Retailer Digital Disruption: Why an Organizational Shift is Needed Now

Currently there are two types of retailers selling online: digital natives such as Amazon.com and Warby Parker, and traditional brick-and-mortar retailers that expanded their operations into this channel.

The DNA of digital natives is often designed to build, test, learn and analyze, and then adapt and change. At these types of companies, this behavior is repeated continuously, with no finish date or end point in mind. Companies that are considered digital natives employ business methods that are often much faster and more efficient than traditional retailers can execute, and their decisions are often based on what the consumer behavior data reveals.

The Foundation of an E-Commerce Business

This isn’t the case with the hundreds of retailers that began their e-commerce journeys in the late 1990s and early 2000s.

Many of these retailers already had catalog businesses and, as such, were able to benefit from the luxury of a first-mover advantage — i.e., they were able to jump quickly onto the internet in its early days.

Technically, these businesses already had a buying and planning infrastructure, customer service call-center operations, fulfillment systems and trained staff accustomed to picking, packing and shipping products individually to customers. Additionally, as a result of their well-oiled catalog operations, these retailers already had at least some semblance of a product database with core product attributes, basic product images and consumer-friendly product content.

The way these companies were structured provided some positive results for them in the early stages of the internet. However, since many of these companies have been able to survive and even thrive in the internet age due to their infrastructures, keeping up with new technologies and processes hasn’t been a priority for many of them. And as time has gone by, many of these companies still haven’t invested in new technologies nor paid attention to changing consumer behavior. In spite of the reversal of fortunes, often the old methods have remained in place.

Furthermore, in those early e-commerce days, many retail organizations chose to build completely separate digital staffs and departments that were tasked with promoting unique merchandise assortments and developing separate warehouse fulfillment systems in support of their online operations. While this enabled them to get the new business units up and running quickly, in many cases it also developed huge internal silos, often creating conflict and competing businesses within one company.

Commonly, separate buyers and inventory management structures were put in place, so consumers were sometimes buying the exact same products in both channels and wasting valuable resources.

Other organizations took a different approach. They chose to add digital responsibilities on top of current job roles such as buying, forecasting and warehouse personnel. For these staffing groups and employees, as a percent to total company sales, their efforts seemed disproportionate. As such, their work was often poorly executed or not even done. For retailers that took this approach, what resulted was a major stunting of the potential growth of online sales, as well as a gross miscalculation of the future importance of e-commerce.

A Short-Term Fix for a Long-Term Problem

These different management approaches from retailers tried to answer the question of how digital fit on top of their current business practices. We now know the end result was creating a short-term solution in an attempt to solve a long-term, game-changing, irreversible paradigm shift in their businesses.

Their approaches to the undeniable disruption to the business model were solutions that haven’t stood the test of time, and certainly aren’t holding up to current pressures. Many of these companies were and still are resistant to change or there’s a prevailing culture that doesn’t promote transparency, particularly if the internally built technology or long-time staff isn’t trained or experienced.

Today’s customers have evolved to judge a brand or retailer as one organization, and they expect to experience them that way, with little understanding or patience for variances dependent upon the channel. In fact, most customers today are channel agnostic — i.e., the merchandise assortment, staffing, pricing, customer service, fulfillment, technology challenges, etc., that may have been created for the retailer due to digital disruption and internal silos are not relevant.

In the optimum retail organization, everything must be built upon a customer-centric foundation, with the consistent experience driving every strategic action. Key for forward-looking retailers is monitoring and measuring important data metrics such as customer behavior and product results in each channel as well as shifting the mind-set of both corporate and store staff to one of a true channel-agnostic customer experience.

Linda Mihalick is the senior director of the Global Digital Retailing Research Center at the University of North Texas.