This article on Web3 and the future of shopping online is part of our new editorial package, The Future of Shopping, in which we predict how the retail landscape will be shaped over the next decade. Click here to read more.
It’s been 25 years since Net-a-Porter convinced fashion brands to sell products “without a store”, as the company framed it at the time. The Web1 era — or the first era of the internet — brought radical change to how we shop. Ten years later, more disruption followed the dawn of Web2, driven by social media and smartphones.
Now, as we enter the era of Web3, the next major transition in how we shop is underway. Similar to the first two phases of the internet and e-commerce, it brings new cultural and technical norms.
Broadly speaking, Web3 includes ‘mixed’ and blended realities, blockchain-based technology, decentralisation, new platforms and business models and new metrics for success. It also means growing pains, as new technologies disrupt formerly stable business models.
The past year has been especially tricky for incumbents, but that doesn’t mean that the original promise — that people will want to buy something outside of a physical store — is falling flat. It’s just changing again, and fast.
“As someone who was part of building the first wave of e-commerce experiences in the early 2000s, I still view digital selling as magical,” says Carol Hilsum, who was at Net-a-Porter in 2010 until she joined rival Farfetch in 2017. (She left Farfetch in late 2023 before the company was sold to Coupang.) There’s still potential commercially and innovatively, she says. “It remains a growing area within business and commercial strategy, and we continue to see this expand and scale.”
“There is a meaningful step-change happening. If desktop was about search and convenience, and mobile is about embedded and immersive, next it’s all about being immersive,” says Rob Garf, VP and general manager of retail at Salesforce. “After the pandemic, people are expecting convenience and to do business with brands they trust, and the focus was on removing friction. That is now the baseline.”
Although the formats are new, the core principles of commerce still apply. And in many ways, this Web3 evolution is going back to basics; artificial intelligence and immersive experiences create a more tangible, human-like experience that mimics in-store, person-to-person interactions, and stores are still the prevailing preferred method of shopping. Instead of scrolling sterile, ‘endless aisle’ grids, the next phase of the internet hopes to bridge the best of both worlds.
“You really have to build fabulous brands, like back in the ’70s and ’80s. Do you really have a brand that people trust and love, or are you just following people around on the internet?” says Oliver Chen, managing director and senior equity research analyst covering retail and luxury goods at Cowen. “The new age has helped separate businesses from brands. This idea of trust is somewhat timeless; do customers actually stay with you or do they just try it and leave?”
The future is phygital
The concept of ‘omnichannel retail’ became popularised in the early 2000s to refer to the practice of selling across multiple online and offline channels. It reached its peak as a search term in 2005, according to Google Trends data, and became gradually more popular over the past decade, expanding in scope to include marketing strategies and new formats such as smartphones, social media and gaming. But it’s become so ubiquitous that it’s verging on obsolete.
“It went from ‘multi-channel’ to ‘cross-channel’ and then to omnichannel,” Garf says. The new concepts in its place? Phygital, meaning a blend of digital and physical, and the unification of customer identities. “It’s a unification of data and customer interactions, and having everything in the cloud,” Chen says.
Phygital retail can refer to mixed reality experiences, such as a virtual store that borrows from physical retail and gaming, and products that have a digital identity or digital twin, and customer journeys that don’t differentiate between either/or. People might scan a product to access augmented reality filters or discounts, or buy a physical luxury product via a token-gated site. Brands might target customers based on the other branded collectibles they’ve collected in their crypto wallets, or secondhand buyers might register ownership of a chipped product. A customer might even use their chipped product to check into a store or an event.
While people might not take to the word, the concept is off and running. “I still believe in phygital,” Chen says. “It’s digitisation of goods to the blockchain.” A practical use, he adds, is lowering the handling costs of authentication to power circularity. “Blockchain is an extremely important principle, but we still need a killer app that accelerates adoption.”
