Over the past two decades, we’ve seen radical transformation in the retail landscape: the rise of e-commerce. The death of major retail brands. The birth of the convenience economy. And the ride isn’t over. “Disruption is happening faster than it ever has before,” Jennifer Pereira, Direct Private Equity Principal at CPP Investments tells our Retail 4.0 Forum, hosted earlier this month by Thematic Investing to discuss the emerging risks and rewards in retail. Some observers have characterized the results as a “retail apocalypse.” Hyperbole or not, one thing is certain: investors today need to revisit the old rulebooks. Rethinking bricks and mortar In the coming years, online sales are projected to grow, especially in developing countries. Physical stores, however, will still account for about 85% of global business-to-consumer commerce. Rather than declaring the death of traditional retail, a more nuanced argument can be made that non-differentiated retail is dead. That’s because e-commerce has changed customer expectations and demands. For retailers who fail to recognize and adapt to this new reality, the future looks bleak. To succeed, physical stores need to provide experiences that aren’t available online. Many malls, for example, are investing in high-end gyms, daycare services, co-working spaces and entertainment options to give consumers additional reasons to visit. Meanwhile, more stores are adding experiential features — from free coffee in clothing boutiques, to on-site nutritionists at supermarkets and hands-on demonstration areas in big-box hardware stores. Yes, more bricks-and-mortar operations are launching e-commerce channels or acquiring digital-native companies. However, we’re also seeing digital brands opening physical locations, raising their profiles and giving customers a place to connect in person, get advice and test out products. According to Pereira, the companies to watch are those taking a holistic approach to sales and marketing — seamlessly integrating the strengths of online channels and physical spaces to define their brands, enhance customer relationships and provide a convenient, frictionless shopping experiences. Retail categories ripe for growth While e-commerce has heavily penetrated certain areas, such as music, books and movies, smart investors recognize that other sectors remain ripe for growth. One example is groceries, where e-commerce sales grew 30 per cent in 2016. “That’s an area that is growing double the rate of any other online category,” says Ruby Grewal, Portfolio Manager of Thematic Investing at CPP Investments. Traditional grocery stores are scrambling to keep up. To maintain market share, they need more efficient ways to fulfill online orders than having employees pick items from store shelves. “Automation is really the key,” says Grewal. She sees strong investment opportunities in supermarkets that are developing intelligent, streamlined e-commerce systems. The same goes for related industries focused on improving back-end operations such as robotics, warehouse management systems, logistics and shipping. Investors take note Within any retail sector, the success of individual companies will depend on their ability to adapt and thrive in this fast-changing landscape. And that starts at the top, with a management team that’s structured and willing to effectively execute innovative strategies. Meanwhile, as consumers expect increasingly personalized shopping experiences, regardless of the retail channel they choose, data becomes a crucial commodity. Investors need to assess how companies gather and integrate data from all touchpoints — both online and physical — and how well they leverage those insights into consumer habits and desires. “It’ll be harder to survive if you don’t figure out a way to understand your customer and use that information,” says Pereira. According to our Retail 4.0 panel of industry insiders, the so-called “retail apocalypse” raises thorny questions about where and how to invest, the re-invention of the retail supply chain and how to leverage data from across the customer journey. Not surprisingly, the answers are complex. CPP Investments will continue to investigate these long-term trends as they unfold, investing in opportunities well suited for the future of this evolving space.