Retail is undergoing a once-in-a-generation transformation. The rise of online shopping is fundamentally changing the way retailers operate and bringing with it a wave of investment in technology to support digitization, drive productivity and enhance the consumer experience. To thrive and survive in this new world retailers have little choice but to embrace rapid technological change.
The share of sales made digitally in the UK is growing rapidly. BRC figures show that Online Non-Food sales have grown at an average annual rate of 8.1% over the last two years (Sep 2016-Aug 2018), at the same time as in-store sales have fallen at an annual rate of 2.2%. While the internet currently accounts for only 18% of all sales, that share is up from 3% in 2006 and will continue growing. However, the impact of the internet on retailing extends far wider than just the point of sale. With consumers able to compare products across businesses, find out what other consumers are buying and read unedited reviews of retailers or their products, digital communication platforms have become a powerful source of influence over shopping behavior.
Digital transformation is not simply about creating an e-commerce site. With the explosion of information and choice at the fingertips of consumers, retailers are under intense pressure to deliver an exceptional customer experience across the customer journey, from product research to in-store interaction to delivery on demand and after purchase assistance. To meet consumers’ expectations retailers are deploying digital technologies: from mobile specific websites; to highly personalized, AI driven, marketing; to fully digitized stock inventories, which ensure shoppers can order the same goods whether they’re in store or online; to augmented reality that enables consumers to visualize products before they buy.
For many established retailers fulfilling customer expectations in a digital era also means radically rethinking their business model. An online business requires a supply chain that can deliver any of their products to consumers anywhere in the country at increasingly shorter timescales. That means a step change in both warehousing space and logistics capability. At the same time, with sales shifting online, the role of the physical outlet is changing. The value of a store can no longer be measured simply in terms of how much revenue it generates, but in its contribution to a customer journey, which may both start and finish online. Alongside that, staff requirements are also changing; new roles are being created, while operating digital technology is becoming part and parcel of every retail job. As a result, both hiring and training needs are changing.
At the same time as digital is transforming shopping, profitability in the industry has fallen. That has led retailers to look to technology to drive productivity. A combination of fierce competition pushing down prices and rising costs of doing business has led retailers to look to digital technologies to automate and streamline business processes. This includes making use of cloud enabled software to manage employee working patterns and other internal processes, developing AI powered chatbots to deal with customer queries and investing in robots to work in warehouses; to name but a few.
With the excitement and opportunity of digital technology, comes the difficulty and turmoil of change. The internet has opened the door to many new retail businesses who can sell across the world without having to invest in a lot of physical infrastructure. Whereas existing retailers face the challenge of transforming the way they operate, in a world where a tough market is leaving little cash to invest. With so many technologies apparently available and relatively little information about return on investment it can be difficult for retailers to see the wood for the trees; particularly where management have little experience or background in digital. And while there are a number of retailers blazing a trail on the path to digitization, many are yet to define, let alone start implementing a digital transformation strategy. For those retailers there is a long road ahead.
By Rachel Lund, Head of Retail Insights and Analytics, BRC