Retail Survival Guide to Digital Transformation

The idea of a “retail apocalypse” seems to be a constant news headline as traditional brick-and-mortar retailers struggle to compete with the technologically advanced e-commerce players that are entering the market. And the headlines aren’t totally off base in terms of the threat that digital-first players present. In fact, in 2017, Amazon.com's market share in the e-commerce retail market was 37 percent, and is projected to account for 50 percent by 2021.

The rise of large e-commerce players has had a tremendous impact on the retail market, causing the entire industry to fundamentally change the way it sells and interacts with customers. And while retailers are aware of the changing landscape, many are still struggling to adjust to the new reality. In order to keep up with the market and secure their share of consumers’ wallets, traditional retailers must commit to digital transformation in order to streamline, differentiate and enable new business models and revenue streams.

But implementing technology just for the sake of new technology can result in wasted time, effort and money, and can have damaging effects on customer satisfaction. To be clear, technology is an enabler. In order to win, retailers must look to fix a pain in the customer experience — they must remove any points of friction. But how? Below are some strategies to consider.

Launch an Innovation Lab

Launching an innovation lab is a great way to experiment and test new technologies that can improve the customer experience. Retailers such as Ikea, Neiman Marcus, Kohl’s and Target, among others, have started innovation divisions within their companies to capitalize on the changing landscape.

But retailers need to ensure that things are structured correctly. Innovation teams must be designed with all the skills needed to deliver. This includes mixing people from different parts of the business — e.g., merchandise managers, supply chain managers and IT teams. Eliminating these operational barriers, combined with a common goal, will help deliver exciting results.

Ensure that the technology that's developed can be both scaled to full business requirements but also be appropriately aligned and incorporated into the existing corporate infrastructure. For example, there's little point in developing an app for one-click customer purchases only for its use to be constrained because it cannot scale to all customers or be connected to the rest of the infrastructure.

Agility Matters

It's rare for a retail innovation not to involve technology somewhere. New customer offerings or experiences all involve technology — if only to power them in the background. A few years ago, retailers scrambled to offer “buy online, pick up in-store,” home delivery and other omnichannel fulfillment offerings to differentiate themselves. Tens of millions of dollars were spent attempting to facilitate these new business models which became new sources of revenue. Commercial off-the-shelf software applications rarely supported what was needed in the time frames desired, so the ability to get ahead and differentiate was limited.

Today these fulfillment offerings are no longer differentiating, they're essential, just as off-the-shelf software now supports them — although an upgrade to the right version may take years. They have also evolved to be further differentiated, with retailers picking products for online orders from stores, selling product they don’t carry in-store or offering value-added services such as installation.

And we’re seeing new models appearing every year. Subscription retail, for example, where customers pay a monthly subscription for products to be shipped to them, isn't supported by off-the-shelf systems. It might be in time, but by then it may no longer be a differentiator. In addition, the needs are likely to have evolved just as omnichannel fulfillment offerings have.

The lesson here is that agility is needed to enable adaptation over time. Rather than investing in a single holistic solution to last 20 years, solutions need to be built to be evolved over time to enable them to connect to new customer touchpoints as they appear or add additional logic. For this, technological agility and adaptability is essential.

Look to Differentiate

Differentiation has always been key in business, and solving a pain point in the customer experience may well become a point of differentiation. However, differentiating by means of commercial off-the-shelf software systems becomes difficult. These types of systems are critical to address standard processes within a business — finance, buying and merchandising, supply chain execution, etc. — but they struggle to keep up with innovative approaches to market or things that allow retailers to differentiate.

Differentiated offerings will, however, leverage data and capability that exists within these commercial off-the-shelf systems, but blend this with additional logic. Again, using subscription retail as an example, this will leverage product information from a merchandising system, billing data from a finance system and dispatch logic from supply chain execution systems combined with additional logic determining what products to send. A specific approach is required to support such innovation. However, given the pace of change and the need for innovation, the ability to adopt this as a way to differentiate has never been more important.

The retail market has evolved dramatically over the past decade, and it doesn’t appear to be slowing down. To avoid being a victim of the so called retail apocalypse, retailers need make a genuine commitment to undertake a digital transformation of their business. By creating innovative approaches to customer experience and personalization, retailers can provide the differentiation that consumers seek and benefit from the wallet share that follows.

Oliver Guy is the global industry director at Software AG, a digital transformation and intelligence platform.