Preparing for the Future
The future is already here and how; Omnichannel that was just a buzzword not too long ago has created a wave of projects for the big Consulting Companies. It is also true that Customer buying habits are changing slowly and steadily, a survey of over 2000 customers validated the shifts that we are beginning to see. The changing trends are not surprising with the evolution and mass adoption of technology by consumers helped by the smartphone adoption driven by price drops and improved capabilities with every new model. The question is not whether to embrace the shifts offered by the shifting reality, it is about how quickly retailers can weave it into their fabric. Leaders in this category will be rewarded with higher sales and better customer loyalty.
Yes, it is true that despite the hype, globally the shift in categories has been slow (see chart on the left). Indian metrics are however a different story (Chart on the right). Discounts are the primary drivers for 70% of the sales by value, i.e. Mobiles and Electronics. Grocery is the new favourite and the overall market size is expected to be $1 trillion by 2020 (source IBEF), how much of that sale will be driven by digital is anybody’s guess. Because of high frequency of purchase, most retailers are attempting to lure the customer with… discounts off course!
Majority of Customers are gravitating towards value which is visible with the success of some of the mass retailers; as per NRF survey last year (2017), between Dollar General and Dollar Tree were planning to open more than 1200 stores in 2018. At the same time many retailers are leveraging technology to improve customer experience. Over the decade gone by, CIOs pulled up their socks and started introducing Augmented Reality and Virtual Reality for differentiated customer experiences. Startups are now gaining acceptance with IT leadership, providing niche solutions for micro problems and opportunities.
Electronic shelf edge labels are the new way to provide dynamic pricing especially in fast moving and short shelf life products like groceries. Globally this is now becoming the norm while it is yet to catch up in India with the high cost of initial acquisition. Internet of Things (IoT) and beacons are providing data unseen in the past on customer behaviours in the store. B2B engagements with suppliers across the value chain now offers faster turnaround times and efficiency not possible in the past. Fast retail made popular by fast fashion leverages agile supply chains to reduce inventory in warehouses and in transit. Zara pioneered this globally with concept to shelf lifecycle of less than 30 days.
China has been able to up the ante with digital payments and cashier less stores with mobile payments; in India, UPI (United Payments Interface) has brought digital transactions to the masses. Integrated payment systems have done away with the clutter of payment acquisition devices for different modes or issuers. Technology is now driving better customer experience with effective personalization using the consumers mobile linked with face recognition and GPS. According to Lisa Landsman, former President of Jet.com, I think the day of the pure play [retail] is dead; Consumers want that choice —they don’t want companies’ operational complexity thrust upon them, pushing them to only one way to do business. And that gives rise to the new world of Omnichannel retail.
PwC’s 2017 Global Digital IQ Survey polled 2,216 business and IT leaders from 53 countries and asked them what hinders digital transformation. Some 64 percent of respondents said lack of collaboration between IT and business is to blame, 58 percent cited inflexible or slow processes, 41 percent listed lack of integration of new and existing technologies, 38 percent named outdated technologies and 37 percent put down lack of properly skilled teams. These newest corporate cultural trends and IT methodologies certainly don’t guarantee success or fully guard against project failure. In fact, some say that there are elements in the modern IT shop that could even exacerbate the potential for problems that could take down a project.
Consumers are still shopping in stores and the number of reasons is reducing with time. Price and convenience are now synonymous with online retail which in the early days of retail was the forte of retail shops. Retail space limited the breadth and depth and retailers created Omnichannel strategies to address this constraint. Global and local players who started their journey in an online avatar are now setting up shops and retailers born in the pre-digital era have put in all their efforts to compete with their newer brethren by becoming Omnichannel retailers with web, mobile, endless aisles and more. The remnants of why consumers still want to visit stores are:
1. Product vetting and touch and feel: I can try the product – apparel, electronics, furniture and a few other categories, experience it – assess quality and then decide on my purchase.
2. Consultation and Styling: Many categories still require consultative selling especially when it impacts personal appearances or aesthetics and styling of homes. Fashion consultants are helping customers decide on the right choice of fashionwear, cosmetics and makeup that would be best for skin tones, shapes and occasions. Similarly, for someone wanting to do up their homes, designers can create picture perfect room settings and execute them.
3. Experiences and Community: In many markets including India, shopping is a social experience that involves friends and family, an outing that combines entertainment and shopping. Retailers are beginning to offer tools of engagement in store beyond the normal food and beverage, alteration, to engaging outside the store also with events like Lululemon offering Yoga classes and runs.
4. Showroom experiences create better customers: Customers are exposed to the brand in a more meaningful and immersive way, and they are better able to resolve any uncertainty about the nondigital attributes of the retailer’s products. Likewise, showrooms create better retailers: When customers are physically present in the retail environment, observation of their behaviours can lead to meaningful insights. Sales Associates can anticipate and respond to customer needs, provide exceptional service, recommend additional items, look for signs of customer discomfort, and so on.
Is 2019 going to be the year that retail will pivot with technology to create seamless experiences for consumers with physical retailers going Omnichannel while the ecommerce giants are turning towards alliances with brick and mortar retailers or creating their own outlets ? Will shopping see reduced friction towards purchases with virtual inventories enabled with Endless Aisle and shrinking store formats and sales associates leveraging data to help the customer buy?
According to a study conducted by Cognizant – the IT company – The behaviour and expectations of today’s consumers are rapidly evolving under the influence of digital and mobile technologies; as a result, retail growth and profits are quickly shifting to digital commerce. These changes require retail industry decision makers to acquire real-time situational awareness, new digital strategies and a digital mindset around business transformation. Retailers must recognize and act proactively when customers, competitors and markets change by deploying the appropriate digital strategies and technologies in the right sequence to maximize returns and competitive advantage.
CEOs, CIOs and other executives understand a shift in business is necessary to adapt to the changing world but may fail to realize how important their own mindset is to the success of the transition. “While the world is moving forward at breakneck speed, the core beliefs wired into our brains often are not,” says Graham Waller – Gartner Research Vice President & Distinguished Analyst. The leader’s mindset provides a frame of reference that affects how they hear, interpret and act on information, which in turn affects how the company operates. Successful disruptive digital leaders can transform themselves to transform the company. CEOs, CIOs and other executives understand a shift in business is necessary to adapt to the changing world but may fail to realize how important their own mindset is to the success of the transition.
Key lesson for not just the IT folks, but other CXOs too: No organization can implement all digital technologies simultaneously due to budget and resource limitations; instead, they need to prioritize their timing of digital initiatives, based on business impact. This is where CIOs need to take a leadership position and drive the digital agenda along with the Board and other CXOs. It is anticipated that in the next 5-7 years, at least 25% of digital leaders believe that cybersecurity, big data/business analytics, mobile technology, social media and cloud will have the highest impact on the business.