The so-called retail apocalypse that has taken the blame for shuttering brick-and-mortar stores isn't as detrimental as some may think. At first glance, the common notion that digital-native retailers would supplant traditional retailers with physical stores appeared to have some truth to it. Store closures and bankruptcies seemed to be rampant, which caused digital evangelists to rejoice.
However, the rising success of certain retailers and influx of e-commerce leaders building out physical infrastructure has painted a very different picture. From this perspective, the critical determinant of success or failure for retailers is not simply digital vs. physical, but rather creating a seamless experience between the online and offline worlds by becoming data empowered vs. data impoverished.
The retail industry, like many, is at an inflection point where the customer, rather than the retailer, exercises control and influence over the primary driver of commerce: data. In this new customer-centric world, the goal must be to deliver superior customer experience, with the best customer experiences tailored to the individual customer. As data has become the driver of customer experience, it has created a domain of personalization, customization and convenience.
All of these rely on knowing the customer. The deeper your knowledge, the more compelling you can make the experience. As luck would have it, digital natives — millennials and Gen Z — have been immersed in and reliant on data all their lives. Initially, this created a significant advantage for e-tailers in gathering, analyzing and applying data to the benefit of their customers and businesses. However, the data playing field is starting to level, as traditional retailers harness the same power that was intended to be their demise.
The input tools for gathering data in-store are beginning to emerge and mature. Savvy retailers are incorporating data-enabled devices and experiences into every aspect of their business. Experimenting with smart shelves, IoT sensors, artificial intelligence, and other technologies and processes allow retailers to gather more information on customer preferences.
To demonstrate the trend of digital retailers expanding into physical retail, let’s look at the archetypal digital native: Amazon.com. Fiercely competitive and rarely slow to innovate, Amazon will think — and move — outside of any box to maintain a competitive advantage. As of the end of 2018, Amazon had more than 600 physical stores. This clearly displays Amazon’s recognition of the benefits of offering in-store experiences.
Successful retailers, in short, will transform themselves by reimagining the customer’s experience. NTT DATA Services approaches this by leveraging the concept of customer friction, which refers to any aspect of customer interaction that negatively affects the customer experience. Because this is quantifiable, it allows us to pinpoint challenges, prioritize improvement opportunities, and drive transformation.
Recently, we undertook a comprehensive assessment of the customer experience for 15 retail organizations. Our study found that retailers that presented their customers with a frictionless purchasing experience achieved a 48 percent improvement in revenue growth and a 45 percent improvement in net income over the competition.
Analyzing the study’s results in depth, Oxford Economics and NTT DATA Services developed a report, The Future of Data: Adjusting to an opt-in economy. The report identifies key areas in which retailers should focus to succeed, including:
- Give the customer a consistent experience regardless of where and when they engage with you.
- Enable employees with new skills to proactively use data to improve the customer experience.
- Deepen customer trust by demonstrating that data will be collected with utmost respect for customer privacy.
For retailers able to master such data challenges, the rewards can be greater than the sum of their parts. In a data-leveled arena, physical stores have a distinct advantage. Today, 90 percent of retail dollars are still spent in physical stores. When a savvy retailer can create a data-rich in-store experience for a customer, they create a connection that purely digital retailers simply cannot match.
Matt Leach is vice president of NTT DATA’s Digital, Applications and Information Management practice.
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On his first day as an engineer, someone decided that Matt Leach should write requirements. He soon discovered that project success is not just about technology, but a holistic solution that solves the right problem. Since then, he has helped organizations better understand their business and their customers while delivering solutions that delight both. Currently, Mr. Leach is a Vice President in NTT DATA’s Digital, Applications and Information Management Practice where he leads the Business Analysis and Project Management Practices.