The last decade has been truly transformative for the retail industry. As headlines of a “retail apocalypse” popped up in some of the world’s leading publications, it caused panic among retail executives. The so-called “apocalypse” appears now to be an indicator of an upcoming rapid evolution rather than immediate dislocation of the retail landscape.
The retail industry has been thrown into an era of disruption due to new enabling technology which has changed the needs of customers and increased the complexity with which they acquire products. As a result, retailers worldwide are challenged to transform their businesses by improving operational efficiencies and engaging with customers in new and exciting ways, while creating new business models with sustainable revenue streams. E-commerce and social media have empowered customers, changing their dynamic with brands and retailers.
It’s the natural selection of retail, and the options are clear: adapt to today’s shopping environment or cease to exist. As a result, some of the largest US retailers, such as Sports Authority, Circuit City and Toys R Us, are now a distant memory. Meanwhile, companies like Amazon and Walmart have grown into industry-leading giants.
With all the technological change going on, it’s easy to think that executives may be focused on the nuts and bolts around operational execution and efficiency. These are critical to running a retail business. But in my conversations with executives, there is always a common thread: customer experience. After all, if you don’t have something customers want, it really doesn’t matter how well you execute.
Five years ago, retail CEOs were emphasizing investments in technology, which led to the creation of numerous high profile innovation centers by the likes of Best Buy, CVS, Home Depot, Kohl’s, Target and others. For the most part, these types of innovation centers have lost popularity due to high costs and their ineffectiveness in yielding solutions, as executives are finding that they’ve got to figure out what their customers want first. Additionally, there are plenty of innovation partners that can provide the technology.
At Jabil, we recently conducted an online survey of more than 300 retail decision makers responsible for their organization’s technology, nearly 200 of whom were business or technology executives. I believe their opinions and insights provide a good pulse of the industry and would like to share some of this information with you. Download the full report: The Future of Retail Technology.
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According to the Jabil survey, 74 percent of retail industry executives believe the e-commerce revolution was just the start and that we will continue to see major disruptions and innovations in retail. Technology executives are especially bullish in this regard. But while they are confident change is coming, they're less certain about what it looks like. How do you prepare for the right path?
While executives may not be clear on what types of technologies to invest in, many understand the importance of an omni-channel strategy. Historically, brick-and-mortar stores only had their physical locations. When they added an online division, they quickly realized that the messaging and value proposition were moving in a different direction than their physical stores. Likewise, online-only retailers didn’t think they needed to utilize a brick-and-mortar strategy. This dynamic is changing.
The survey echoes this sentiment. Nearly half of executives affirm that they are investing equally in in-store and online technology. Another 28 percent are only focused on online technology and 21 percent are focused on in-store only. But most significantly, 61 percent of executives say they are investing in online and in-store as an integrated, omni-channel solution. It is important to mention, however, that one in five of retail executives view online and in-store technology investments separately with some integration touchpoints.
No matter where the investments are made, executives have one goal in mind: to deliver a customer experience seamlessly across all platforms that will increase brand engagement, sales and margins. In fact, there is now a stronger focus on customer experience than there was just a few years ago. With the increasing complexity of an omni-channel strategy, retail enterprises need someone to oversee and be a customer advocate. Therefore, more retailers, including Walmart, are joining companies like Dunkin and appointing a chief customer officer within their c-suite, tasked with designing and improving customer experiences across the retail landscape.
As I mentioned earlier, technology is a critical piece of improving the customer experience. For many in the industry, that means taking on digital transformation—the process of innovating the retail business model to blur the physical and digital lines. Investing in an omni-channel strategy is just one part of a digital transformation.
Nearly half of (46 percent) the executives in the Jabil survey said they were taking on a major digital transformation effort, while another 33 percent mentioned that it was a set of minor projects for them. One in five of retail executives said their company did not have a digital transformation initiative. It will be interesting to watch how this decision will play out over the next few years. Will these retailers become irrelevant with the likes of Sports Authority and others or will they find alternative routes to success?
