Digitalization of markets is on the rise. In retail, increasingly digitally-connected consumers are looking for matching experiences from retailers. Retailers, previously focused on a brick-and-mortar store footprint and inventory expansion, are now faced with an imperative to rapidly adapt to changing consumer needs or risk disruption from digital-first startups or fast-moving competitors. Before we look at what retailers can and should do to undertake effective digital transformation, it is important to first understand the meaning of digital transformation within the retail sector.
In the retail experience, there is the core enterprise, a supply chain network, and the end product or service, all of which work in tandem to ensure that what you pay for is what you get. Within this context, digital transformation is the radical transformation of these three pillars to align with an increasingly digital-first marketplace.
Core Enterprise Transformation
At the heart of any traditional retail operation is the core enterprise of people, legacy systems, established cultures, disparate silos of data and rigid operational frameworks. The core enterprise is fragmented and complex, which acts as a major impediment to nimbleness and innovation in the face of disruptive startups and innovative competitors. The solution lies in the digital transformation of the core enterprise, or what can also be called the platformization of the organization.
In the past, Amazon and Walmart were markedly different companies operating in different submarkets of retail – online and offline, respectively: Amazon a digital-first e-commerce behemoth and Walmart king of brick-and-mortar retail. Today, while they each dominate their respective niches, they are both technology companies at the core.
This digital transformation of the core enterprise through the integration of technological capabilities, an upgraded workforce, and re-engineered business models allow both companies to operate with nimbleness and simplicity at the surface yet with sophisticated technologies and structures running at scale within the core.
For instance, Amazon’s AI Flywheel strategy ensures AI advances in one department spread to other departments and in this way is integrating AI into the core operations of the company. Similarly, Walmart, through its Project Kepler, is using machine learning and AI to blend the online and offline shopping experience so customers can start a transaction online and finish it offline or vice versa while introducing a new shopping experience with no cashiers, AI inventory management, same-day shipping, and others.
By establishing a digital core, such retailers are able to respond quickly and effectively to consumer trends and technological shifts in commerce to deliver exceptional experiences to customers.
Supply Chain Transformation
Traditional supply chains are characteristically fragmented. Goods leaving a warehouse may be visible to the destination store but are not visible on a customer’s mobile device, which means that a customer may find an item out-of-stock at a retail outlet, yet the item is in a warehouse nearby.
As such, demand-change indicators for certain products often make it upstream too late, resulting in oversupply or undersupply of goods. In a digital-first retail environment, such a traditional supply chain can result in lost sales and poor customer experience.
To illustrate the need for the digital transformation of a retailer’s supply chain, consider a customer looking for a pair of shoes in a certain size that they need to be delivered to a friend’s house on their birthday
While traditional supply chains would struggle to accommodate this level of complexity, digitally transformed ones have the tools to excel at such tasks.
Utilizing machine learning algorithms for forecasting, end-to-end visibility across the entire value chain, and AI-enabled inventory management, a modern retailer can fulfill such an order. This level of personalization is only possible through a fully-integrated digital supply chain network.
As consumers demand increasingly personalized experiences, retailers must respond by applying appropriate digital technologies to their supply networks, either through in-house efforts or by partnering with startups like Fetch Robotics for warehouse automation, Celect for inventory management optimization or Label Insight, for enhanced product transparency.
Product/Customer Experience Transformation
In a 2018 Global Consumer Insights Survey, PwC found that although brick-and-mortar shopping was on a downward trend between 2010 and 2014, the years from 2015 and 2018 saw that number rebound. In an increasingly digital retail environment, this may seem like an anomaly. However, what this data points to is the desire consumers have for experiential shopping, an emerging type of shopping that is intuitive, human, meaningful, immersive, accessible, and personalized.
The data also points to rising consumer concerns around the cost of delivery, time to delivery, and the ability to try before buying. Although online retail is frictionless and offers many conveniences, many buyers still want to walk into a physical store to make a purchase. This trend introduces an interesting dilemma for retailers undertaking digital transformation; if buyers still want that physical shopping experience, how do you blend that with their increasingly digitized consumer habits?
The answer lies in blending physical and digital. By integrating omnichannel shopping with in-store and digital experiences, retailers can bridge this gap. For instance, by offering something as simple as in-store Wi-Fi, retailers can support the up-to 60% of shoppers who use their smartphones while shopping.
Other areas retailers can target to improve the customer experience include connected (human or virtual) store assistants with full visibility of the store, interactive signage, smart fitting rooms, mobile payments (Apple Pay, Google Pay), personalized in-store messaging, whole-cart checkout, ability to virtually order out-of-stock goods and have them delivered later, buy-online-collect-offline, among others.
By offering a blended experience, retailers can ride the current trend of experiential shopping and delight increasingly demanding consumers.
While the conversation around digital transformation almost always involves discussions about AI, the blockchain, and other trending technologies, these serve only as enablers of a holistic digital transformation strategy. Established retailers must, therefore, carefully weigh the benefits of the different transformations outlined above against the backdrop of their current operations.
Which transformations augment current operations? Which are practical to implement and will result in measurable ROI? As retailers ask these questions, they must keep an eye on the ultimate determining factor, consumer habits and trends. Ultimately, all efforts must focus on the singular customer-centric mission of delighting customers and offering them a memorable and meaningful shopping experience.
Silicon Valley Retail Executive Immersion Program
Attend a week-long Silicon Valley Innovation Center Retail Executive Immersion program that offers board members and senior executives in the retail industry unparalleled access and insights into the innovations surrounding the industry. Executives can expect to learn about big data and predictive analytics in supply chain management, AI store assistants and blended digital-physical shopping.