Digital demands

Retail is in a period of radical transformation as consumers now drive the engagement agenda, which is impacting massively on the sector as merchants grapple to generate profits from their increasingly multi-channel operations. This was the underlying theme at this year's World Retail Congress (WRC), held last week in Rome where retailers from around the globe gathered to discuss the industry's most pressing themes

Steve Laughlin, global industry lead for retail at IBM, echoed the thoughts of many when stating: "We're on the cusp of the most transformational period - over the next, five, 10, 15 years - with mobile putting functionality and analytics in the hands of everybody (employees and customers). The experience retailers create, which has to be consistent with their brand promise, will be critical."

For the likes of Asda this is presenting plenty of challenges, especially with how to deal with its store estate. CEO Andy Clarke said that although online is only a small percentage of sales (less than 10 per cent) it has prompted the company to recognise that it needs a "low cost, efficient format for its store portfolio because whatever forecasts you look at the large format is decreasing [in relevance]".

He added that Asda will continue to see its store proposition change but that multi-channel retailers must not forget about their core traditional businesses when they undertake such changes: "If all you do is look for the new then you'll just have a deteriorating [overall] business. You cannot forget the core."

Clarke was also mindful of the competition and cited Amazon and its possible launch of the Fresh service in the UK as something to watch. "We continue to watch the US. The Amazon model has had an impact and if, and when, they move into food then it will give us something else to think about," he suggested.

What many retailers are also thinking about is how to generate profitability from their evolving organisations. According to research released at WRC by JDA only 19 per cent of the top 250 retailers surveyed (by PwC) feel they can make a profit while delivering on omnichannel demand. Costs rising greater than revenues is the biggest challenge and impacting most highly on this is the rising price of fulfilment, according to the survey. As many as 71 per cent of respondents say the cost of handling returns from online and store orders is the highest cost they bear, while for 67 per cent it is shipping directly to the customer, and 59 per cent shipping to the store for customer pick-ups.

Lee Gill, group VP of global retail strategy at JDA, said: "This transformation is being driven by us. The way people shop is different. We buy anytime, anywhere, and retailers have to fulfil anywhere. Until 2010 retail was largely evolutionary, but as soon retailers introduced e-commerce sites then they were on a transformational [phase]. The supply chain was about bulk but in an omnichannel world inventory moves in every direction and there is margin erosion from fulfilling to individuals."

Not surprisingly, the survey found 71 per cent of respondents indicated omnichannel fulfilment was the top or a high priority for them in their strategies. Sensibly retailers are investing in this area, with an average of 29 per cent of their total expenditure going into this area. According to Kip Tindall, co-founder and CEO of The Container Store, investment should not just be on technology but also on the people if retailers are to bring profitability to their increasingly multi-channel models. Employing fewer, but better quality, technology-literate individuals makes sense for merchants.

"It's in the interest of retailers to hire even better people - who are more productive through [receiving improved] training. It is in the self-interest of retailers to offer better training and wages and then [they could] raise ticket prices. There is a need for better technology and better sales people with the concept of fewer people making more money and being more productive," he explained.

Amaury Demode, group omnichannel director of international clothing business Lacoste, agreed: "Product availability and technology is very important but being successful or not is about flawless execution. We're implementing tablets in-store to enable access to our full range and the difference in making it work or not is all about the people and not about the technology."

Arming these people with data is a fundamental part of building the relationship with customers and potentially driving extra revenues. Leveraging such customer data is an objective of Robin Phillips, omnichannel & development director at Boots UK, who said that although the company benefits from having its Advantage loyalty card there is a "need to think about what to do with the data."

He added: "We want to do something useful for customers. To be able to say to them, 'I've a memory of you so how can I present this back to you for you to then take the next action'. We've been re-organising the team at Boots around what we need to do for customers and to deal with the transformation."

Sir Tim Berners-Lee, inventor of the World Wide Web, focused firmly on data when speaking at WRC, suggesting that retailers should be working on ways of automating the transactions of certain purchases through the utilisation of new technologies. "Retailers can suck in data from companies who've put data out there and can automate things through artificial intelligence in order to get [systems] talking together. Who wants to make choices such as when to buy toner ink and toilet paper? There will be more intelligence talking to intelligence," he commented.

He also questioned the attitude of retailers to their customer data. "This data is very valuable, it's the relationship with your consumer. There is an attitude to data of monetisation. Companies have said they need to monetise it and get a good price for it. I'd say, use the data for what it's worth, don't sell it. The buyers of the data will then do something to make your customers lives worse," noted Berners-Lee.

Against this backdrop he forecasted a switch taking place whereby customers come to recognise the value of their data and start demanding this information from companies such as retailers and banks, which will then enable them to combine this data. "They could take their running data from their phone and combine it with the data from their gym. Consumers will start demanding this. There will be a sea-change and retailers should be ready for it."

What retailers should also prepare for, according to Lasse Bolander, chairman of Coop Denmark, is the realisation that the digital transformations that they are all in the midst of will not ultimately involve a definitive solution. "Digital will never be fixed. It will go on. Retailers will need to be just as good at upgrading the digital parts of their business. They will still have organisational challenges in the future," he said.

This suggests that retailers not only have to navigate the current transformational period, but must also accept that this move to a more digitally focused world will require them to adopt a new mindset from the one that they have been able to successfully employ up this point.

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