Imagine that you are the leader of a wine retailer, and want to better engage your customers and maximize loyalty. Instead of going through a regular fidelity program, you decide to create an NFT-based fidelity program where your most loyal customers earn NFTs the more they purchase wine from you. Through these NFTs, customers are able to participate in private wine tasting events, and are even able to pick the grapes mix for your next wine launch. This definitely makes the relationship much more engaging and close. 

At the same time, imagine that you are the reseller of expensive design lamps, and you want to find a way for potential customers to experience the exact lighting that they produce - and therefore you create an AR-powered app where you scan your home and are able see it with the real final lighting. Much more real, right?

But how can you solve in minutes problems that the industry today takes weeks if not months to solve?". This sounds more like a fictional script from the Netflix "Black Mirror" series, right? 

But it is not: it is much more real than Black Mirror, and it represents some of the real-world applications of Web3 technologies to the retail sector.

Let's go step by step.

First of all, what is Web3? Well, Web3 is considered by many the 3rd iteration of the internet, towards which we are approaching thanks to its underlying new technologies like: blockchain, Metaverse, DAOs, digital twins, crypto, dApps (decentralized Apps), NFTs, all powered by A.I. and ML (Machine Learning), and so on: basically, a new generation of Internet services that are built on top of decentralized technologies.

How did we get here, though? Let's take a look at the evolution of the Web: Web 1.0 came with the birth of the Internet and fundamentally digitized information, submitting knowledge to the power of algorithms (this phase came to be dominated by Google) and making it read-only for the most part. Web 2.0 came with social media, running mostly on Smartphones, and digitized people by subjecting human behavior and relationships to the power of algorithms (this phase was dominated by Facebook), and made the internet not only a place to consume content, but also to create it. 

What about Web3? This third phase will fundamentally digitize the rest of the world and render it in 3D. In Web3, all objects and places will be replicable and readable by machines and subject to the power of algorithms. And who will the metaverse be dominated by? Most likely by anyone and no one at the same time – exactly because it is a decentralized web, as well as it will be a place for people to consume content, produce it but most importantly: own it. It has certain characteristics, namely that it is decentralized (as we mentioned), immersive (it is 3D and not only 2D as the internet is today), and persistent (things happen even while we are not online). 

Recent statistics show the opportunity for companies to dive deep into the Web3, as the expectation for the market is to grow steadily: The global Web 3.0 market size reached USD 3.2 Billion in 2021 and is expected to register a CAGR of 43.7% up until reaching USD 81.5 Billion in 2030, according to a latest analysis by Emergen Research. 

As per some of its underlying technologies, such as the metaverse, the opportunity is just as big: for instance, a new report by research firm Gartner predicts that by 2026, 25% of people will spend at least one hour per day in the metaverse for work, shopping, education, social and/or entertainment. It’s also expected that 30% of the organizations in the world will have products and services ready for the metaverse by 2026.

When it comes to blockchain, although the financial sector accounts for more than 30% of the complete market value of the technology (a market value that is poised to reach $ 67.4 billions by 2026, according to Markets and Markets), the value of the ecosystem has also begun to spread to other technologies, such as manufacturing (17.6%), distribution and services, (14.6%) and the public sector (4.2%). 

We have already seen a strong acceleration of Digital Transformation in the sector. As a keynote speaker and researcher that works with many retail companies globally, I am fully aware of the impact that Digitalization is having on the retail industry, especially after Covid-19: according to a research by Mordor Intelligence, the digital transformation market in retail is expected to grow at a CAGR of 14.3% until 2028. The advent of digital technologies for collecting, storing, analyzing, and distributing information has created new dynamics in the digital transformation of the retail market. The fastest growing market is made of Asia Pacific, and still the biggest market is made of North America.

But if we can agree that Digital transformation is underway at the moment (and accelerated by Covid-19), we still have to admit that - besides some shy but much-needed experiments and pilot projects - the retail industry is not very clear yet about the potential impacts and opportunities of Web3 on its business, from traceability of products across the supply chain, to immersive shopping experiences through the metaverse, from crypto payments to generative AI for CRM - eventually helping to do what the industry aims for since its inception: better serve the shopper when, where and how they want to.

