Ever wondered why your smartphone seems to read your mind? Why it knows what interests you before you do?
That's because we are entering an exciting but bewildering new era known as Third Wave Retailing.
For hundreds of years, traders relied on personal relationships with their customers.
Face-to-face interaction was king in First Wave Retailing.
That all began to disintegrate about 20 years ago when online shopping took off, and big IT companies used all your search history to build a profile of your likes and dislikes.
They were able to separate the buying habits of men from women, young from old, rich from poor, urban from rural, culture from culture in a micro-marketing frenzy to help retailers target those most interested in their products.
Second Wave Retailing can guess what you like right now, based upon previous purchases.
But as we enter the mid-2020s, something remarkable is happening.
Artificial Intelligence (AI) and machine learning are now being used to predict what we will want to buy - before we even know it.
Sometimes called predictive analytics, this Third Wave can connect the right products in the right place at the right time, with the right customer - before that customer has realised they need it.
Let's take an example. You search for private health insurance online. A day later, advertisements for house paint begin to appear on your social media feeds. Why?
Because AI knows that half of all applicants for new private health insurance do so when they are starting a family.
Half of these will need to make alterations to their home to accommodate a baby for the first time. Ninety per cent of those will repaint the nursery in anticipation of their new arrival in six months.
So, when a thirty-something goes searching for private health insurance, retailers know to offer special deals on cans of paint, before you've even thought about remodelling the house.
Efficient, and a little unsettling, all at once.
Welcome to Third Wave Retailing.
It monitors your conversations and interests on Instagram, X (Twitter), TikTok, Facebook and other social media platforms, along with your search history on Google, and matches them against your age, spending levels and location to predict your future needs.
It can identify your lifestyle and interests, values and beliefs, personality traits, social class and aspirations, opinions and attitudes, and ultimately future buying patterns.
The best retailers are doing this, while the laggards are stuck in Second Wave thinking, confused about why their rivals seem to be expanding faster than Amazon's balance sheet.
Third Wave Retailing and AI are set to transform the Australian retailing sector, which is now worth $425 billion and growing by $14 billion a year. AI and machine learning are already worth US $3.22B to the Australian economy, but this is forecast to grow by US $14.5B by 2030.
Third Wave Retailing can ensure warehouses are correctly stocked for future demand, rather than being under or overdone.
This is the Goldilocks of supply chain management, ensuring those businesses reach the maximum number of current and future "paint buyers", while minimising wastage in their distribution centres on our city fringes.
How big is this opportunity?
Historically, eight per cent of stock on average perishes or is discarded annually, worth US$163B (AUD $240B), which is more than the GDP of Croatia, Costa Rica and Iceland combined.
Yet the most recent estimates put the total amount of lost revenue opportunities worldwide down to inventory distortion at about AUD$16 trillion. This means a host of benefits.
According to a University of NSW study, fast fashion is a major culprit of inventory waste - and an obvious target for Third Wave Retail efficiency.
That's because some luxury brands prefer to burn leftover stock than sell it as a discount, making it a "cost-effective" way for luxury designers to protect exclusivity and avoid devaluing their brand image.
Every second, the equivalent of a truckload of clothes are burnt or buried in a landfill because they are overproduced in the first place. Every second.
That's a tantalising invitation to welcome Third Wave Retailing into our lives.
This article was written by Travis Erridge and originally published in The Daily Telegraph on July 18, 2024.