When asked about their investment plans, 53 percent of retail executives said they expect their technology spending to increase significantly (more than 10 percent) over the next two years. Another 35 percent mentioned a slightly smaller increase, between 5-10 percent. However, it was interesting to hear again that one in four retail executives don’t believe retailers need to invest in technology that increases their efficiencies.
Technology innovation is certainly a priority for most retailers today, but retail executives aren’t entirely positive their teams can deliver on those promises. Only 30 percent were fully confident in the following statement: our existing organizational structure and partner relationships are fully capable of delivering needed technology innovation. Fifty-two percent agreed with the statement somewhat, while nearly one in five disagreed with it. Business executives are more confident in their teams compared to technology executives. The reason for this lack of confidence should be clear; technology executives likely have a better idea of what it takes to implement innovative technologies than business executives.
When asked about their organization’s in-house capabilities to innovate and implement technology, only 16 percent felt they had everything they needed. Seventy-five percent of retail executives affirmed they have some talent to make things work, while one in 10 said they needed a lot of external help.
Most retailers are led by merchandising people whose job is to determine what consumers are going to want in six to 12 months when the product hits the store shelf. From a department store to a grocery chain, these retailers may have anywhere from 60,000 to 200,000 SKUs in their stores. Therefore, the power within retailers have historically been with those in merchandising, marketing and sales. But as the retail industry gets more comfortable with the omni-channel approach, operations are more critical than ever before. Information technology, specifically, hasn’t seen a fair share of investments in the past, but that’s about to change.
Regardless of the type of investment—analytics or operational efficiency—technology impacts the customer experience and therefore has a direct correlation to sales, margins and return shoppers. Ninety-nine percent of executives said that successful technology innovation was critical to their success.
From a customer experience perspective, executives understand the importance of delivering a consistent experience across channels, which is why 62 percent say they are investing in their omni-channel technology. Another 60 percent say they are focused on delivery innovations such as lockers, click-to-collect and picking up online purchases in store, which can be part of an omni-channel strategy, as I discussed earlier. Finally, 54 percent are investing in personalized interactions.
On the operational efficiency side, the biggest priority for the retail industry is in inventory accuracy systems, with 70 percent of executives indicating it as an investment priority for their organization. Next in line is analytics to optimize channel and product inventory strategies. Finally, when we asked about their investments in improving analytics, retail executives highlighted their interest in in-store sensors and location-based mobile targeting. These investments are a strong indicator of what’s to come with omni-channel retailing: fast, convenient and personalized experiences.
We’re seeing retail become a more integrated concept. For example, many of the largest retailers are introducing collection points at the front of their stores. The concept is simple: put in your order online and go pick it up at the store. Essentially, retailers are using their brick-and-mortar locations to support the online channel. This creates its own set of implications. First of all, inventory management will be a challenge. Stores and their systems are not designed to be warehouse distribution centers. How will you manage the inventory in the store and how do you predict who is going to buy online? How will you ensure that you have accurate inventory? Second, online shoppers who come in to pick up their orders at the front of the store avoid the important retail opportunity for impulse purchases. Finally, there are a lot of operational costs associated with these changes, including the loss of floor space. As a result, we will see more of these experimental changes in stores as retailers try to blend their online and physical experiences.
Retailers are notoriously slow and conservative at adopting new technologies, and it’s understandable. When you’re working with razor-thin margins, it’s hard to make big bets on technology. That is why I believe most retail industry executives will want to be fast followers in technology, rather than leaders – which is a double-edged sword in a highly competitive market. But one thing is for sure: we’re going to continue to see a better integration of online and in-store, and the retail experience is going to become more fluid. The conversation will not be around what specific technologies retailers invest in, it will be around who delivers the most relevant customer experience with the technology they’ve implemented. That will be the determining factor for retail leadership.
Insights from 312 global retailers on their technology investments, omni-channel strategies and more.