The following is a guest blog post by Leslie Hand, Vice President, IDC Retail Insights.
A Look in the Rear View for Retailers in 2019
For the retail industry, the year 2018 was a study in contrasts. Despite an above-average number of retail bankruptcy filings and store closings, the year finished strongly as discounters and innovators opened nearly as many new doors as were closed. Most remarkably, the challenges of 2018 have given many retailers new resolve to digitally transform their business for continued success.
The future of retail became clear in 2018: it isn’t a destination; it is a journey. Adaptability, scalability, and experimentation are core tenets of viable platforms for the future, and a priority in 2019. The fear that physical retail would be supplanted by e-commerce has been replaced with the realization that converged physical-digital retail will be part of our reality for quite some time. This is true because:
- Not all consumers are all-in on online ordering and fulfillment
- Even those who claim to shop online most of the time stop into stores for the pleasure of the hunt and the wonder in discovery, as well as convenience and necessity
Before we get too excited, let’s reflect on who is doing well and how they’ve transformed their strategies to succeed. I say this because when you peel back the layers of what’s working, you’ll find the seeds of retail efforts to better utilize information to personalize and improve relationships by strategically engaging consumers and focusing on creating experiences that resonate. Meeting a customer’s expectations in their stream of life is now the primary mission of retailers.
What are the thrivers doing?
Retailers with strong 2018 performances have reassessed their core business strategies, business models, and go-to-market engagement strategies. Nordstrom, the poster child for experimental retail, added the Nordstrom Local concept, which focuses on service and personalized consumer shopping experiences. TJMaxx doubled down on off-price outlet openings, and small-footprint operators including the Dollar Store continue to grow. Footwear and apparel companies like Nike continue to grow their direct-to-consumer business.
Perhaps the year’s biggest story was in the fast-moving consumer goods/grocery segment, as Walmart, Target, Kroger, and Ahold were among those retailers betting big on new partnerships, acquisitions, and innovative ways to serve the omni-channel customer better — realizing positive performance as a result. Target, for example, acquired Shipt, a last-mile fulfillment provider, and it is already selling this service successfully to other retailers. Walmart implemented a half dozen or more different ways to aid consumer convenience in shopping and fulfillment. My favorite: drive through buy-online pick-up in store (BOPIS) automation. Kroger and Walgreens developed an innovative partnership, making the Kroger BOPIS assortment available for pickup at Walgreens locations.
Retail thrivers have also taken steps to digitally transform their strategies, organizational structures, information utilization, and technology investment patterns. IDC’s Retail Digital Transformation benchmark suggests that retailers farthest down the digital transformation path report three times more often that business is thriving.
Various methodologies to automate store checkout processes became a reality in 2017. In China, BingoBox offered RFID-enabled mobile checkout in 200 unstaffed stores; in the U.S, Amazon Go opened its first cashier-less store based on vision technology. In 2018, other retailers jumped on the bandwagon. Home Depot introduced assisted self-checkout commerce in stores. Conversational commerce emerged, including chatbots and voice-enabled home devices. Natural language processing (NLP) and artificial intelligence (AI) are the key to both these technologies delivering a satisfactory experience.
Augmented reality (AR), virtual reality (VR), robotics, and other technologies are finding their way into everyday shopping patterns in some retail segments. For example, in home, garden and furnishings, AR is a great planning and training aid. In long-tail distribution scenarios, robotics is a critical necessity; in big-box stores, robots can improve inventory accuracy with nightly store walks. RFID continues to ease into retail chains seeking to solve inventory accuracy issues while meeting near-real-time consumer inventory fulfilment expectations.
The future of retail
Let’s face it: If you aren’t profitably promoting a differentiated consumer value proposition or checking all the omni-channel product availability and fulfillment boxes, then you probably struggled to drive growth in 2018. Analytics were a primary focus then and will be again in 2019, as they ground all successful omni-channel revenue management, assortment, pricing, promotion, and availability capabilities and should be embedded in all state-of-the art processes.
Furthermore, retailers that haven’t replaced legacy platforms are simply working too hard to achieve growth objectives. Without a modern platform architected to be adaptable and componentized to be configurable and scalable, retailers must spend more money on running IT and implementing each new capability to make employees more productive and consumers more satisfied. Platforms architected for the future are a foundational must-have for any retailer planning to be around in five years.
Companies not born digital need to grow digital DNA to reimagine their futures and then execute against that vision. Customer expectations have changed and retailers need to adapt. Next-generation technology platforms should be mobile and cloud-first, as well as inherently social, seamless, and intuitive.
Six predictions from IDC Retail Insights’ IDC FutureScape: Worldwide Retail 2019 Predictions (Doc #US44384318) highlight the gravity of the shift underway:
- DX acceleration among the “digitally determined” will result in 20% of retail organizations advancing to stage 4 of DX maturity by 2020.
- 50% of retailers will plan to implement a digital “core” platform by year-end 2019, which will enable faster innovation, continuously utilizing insights to drive intelligent actions.
- By 2022, retailers will double investments in distribution automation to meet the dramatic increase of single-item, one-click impulse and auto-replenishment ecommerce and marketplace orders.
- By 2021, 30% of retailers will provide real-time contextual experiences wherein conversational search is empowering, services find customers, content supports sales, and consumers monetize their data.
- By 2023, 25% of retailers will create more customer “promoters” (with AI) by interweaving customer experience, product and service development, and assortment orchestration to grow 25% faster than their peers.
- By 2022, retailers will have increased investment in workforce technology and training by 30% to equip staff for competitive and differentiating customer experience-focused roles.
Winning the battle for the customer begins by aligning with the shopping journey, wherever it may lead. Retailers can better engage the consumer by improving execution of the four critical steps below:
- Inspiration efficiency. Maximize influence without spending more than necessary. Considerations include managing contextualized ideas and images, contextualized browsability, contextualized messaging and amplified targeting.
- Best-in-class experiential discovery. Enable the best search and experience. Factors include: Convenience (search, location, ease of finding, and buying), price, assortment, shopability, and shopper support.
- Frictionless buying. Maximize convenience and usability in checkout everywhere. This may include traditional, self- and cashier-less checkout scenarios, and it comprises physical and digital situations. Payments methodologies are a key consideration, as is security and privacy.
- Fulfillment experience excellence. Deliver fast and often-free fulfillment flexibility and reliability. This requires that shoppers can apply their preferred fulfillment method, deliveries are executed as promised, and convenient refund/returns processes are accommodated.
Only retailers that crack the code on how to serve the customer best will be the winners. Consistently meeting the promise drives trust and a primary relationship that drives return business. The first place a consumer browses or searches has a great opportunity to win the sale, so retailers need to be so trusted that they are visited first. Companies that are successful in digitally transforming to do all this will therefore thrive.