via a newsletter from

AR poses significant threat to physical retailers

BI Intelligence
Nancee Halpin | October 21, 2016

bii ar commerce market share forecast

Augmented reality (AR) is making its way into retail as merchants adopt the technology to remove friction from the e-commerce experience. The technology’s ability to give shoppers a more realistic view of products can help AR become a significant portion of the online retail market. In fact, a new report from Citi forecasts that by 2035, AR will drive 25% of global e-commerce sales. But while AR may prove to be a significant tool for e-tailers, it poses a powerful threat to legacy players in that it could eliminate the need for consumers to go to brick-and-mortar stores.

AR is expected to have a huge impact on e-commerce over the next 20 years:

  • By 2025, AR-driven commerce is forecast to make up 1% of the total global e-commerce market, according to the Citi report.
  • This will jump significantly in just 10 years — AR will account for 25% of all global e-commerce sales by 2035.

The technology could have significant implications for certain retail product categories. AR can help increase consumer confidence in specific purchases that shoppers may be hesitant to buy online, like furniture and beauty products. Online furniture purchases come with a bevy of consumer concerns due to the typical longevity of the products and oversized items. And hesitancy is common with cosmetics, as well, since consumers cannot see what items look like or test them on their skin. The near-realism of AR will likely drive retailers in these product categories to launch apps that incorporate the technology to onboard shoppers who’ve been resistant to making these types of purchases online.

But AR could prove to be a significant hindrance to legacy retailers. The technology can boost consumer confidence by giving shoppers an experience closer to that of a brick-and-mortar location. One of the biggest factors hindering e-commerce from overtaking physical retail is that a portion of consumers prefer to see items in person before they make a purchase. AR has the potential to completely remove this barrier by virtually putting the same items in a shopper’s home.

Moreover, should AR prove beneficial in boosting conversion rates, retailers will likely invest heavily in their digital offerings in order to capture a greater portion of accelerating digital sales. This leaves traditional retailers at a significant disadvantage as many of their resources are still devoted to brick-and-mortar locations that would likely experience a slowdown in foot traffic. Legacy merchants should consider adopting the technology to get ahead of the trend and on board more shoppers as AR reaches the mainstream.

Download the chart and data in Excel.