Mixed reality, in which digital and physical experiences merge, will also be more successful and influential, with smart glasses from Meta and Amazon, and mixed reality headsets from Meta and Apple — while still relatively niche, Chen cautions — are gaining more mainstream awareness and more sophisticated capabilities. “While the adoption and popularity of virtual reality continue to be debated, its potential to foster a new kind of digital experience, that is deeply immersive and richly interactive, is huge,” Hilsum says. This can “deepen emotional and multisensory connections with consumers, which are crucial for reinforcing brand value and appreciation”.
Both the recent Web3 experimentation and gaming have already introduced fresh perspectives for fashion, Hilsum adds, in terms of community engagement, digital products and brand loyalty. “This area promises to offer sustainable solutions for cultivating deep, lasting loyalty, moving away from traditional, discount-driven strategies.
AI, automation and personalisation
Since the dawn of e-commerce, data science has become a key lever for e-commerce companies and social media platforms to ostensibly serve the right stuff to the right people at the right time. But fashion has been slow on the uptake, Hilsum says, despite the clear pay-off. Besides digital advancements, the fashion industry often remains fuelled by analogue processes that are cumbersome, manual and time-consuming, she says, from product design and manufacturing, to customer data management and retention.
The arrival of generative artificial intelligence means a step change in the evolution of data science, making it easier for more people to take advantage of AI more quickly. It’s about time. “AI is a no-brainer,” Chen says. “It’s kind of like water.” He sees specific opportunities in merchandising, pricing, better labour allocation, robotics and micro-fulfilment, inventory management, fraud detection and personalisation. Plus, it’s easier for customers to use too, in arenas such as customer service or clienteling, or even product discovery. “People are programmed to search by keyword, but we don’t really talk that way,” says Chen.
The big “if”, he adds, is if companies have sufficient data to train the AI. Al tools also require an ‘HITL’, or ‘human in the loop’, with parameters and exceptions that are both programmed and monitored. “They have to be very tailored,” he says, pointing to risks such as privacy and bias. To that end, multiple global governments are in various stages of enacting legislation that is set to go into effect in the coming years.
“Despite challenges such as integration and legal concerns, these innovations are quickly being adopted, particularly by younger brands, signalling a shift towards AI-integrated operations within the next five years,” adds Hilsum, who most recently co-founded consultancy StudioThree to advise fashion-tech startups and investors. (She previously led Farfetch’s startup accelerator.) Tech companies are also angling to help, ranging from big, generalised tech providers such as Google, OpenAI, Amazon and Meta to more specialist startups.
“AI becomes the new UI”, Garf says, referring to ‘user interface’, which became a popular focus as websites and apps became increasingly refined. “Now it’s all about ‘immersive’, and it’s super interesting to think about. Every way along the horizon, there has been a very standard way that people browse and shop and buy. Now we are throwing in a whole new interface around conversations that will cause fashion and apparel and brands to rethink how they help the consumer around that shopping journey.”
New business models are social and sustainable
The habit of going to the mall to socialise has ceded real estate to digital platforms such as Roblox, Instagram and TikTok, where influence and loyalty face a more nebulous trajectory. Gen Z no longer considers frequent purchases a barometer of loyalty; now, they just think it means being a fan of the brand, especially on socials, according to research from youth culture agency Archrival. The influence of Web2’s influencers, it’s worth noting, is not fading — rather, it’s changing.
Content creators are transforming the traditional influencer-brand relationship, Hilsum says, as the algorithmic preference for engagement (over simpler metrics) has seeded deeper, more authentic interactions. Some content creators now earn higher percentages through commissions than many retailers earn, she adds. “In the next five years, we can expect content creators and their platforms to become the primary digital distribution channels, affecting every aspect from pricing and product development to brand content creation.” This means that brand content strategies have become “vital”, requiring larger and more influential social teams, she adds. In the younger direct-to-consumer brands she works with, the social media content creation team is often among the largest, and it significantly influences product development and brand decisions.