This is why I have spent the last several weeks talking to experts from the biggest retail companies across the globe, and have put together this article that describes what are the main impacts of Web3 technologies on the retail industry. 

Metaverse for immersive shopping experiences

Interestingly enough, now we all talk about the Metaverse since the announcement of Facebook on changing its name to "Meta". Although this is not a new idea, we only recently became able to better understand its implications for healthcare companies, especially for the way they conduct surgeries and interact with patients.

But let's first understand what is the Metaverse: the term was born from the junction of the Greek prefix "meta" (meaning beyond) and "universe", and fundamentally is a virtual and collective shared space, created by the convergence of virtually enhanced physical reality (represented by the "Digital Twins", of which we will further talk about), and the virtual space that already permeates the physical world (in particular Augmented Reality, also called AR). Confused?

Think of it this way: today we are basically online when we access the Internet, but with new devices, greater connectivity such as 5G and cutting-edge technologies, we will be online all the time in decentralized, immersive and persistent worlds.

One of the great opportunities that the Metaverse is providing to the retail industry is definitely to improve the shopper experience through immersive worlds. By leveraging the technology of the metaverse, businesses can extend their brick-and-mortar presence into three-dimensional virtual spaces that maintain brands’ look and feel while leveraging the unique characteristics and advantages of an online environment—especially the complete freedom from physical boundaries. The metaverse allows customers to engage with immersive retail experiences while moving seamlessly between virtual and physical environments, contributing to retailers’ omnichannel approach.

The truth is that virtual spaces have the power to extend and enhance the physical world we live in, freed from the real-world boundaries of space and time.

For brands, there is incredible potential in the ability to create and customize virtual retail spaces. In the metaverse, they can tailor a virtual world to highlight their brand vision, share their brand narrative in a distinctive way and engage customers in a retail environment like no other. By delivering a strong sense of realism and immersion, brands can draw shoppers into positive and personal online experiences that are genuinely memorable and keep users coming back for more.

An example? Nike teamed up with Roblox to create Nikeland, a virtual world, created on Roblox, that witnessed 7 million visitors over the course of its first two months. It built upon the expertise of Nike’s newly acquired metaverse agency, RTKFT, in order to facilitate a gaming experience that was Nike-branded and, crucially, allowed users to buy virtual goods from Nike itself. Nike’s digital results – in no small part due to those metaverse experiences – now represent 26% of its total Nike brand revenue. And as part of that effort, Nikeland has to date received over 21 million visitors, according to Roblox, and has been favorited by almost 118,000 gamers. Winnie Burke is head of fashion and beauty partnerships at Roblox, and she explained in an interview for The Drum that the viability of a metaverse experience (as with with real-world retail) relies on the introduction of new products: “Evergreen experiences on Roblox – such as Gucci Town, Vans World and Nikeland – keep players coming back because they have created engaging social spaces with ongoing content updates where fans can discover new products in authentic and interactive ways.

“Tommy Hilfiger is the latest fashion name to jump into the metaverse with its Tommy Play persistent experience – which is is frequently updated, meaning even regular guests can always find something new to explore or try. It’s one of the very exciting examples we’ve seen of the fashion industry taking on the metaverse.” That need to introduce new products and experiences is a melding of the core tenets of both retail and gaming. Retail – particularly in fashion and luxury – runs on the concept of seasonal refreshes of the clothing lines, while persistent gaming universes such as Final Fantasy XIV and Rocket League introduce new environments and game modes on a regular schedule.

In addition to introducing new clothing items, Nikeland has been emulating gaming’s release-and-refresh approach. During the NBA All-Star Week, for example, Nike commissioned LeBron James to visit Nikeland. During that time participants were rewarded for physical gameplay with the ability to unlock virtual products.

