Few other service sectors have been transforming as rapidly as the retail industry in recent years. The dynamic growth of e-commerce has led to significant changes in consumer behaviour worldwide, with sales shares increasingly shifting from brick-and-mortar retail outlets to online shopping platforms. The global pandemic has only further solidified this ongoing trend, owing to varying degrees of lockdown and social distancing regulations since early 2020. In response to these developments, many retailers have accelerated their efforts to leverage digital technology, in particular artificial intelligence, augmented and virtual reality applications, and redefine the retail experience for customers during and post Covid-19.
Bending and Extending Reality
Over the past several years, augmented reality (AR) and virtual reality (VR) applications have gradually evolved from niche gimmicks in entertainment media – remember the global Pokémon Go craze in 2016? – to widely used features in various fields such as education, medicine and healthcare, as well as the business environment. Today, common use cases range from remote site inspections to digitally aided manufacturing and repair processes, to customer services and transactions. For the retail industry, these disruptive technologies have been especially vital in helping to create a new kind of personalised shopping experience for customers and generating sales opportunities amidst stringent Covid-19 regulations.
AR technology merges the physical and digital spheres by superimposing computer-generated visual or auditory elements on a real-world object or scenario in real time. This allows manufacturers and service providers to enrich product analyses or presentations with an additional layer of perceptual information, for example by blending supplementary data into the user’s physical environment. AR information can be rendered through smartphones, tablets or smart eyeglasses, and chances are we might even see AR-ready bionic contact lenses enter the commercial market in the not too distant future.
VR technology on the other hand simulates a fully immersive 3D environment. Applications include virtual tours through complex building models, production sites, cultural events or faraway travel destinations. While AR projects a digital layer onto an existing environment, VR places the user in the middle of an entirely software-driven artificial world, similar in many ways to a video game. This is achieved by means of VR headsets and haptic devices such as motion controllers, which allow the user to experience dynamic movement and sensory impressions in different virtual surroundings.
Meanwhile, mixed reality (MR) describes the fusion of both AR and VR technologies to provide a setting in which virtual and physical elements can seamlessly interact with each other; from allowing customers to pick up virtual products from a shelf, to creating almost lifelike illusions in the form of holograms. While VR is considered the more mature technology of the two as of now, AR is expected by many to have a more transformative impact on industries and services over the long run. Both AR and VR are still at the development stage and only expected to deliver on their full synergy potential in the years to come.
Augmented and virtual reality applications are already being adopted as key tools in the popular marketing strategy of ‘gamification’, i.e. the integration of game design elements into non-gaming contexts. In retail, for instance, the strategy is broadly employed in order to attract and retain customers. Typical methods of gamification have long included point and reward systems, as well as encouraging customers to unlock achievements, earn badges, raise their ranks relative to other customers and gain exclusive access to limited offers. By leveraging innovative AR and VR solutions, retailers may soon be able to take product marketing and customer engagement to a completely new level.
From E-Commerce to V-Commerce?
With e-commerce projected to continue on its growth trajectory for the foreseeable future, AR and VR technologies are set to play an increasingly important role in shaping the online customer experience. According to Statista, global e-commerce sales surpassed US$4.2 trillion in 2020 and are estimated to reach US$5.4 trillion by 2022, equivalent to over 20% of total global retail sales. In China, the world’s largest e-commerce market by far, online sales are expected to reach US$1,26 trillion this year and further grow to US$1,64 trillion by 2025. The rise in demand for digitally enriched shopping has coined a new buzzword, ‘v-commerce’, as highlighted in a piece by experts at Deloitte.
Back in 2019, a global survey conducted by NielsenIQ found that AR and VR were the most sought-after technologies to simplify consumers’ daily lives. Around 51% of respondents indicated their willingness to start using AR/VR for online product assessment within the following two years, while 43% were open to using in-store applications such as navigation apps. Considering the impact of Covid-19, it stands to reason that the prospects of AR/VR-supported shopping have only become even more attractive in the eyes of many customers around the world.
