies that you called out to me. Those are with Alibaba and Ikea. Do you want to talk a little bit about that?

Asit Sharma: Alibaba, very interesting company. Obviously, as many of our investors know, a competitor to Amazon, also wants to be a dominant force in world e-commerce. They have a virtual reality shopping mall, which, interesting enough, hasn't really taken off. It's still in experimental phase. Basically, you need a VR headset to shop this mall. Once you do, you can walk through this unpopulated retail experience -- there aren't other people walking around. You can look at an item, point to it, and basically by looking, purchase the item.

I've talked about Singles' Day on this show before. That's the day, once a year, that Alibaba has its big e-commerce day and runs a lot of promotions. That's a watermark for this technology. It should occur in October of this year. We'll see how that comes along.

But I'm very interested in the fact that companies are now using virtual reality to substitute for these large-scale, very walking-intensive brick-and-mortar experiences that we have. I personally have written about companies like TJX, that's TJ Maxx. You walk into a TJ Maxx, and you can see that traffic isn't going anywhere. That company is doing very well. Malls, on the other hand, seem deserted. It's a function of the technology that, in reducing this having to go through a mall, but being able to look and purchase what you want, may spell the doom of larger brick-and-mortar, big box retail; but, it may make it more vibrant in the future.

I actually think that, because a company like Ikea is testing this technology, we'll see modifications to the actual physical experience. To take a little segue, Ikea is employing a very similar technology which will let customers, instead of traversing that huge store and having a few arguments with your spouse over a long day, you can put on the goggles and go right to the section that you're interested in and potentially order furniture. This is also in development. It's not going to replace the Ikea experience, but it may mean that they get more incremental sales.

I think, where we're headed with virtual reality headsets is not necessarily a replacement of brick-and-mortar experience, but an enhancement of, to make it more efficient. The bottom line, though, as we've talked about a lot in the past couple of years, is that only the most efficient stores with the strongest attractors of traffic are going to survive.

Shen: Yeah. I will add to that -- and, this is the last idea that I have for these trends and some of these technologies and innovations that have really jumped out to us, and it's similar to this example of what Ikea is doing with the show-rooming. Also, we've talked previously, Lowe's trying to use virtual reality technology to give people the ability to get a sense of what that remodeling project might look like, what the home might look like. They're testing that. It's a really interesting way to engage their customers and interact with their customers, get them thinking about projects. Maybe seeing the room with the new walls, some of the new curtains and the new hardwood floors, for example, will inspire them to take action on that remodel a little bit more quickly.

The other example I wanted to call out, this was also in more recent news from the past year, is with Nordstrom, for example, and their Nordstrom Local, these concept stores. Much smaller locations, practically zero inventory compared to their full-size, full-line department stores. Very service-focused. The way that they approach it is kind of like a fitting room, a big fitting room for a customer to come in try things on.

With the virtual reality application, the thing that I think could really change that part of the consumer shopping experience is, small companies, one I found that was profiled by the National Retail Federation called Zeekit. They can get a scan of your body so that the sizing and the way things fit on you is much more accurate. Then, you have a company like Stitch Fix that collects tons of data points on each garment -- how it fits, the exact measurements in certain places. Again, in that case, for their use of data, they want to know that the customers are about to get some item of clothing in their next Fix that's going to fit well for them. Well, if you combine these two things, I feel like you create a really ripe opportunity for what amounts to a virtual dressing room.

I've seen this idea in movies, for example, before; in books before. It's not quite there yet, though you have companies like Zeekit working on it. Some of the demonstrations that I've seen are pretty compelling. Instead of seeing random models on a page while you're shopping online for a new jacket, for example, it's you on the page. I think that can be really powerful as a way to engage with customers.

Another industry that has started to leverage this a little bit is car manufacturers. At car shows, for example, they will use virtual reality so you can see the interior of a new model, so that they can showcase a virtual showroom with a lot of different models of the vehicles that they're producing, and see them in that way without actually going to a dealership. This is definitely getting more into the wilder territory, in terms of some of the trends that we're seeing that we've talked about, but this is one that I think is really cool, and the possibilities are up to what people can imagine, and then applying the technical expertise needed to make it happen.