What are the key tenants to make all of this work? Daren Tsui, chief exec of Together Labs, has argued that a successful metaverse execution requires 3 key attributes: “It needs to have presence (social presence), it needs to be persistent (when users come back there’s some sort of continuity and not a reboot) and lastly and most importantly it needs to be shared (multiple people will need to be able to interact in the metaverse).“

Blockchain for product traceability

Before getting to its application to the retail industry, let's first understand better what the Blockchain technology is: it is basically a distributed database that is shared among the nodes of a computer network, which stores information electronically in digital format. A blockchain collects information together in groups, known as blocks, that hold sets of information and that have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled, and when it is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact time stamp when it is added to the chain. See? The blockchain is a distributed ledger technology (DLT), where that database is spread out among several network nodes at various locations, which makes it decentralized. 

And when it comes to its potential impacts in healthcare, we can list several ones such as product traceability, easier transactions (through smart contracts), and more efficiency. But let us focus for a moment on product traceability: at Walmart, everything started in 2016, when the Vice President of Food Safety in the company, asked his team to trace a package of sliced mangoes to the source. 

 It took his team 6 days, 18 hours, and 26 minutes. While all the data was there in the system, getting to the information took a long time. 

After partnering with IBM to create a food traceability system based on the Hyperledger Fabric (a project hosted by the Linux Foundation), Walmart could trace the mangoes stored in its US stores within 2.2 seconds, literally, the speed of thought! 

In August 2017 – Walmart announced a Blockchain partnership with big names in the supply chain industry such as Dole, Kroger, McCormick, Nestlé, Tyson Foods, and Unilever to collaborate and find new applications that could help increase food traceability. 

By September 2018, it was possible for the company to trace over 25 products from as many as five different suppliers-  including mangoes, leafy greens, strawberries, dairy products, meat and poultry, packaged salads, and even baby food. The system was so efficient that one could take a jar of a product or a salad box and trace the ingredients back to the farms from where they were harvested.

This can help reduce the risk of counterfeit products along the supply chain: Blockchain can drive increased supply chain transparency to help reduce fraud for high value goods such as diamonds and pharmaceutical drugs. Blockchain could help companies understand how ingredients and finished goods are passed through each subcontractor and reduce profit losses from counterfeit and gray market trading, as well as increase confidence in end-market users by reducing or eliminating the impact of counterfeit products.

Furthermore, businesses can maintain more control over outsourced contract manufacturing. Blockchain provides all parties within a respective supply chain with access to the same information, potentially reducing communication or transfer data errors. Less time can be spent validating data and more can be spent on delivering goods and services—either improving quality, reducing cost, or both.

AI for Customer Experience

Artificial intelligence (AI) can provide support for retail operations, increasing profits and optimizing business processes. AI services in the retail sector are predicted to increase from $5 billion to above $31 billion by 2028. Why such interest in AI technologies in the retail world? Well — the sector generates swathes of data every day, spanning products, customers, promotions, sales trends, almost anything you can think of. And thanks to machine learning and automation, this data can be processed to benefit retail companies, giving them a tremendous competitive advantage. 

One are of improvement is Customer Experience: Artificial intelligence can help retailers provide the best possible customer experience. Improvements range from reducing shopping time with automated checkouts to more personalized discounts to offering round-the-clock customer service with chatbots. 

Thanks to these solutions, it’s now easier than ever to exceed customer expectations, meaning higher satisfaction and more brand loyalty, but the possibilities don’t end there. Companies are even creating checkout-free experiences, meaning no queues and ultimate convenience. 

Amazon was the first company to introduce an AI-powered store through the innovative Amazon Go, which uses computer vision to spot when customers put something in their basket. Then, when they leave the store, Amazon charges their account directly.

Better experiences can come from AI-powered personalized CRM: Did you know that as many as 72% of customers will only engage with personalized messaging? So — by analyzing customer behaviour, you can send more personalized offers and increase sales. 

Also, you can do better placement of products: You can even tailor recommendations based on what a customer has looked at or bought, the time of day they typically shop, or the promotions they’re most likely to buy.

Algorithms can quickly analyze historical data on variables like consumer preferences, product location, sales season, and weather conditions. They can then suggest the best place to stock products. 

