From handbags to hamburgers, no industry is immune from tech disruption

December 2019 | SPOTLIGHT | SECTOR ANALYSIS

Financier Worldwide Magazine

December 2019 Issue

The conversation around tech disruption has accelerated dramatically over the past few years. Whereas technology historically was about improving productivity, today’s discussion in boardrooms and the C-suite has shifted to how tech is influencing and disrupting industries altogether. Executives are realising there is an existential threat looming in the background. No sector or industry is immune to this trend. We see it across sectors as disparate as retail, restaurants, media and industrial technology, among others.

Retail

In the retail sector, technology has disrupted the status quo: the rapid ascension of large cap e-commerce players has pressured legacy brick-and-mortar businesses, while digital commerce has enabled the proliferation of direct-to-consumer (DTC) brands and new models of consumption, including resale, rental and subscription.

Evolving consumer expectations around cost, speed and convenience have compressed margins on commodity and mass retailing products, forcing incumbents to invest in proprietary product, experiences and enhanced service levels to remain competitive. Under mounting pressure, these legacy retailers must spend to translate existing physical infrastructure into formats that provide enhanced customer experiences and convenience while simultaneously recruiting (or acquiring) new-age talent to imbue organisations constructed for traditional retailing with a ‘digital-first’ institutional DNA.

But where legacy retailers have been disrupted, technology has also lowered entry barriers for new retail concepts. The cost of market entry has been dramatically reduced for DTC players. SaaS service providers like Shopify, Stripe and Zendesk offer cost-effective infrastructure solutions that scale, while social media channels have democratised access to end-customers once protected by brick-and-mortar stores and expensive paid advertising channels. These fast-growing DTC companies engage directly with consumers and offer newness, differentiated products and compelling brand narratives.

Similarly, technology has enabled new retailing consumption methods. Re-sale platforms like The RealReal and Tradesy have created marketplaces and liquidity for once-disposable secondary goods, while rental platforms like Rent the Runway have pioneered the idea of the ‘infinite closet,’ providing consumers continued access to newness and discovery at a fraction of the cost and time historically required. Subscription offerings like Stitch Fix and FabFitFun provide curation and inspiration in the form of personalised boxes that allow customers to try before buying, bringing the fitting room to the living room. Technology has also made personalisation and customisation accessible, with examples ranging from Warby Parker’s AR try-on app for eyewear to Indochino’s $299 made-to-measure suit.

Restaurants

Who would have thought that restaurants would be disintermediated by technology? Technology has enabled innovation by new entrants, forcing restaurant operators to re-evaluate every aspect of their business. These include delivery aggregators like Grubhub and delivery-only restaurants (aka ‘ghost kitchens’) that primarily operate in the cloud and receive orders digitally to limit brick and mortar locations. To maintain share of stomach, some operators are assembling teams dedicated to technology and innovation and others are looking to acquire companies with the technological capabilities needed to improve various parts of their business or provide a solution to a problem (e.g., slow lines).

A consequence of technology disruption and the resulting heightened level of competition within the restaurant industry is increased levels of M&A activity, particularly strategic consolidation. Large-scale players with a lower cost of capital have a long-term, sustainable advantage over small ones, because they can reinvest those savings in the brand and other areas of the business, including technology. We expect these trends to continue over the next 5-10 years.

Media

Despite the obvious dislocation old media is experiencing from new media, one old media sector is seeing renewed growth. Some believe the explosive growth of streaming video services would spell the end of movie theatres. However, people thought the same thing would happen when TV came around, and then VHS, DVD and DVR. Our thesis is that all this new technology, including social media and the mobile phone, can be extremely isolating and that as a result, we will see a resurgence in the experience economy.

If Hollywood keeps making good movies, going to the theatre will always be a night out. It is an experience. And, to further entice consumers to get off their couches, movie theatre operators are innovating. They are providing leather recliners, enhanced state-of-the-art audio and video and serving theatre-goers quality meals delivered to their seats. In some cases, they are serving alcohol. The technology that enables reserved seating unlocks an entirely new revenue stream for operators and provides an overall better customer experience. The most successful operators are those that realise they must differentiate their offering to get people to come into their theatre or venue. Otherwise, people will just stay at home, stream content and not venture out.

Industrial technology

In the industrial sector, the focus of many companies is on connecting physical assets with the digital world. For example, Honeywell recently launched a new industrial Internet of Things (IoT) platform to collect data from millions of assets and connect it to operators of buildings, airlines and industrial facilities. These industrial sectors have billions of dollars of inefficiencies that Honeywell can now connect and drive new value for customers.

Technology is also beginning to disrupt entire sectors in industrials. For example, in transportation and logistics, a major evolution is underway, with trucking being a prime example. At any time up to 40 percent of trucks are empty, because once goods are delivered the driver needs to find the next job. However, this is changing as most trucks now have an electronic driver log or fleet management solution that connect them to the internet, making it significantly easier for shippers to find capacity.

New companies like Convoy are focused on solving this disconnect between shippers and truckers through their on-demand, app-enabled technology platform. Transportation is much further along in terms of using the cloud to digitally connect physical goods than other corners of the industrial sector, such as construction and manufacturing. It is only a matter of time before start-ups will come in to dislocate these basic industries. Those companies that are not at the forefront of adapting tech to connect physical goods to the digital world will be left behind.

In sum, the pace at which tech is disrupting industries will only continue to increase. Whether they sell handbags or hamburgers, companies must anticipate the influence that tech will have on their industry and take steps proactively to future-proof their business.

Marc S. Cooper is chief executive of PJ SOLOMON. He can be contacted on +1 (212) 508 1600 or by email: mscooper@pjsolomon.com.

Marc S. Cooper

PJ SOLOMON