In fact, AR and VR have already proven highly beneficial to retailers’ business performance – from stronger brand awareness and statistically higher sales conversion rates to a more cost-efficient visualisation of product catalogues and warehouse stock. Canadian e-commerce platform Shopify recently tweeted that their data suggested a 94% higher conversion rate of products that featured AR, compared to those without.
From a customer perspective, AR and VR can help save a considerable amount of time when making purchase decisions, either in-store or remotely, by displaying real-time supplementary information on their mobile devices when browsing through store shelves (including but not limited to current availabilities of different sizes and colour options), or by enabling virtual fitting of clothing items or sampling of cosmetic products, all from the safety and comfort of one’s own home.
Swedish furniture retail giant IKEA was among the early adopters of AR in late 2017, launching an app that allows customers to furnish their homes virtually with products from the company catalogue. Hong Kong home-furnishing retailer Pricerite likewise offers virtual 3D product previews inside the user’s apartment through its own mobile app. More and more retailers are following the trend of the virtual “try-before-you-buy” model, which has become an effective tool to achieve higher customer satisfaction and lower product return rates.
Several department stores and brands have also started to offer customers in-app try-ons of their real-life merchandise. Some luxury clothing brands have even taken the concept of virtual retail one step further: Gucci recently released their first pair of virtual-only sneakers which users can buy via the company’s mobile app and “wear” in social media photographs, applying AR similar to a face filter mechanism. Meanwhile, Louis Vuitton in partnership with the popular e-sports title “League of Legends” designed a collection of virtual clothing items and accessories in 2019, available for purchase in the in-game store, allowing players to dress their digital avatars in brand outfits. Over the course of the next few years, in-game sales of these so-called ‘digital skins’ are expected to develop into a multi-billion dollar business.
Uncharted Territory
The global AR/VR market volume is projected to increase as much as tenfold, from US$30 billion in 2021 to just under US$300 billion by 2024, with application potentials reaching far beyond the retail sector alone. However, the growing appeal of AR and VR technology does not only present companies with a range of new opportunities. It also raises several important issues from a legal and regulatory standpoint which companies and consumers alike ought to be mindful of, primarily in relation to the protection of intellectual property rights and personalised customer data, as experts at PwC UK point out.
As AR and VR applications are still gaining momentum in the commercial market, there is no fully defined framework as of yet to clearly regulate if and to what extent intellectual property rights applicable to real-world products also extend into the virtual sphere. Companies may need to closely examine the legal relationship between existing copyrights, trademarks and patents on the one hand, and the meta and geodata attached to virtual renditions of their products on the other. In the context of AR in particular, companies may also be required to obtain third-party permissions when projecting their virtual products onto a particular background or environment.
Furthermore, like all digital technology, AR and VR comes with the inherent risk of online product piracy, data theft and other forms of cybercrime, as well as the corresponding cross-boundary disputes. As users may access AR/VR from anywhere in the world, seeking retribution for potential legal violations across different jurisdictions with different IPR laws could pose a considerable challenge for companies.
Last but not least, the collection of user data through AR/VR technology is subject to existing privacy and security regulations, such as the EU General Data Protection Regulation. Relevant data may include the tracking of a customer’s movements and behaviour inside a store, or personalised health data. Therefore, companies need to monitor precisely which personalised information is being collected and for what purpose it is being used and obtain the customer’s consent, in order to operate within the bounds of the law.
For Hong Kong as a leading centre for international commerce and IPR standards, the further development of legal and regulatory guidance on AR and VR applications in the commercial space is likely to remain high on the priority list in the coming years.
By Hendrik Hillebrecht
Related Links
- Source: Deloitte – Augmented reality in retail transforms consumer experience
- Source: HKTDC – Smart City Development: New Retail Experiences
- Source: NielsenIQ – Augmented retail: The new consumer reality
- Source: PwC UK – Legal and regulatory challenges in the enterprise application of VR and AR
- Source: Statista – E-commerce: China
- Source: Statista – E-commerce worldwide – Statistics & Facts
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