With customers able to find products more easily, they’re more likely to return to the store. Taking this one step further: stores can even use computer vision to monitor behavior and identify where customers typically find products. An example? Sephora’s ColorIQ: Step into a Sephora store to find your perfect makeup shade without ever putting anything on your face. Color IQ scans a customer’s face and provides personalized recommendations for foundation and concealer shades, while Lip IQ does the same to help find the perfect shade of lipstick. It’s a huge help to customers who know the stress (and cost) of finding the perfect shade by trial and error.

AI can help retailers also make better decisions: According to Chatbots Magazine, 44% of executives say AI’s most important benefit is generating insights they can use to make data-driven decisions. 

For example, by analyzing data about previous advertising campaigns, promotions, and customer preferences, businesses can draw appropriate conclusions and better plan future actions. In doing so, they remove the guesswork and increase campaign effectiveness. 

Data also enables better budgeting and the avoidance of misplaced investments. 

Overall, it is clear now that AI can help retailers in many fronts, not least customer experience and efficiencies. 

DAOs for Stores

Do you know how a cooperative works? I do a lot of speaking to cooperatives in Brazil, especially in the finance and agro sectors, and I have always been amazed by the way they are able to be more customer-centric and collaborative, because of their "ownership" structure - that, to explain as briefly as possible, is basically a model in which the organization is "owned" by its customers. 

This definitely makes accountability much more important, makes the division of profits more egalitarian, and as I mentioned before it makes the organization more customer-focused (as the cooperates, namely the customers-owners, make decisions about the cooperative strategy during regular meetings).

And while traditional cooperativism was founded in 1844 in England, we now see a new form of cooperativism on the rise through Web3: namely the one brought about by DAOs, or Decentralized Autonomous Organizations. 

What are DAOs, to start off? A DAO is a new kind of organizational structure, built with blockchain technology, that is often described as a sort of crypto co-op. In their purest form, DAOs are groups that form for a common purpose, like investing in start-ups, managing a stablecoin or buying a bunch of NFTs. ConsenSys, a blockchain organization, defines DAOs as “governing bodies that oversee the allocation of resources tied to the projects they are associated with and are also tasked with ensuring the long term success of the project they support”. Once it’s formed, a DAO is run by its members, often through the use of crypto tokens. These tokens often come with certain rights attached, such as the ability to manage a common treasury or vote on certain decisions.

Interestingly enough, there is already an experiment of a DAO running a store: Itsuki Daito is offering a web3 twist on brick-and-mortar retail: a store owned and operated by a decentralized autonomous organization in San Francisco. DeStore “STORE_0” It is owned collectively by members of a so-called decentralized autonomous organization. These entities are like crypto’s version of companies, with ownership represented not by an equity stake but through crypto tokens.

Daito’s pitch goes like this: when the DeStore app is launched this fall, anyone will be able to buy a blockchain-based token that represents ownership in the store, and join the community’s server on Discord, a chat app similar to Slack that includes many elements of more traditional social media platforms. The greater the value of the tokens participants own, the greater their share of voting power. As the store gets up and running, token holders will be able to vote on what brands to stock and sell at the location, what furniture to buy, and even who will work there. What happens to any revenue the store may generate will also be up to a vote. 

Imagine all this powered by AI, in what Alexandre Gonfalonieri, an AI computer scientist, calls in a Medium article an AI DAO.  Imagine a store run by an AI decentralized autonomous organization. Contractors around the world could be responsible for the maintenance/logistics of autonomous stores owned by the AI DAO and could be paid directly by the AI DAO itself.

This same AI DAO store could use money to autonomously restock the products, hire the services it needs (cleaning, security, logistics, …) and pay on its own.

Furthermore, as more people invest money in this store, all the users will have a saying and a vote that will influence the decisions taken by the AI DAO.

Such a store would leverage several AI subfields (NLP, Computer vision, …) to adapt to customers needs, tracks spending and preferences. I believe that this entity would be based on the evolutionary theory. AI DAOs will never be seen as “finished”. The services, products and prices will always evolve. Beyond the automation of most tasks, the decision process will be quite unique.These decisions can be made using smart contracts.