Chen calls it “TikTokification”, whose reach spills over more broadly than the Bytedance-owned platform. “I call it the shop model: ‘S’ for short-form video, ‘H’ for humanisation, ‘O’ for Omni 4.0 and ‘P’ for proprietary.” So in the same way Amazon changed us for a decade, TikTok is changing us. Perhaps surprisingly, while social is crucial for creating demand, actual shopping — like making a purchase — is still somewhat elusive. “There’s of course still friction with the point of purchase and attribution,” he notes. “It’s TBD with TikTok Shop specifically.”
Most optimistically, new business models and technologies don’t only aim to grow at all costs, they also often aim to do so while reducing waste, highlighting a collaboration between tech and sustainability. Hilsum points to digital product passports — a looming European requirement to bring transparency to product sourcing — plus cotton-sourcing rules in the US and manufacturing standards in China, which are also among key drivers of change. “These changes necessitate reevaluating how companies design, sell and manage inventory. Focus is shifting towards not just sustainable practices but also towards innovations that allow consumers to understand more about their purchases and how to maintain them,” she says.
On that front, rental, resale and other circular business models are still waiting for their zenith. “I’m not really giving up on circularity,” Chen adds, noting that so far, it’s been challenging to make a profit with rental models, and the resale market is ripe for regeneration. Among his students at Columbia University, he has also identified an interest in plant-based solutions and other regenerative efforts that reduce carbon footprints. “Leaving the earth better will be part of the puzzle of great retail.”
Back to basics
Amid all the talk of bleeding-edge tech, of a transition to Tiktokified shopping and the popularity of games among the next generations, it can be tempting to forget about stores. Not so fast. According to data from youth culture agency Archrival, Gen Z still prefer to shop in stores even more than millennials. Three quarters of Gen Zs think physical experiences are more important than digital ones, and prefer to make a purchase in store when shopping.
There are also reports that growth in e-commerce and mobile commerce is slowing, meaning that while people are spending more online each year, it’s not a foregone conclusion that eventually, it will make up the majority of purchases in the next 10 years.
In the past decade, e-commerce penetration has been steadily rising, and increasingly being replaced by m-commerce (or mobile commerce). Mobile shopping surpassed desktop shopping during the holiday shopping season for the first time in 2023. But growth in all kinds of e-commerce has stalled, and the pandemic surge wasn’t permanent. That doesn’t mean that growth has stopped, but there are likely limits in just how much shopping can take place online.
The pendulum is swinging back. Just look at Prada’s recent $1 billion plan to invest in physical stores as a sign of the times. “The future is actually quite old. It’s called ‘bricks and clicks’, and most of retail will always be done physically,” Chen says. “Great physical retail is rising in importance again.”
About 60 per cent of digital orders are now influenced by the physical store, according to Salesforce data, and people are using smartphones as almost a “remote control” for how they shop online and offline, Garf says.
The ‘store of the future’, however, with smart mirrors, augmented reality extras, token-gating, unified data and personalisation, has yet to become mainstream. Hilsum says that when testing in-store innovation, demand has historically been high for improving the general experience and service. While there is both demand and opportunity to evolve the in-store experience, progress is slow because it can be tricky for external innovators to build for and the market can appear smaller than direct-to-consumer. “Innovation in this space often falls to internal innovation within companies, which again tends to be slower and much less funded,” she says.
And e-commerce still has opportunities for improvement. “If you are going to go through all the effort of designing and producing a garment, you better take amazing photographs and describe it in detail,” says Julie Bornstein, a retail executive who spent time at Nordstrom, Sephora and Stitch Fix before founding The Yes, which was acquired by Pinterest in 2022. Going forward, she encourages brands to continue to solve for the existing needs: decent photography, and better insights into fit and feel. Even standardised sizing is still shockingly elusive, she adds. “If you come up with something standard, the return rate will be cut in half.”
At the end of the day, the Web3 era might mean that ‘the internet’ becomes all but invisible. “We’re back to the future in a way where it’s like, OK, is this really a good brand or not?”, Chen says. “There’s a big difference between a brand versus a supplier, and is it convenience or is it curation?”
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
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