By adding AI, DAOs will create new business models. Soon, I expect to see a growing number of fully independent businesses in which everyone can invest. Perhaps retailers will stop considering their customers as only consumers but also enable them to own a piece of an autonomous store.

We might enter a new era in which the average customer can also easily become an investor. This new business model will apply to many other organizations. This may include decentralized hedge funds, decentralized public utility providers, etc.

NFTs for communities building

Who hasn't heard of the NFT buzzword lately? Impossible not to have been impacted by this term, which for the most part is related to "digital art"- But what does NFTs have to do with retail?". 

Well, to start off we have to understand what are NFTs, or Non-fungible Tokens, in order to understand that their applications go much beyond only art and gaming, and are not only the speculative bubble that we are seeing now.  

What are NFTs, exactly? NFTs can be thought of as a signature for digital assets, which rely on blockchain technology to prove authenticity through a ledger. By confirming authenticity, NFTs establish ownership of one-of-a-kind online assets which can range from a simple pixelated image to a complex set of data, making it impossible to duplicate without permission (to clarify, this means that a set of data can be imitated, but the original is always clearly identifiable: for instance you'd be able to read Jack Dorsey's first Tweet on Twitter all over the internet, but the original one has been auctioned for $ 2.9 millions and is owned by crypto entrepreneur Sina Estavi. Identifying where data comes from and verifying its validity is a key pillar of the industry today, making it likely that it will continue to be a major topic of interest going forward.

Contrary to the wide draw of NFTs as investments, the applications of NFTs in retail marketing are not meant to inherently just generate profit. 

Let us look at Starbucks: in the end of 2022, Starbucks launched a blockchain-based loyalty program and NFT community dubbed Starbucks Odyssey. The initiative was launched through a partnership with Forum3, which helped build out the coffee giant’s NFT project, and where Adam Brotman is the cofounder. In September, Starbucks said it envisioned the program as a way for its most loyal customers to earn a broader, more diverse set of rewards beyond the perks they can get today, like free drinks. Instead, Odyssey introduces a new platform where customers can engage with interactive activities called “Journeys” that, when complete, allow members to earn collectible Journey Stamps — which is Starbucks’ less technical terminology for NFTs.

Aside from Starbucks, web3 customer loyalty-focused Forum3 has been working mainly with consumer brands, retailers (including restaurants), sports leagues and direct-to-consumer subscription companies, Brotman said.

“Odyssey is an extension of the Starbucks loyalty program,” Brotman noted. “It’s an opportunity to innovate and extend loyalty.”

Separately, earlier this year, Nike launched an NFT and metaverse platform, .Swoosh, which will allow shoe fanatics to trade and create digital “wearables and virtual sneakers.”

A loyalty program is often centered around giving something to customers in return for their loyalty to a brand, Brotman said in a blog post. “What does the brand give in return? Discounts and digital convenience, such as remembering your favorite items, address, and payment methods, suggesting items, and letting you order ahead.”

But what if these digital points, or royalty rewards, could actually be owned by customers? That’s where NFTs, or true digital ownership, comes into play — and provides a “much more immersive loyalty layer,” Brotman said. It allows customers to receive points and digital collectibles that they own and could use in ways beyond what a typical rewards program allows today.

How, exactly, can NFT-based technology drive more participation in their loyalty programs in new ways?

Two hot topics in the NFT space may hold the answer: utility and interoperability.

‘Utility NFTs’ grant their owners privileges, rights or rewards that they wouldn’t be able to access otherwise. With paper gig tickets, each ticket is unique, with a unique ticket number granting access to the gig. Utility NFTs are based on this premise.

If those gig tickets were issued as NFTs, the initial utility is (again) to give the holder gig access. But the technology can also be applied to offer holders additional benefits: the chance to buy the band’s new album or limited-edition merch, or VIP access to the gig.

The ways in which utility NFTs could be expanded to deliver more value to customers over time are almost limitless. They can be used to enhance loyalty programs and deliver more opportunities for users to interact with a brand.