Total global retail sales in 2020 are projected to reach $27.73 trillion, up from $24.86 trillion in 2018. It's clear consumer spending is on the rise, but retailers now need to compete against not only other retailers, but the large e-commerce giants like Amazon.com that are also looking to capture their share of consumers’ wallets.
In order to compete in today’s digitally driven landscape, retailers need to recognize how technology and digital transformation can help set them apart from the competition. But according to Software AG’s Retail Industry Digital Adoption Survey 2018 Report, 38 percent of respondents reported that they have not yet started on a broader scale of implementing digital technologies. While 75 percent plan to adopt new tools and techniques to increase throughput and improve customer responsiveness as well as expect digital technologies to increase their annual IT budget for 2019, the rate of adoption must accelerate for retailers to survive.
Why Digital Matters
Today’s retailers must initiate their digital transformation strategies faster in order to be successful and keep pace with Amazon and other disruptors in the market. In fact, the Software AG survey found that retailers that have readily adopted digital technologies have experienced 6 percent CAGR revenue growth over a three-year period, while other retailers that have explored digital without a full commitment to broad implementation experienced flat growth over the same period.
Customers expect personalized experiences, contextually relevant offers, on-demand services and a frictionless purchasing experience during their shopping trips today, whether it be online or in-store. This is possible through existing retail technology, including in-store beacons or sensors, mobile loyalty apps, comprehensive payment processing, or enhanced store information through mobile devices or kiosks. Survey results showed all respondents are enhancing their e-commerce offering, with over 80 percent either having developed a mobile loyalty app or are in the process of doing so. Additionally, 81 percent are piloting or considering some form of Internet of Things (IoT) deployment, and 31 percent have already implemented a big data project to enhance business insights. Despite this progress, retailers still need to pick up the pace on digital technology adoption to meet evolving consumer expectations.
Starting the Transformation
While updating and changing business processes isn't always a seamless initiative, it's now becoming necessary for survival in the retail industry. For example, according to Forrester Research, Software AG customers have seen returns of 324 percent and a six-month payback when focusing on some specific areas. To get started, retailers should also focus on these same initial steps to succeed:
- Retaining Technical Talent and Leadership: Retailers should work to establish the appropriate leadership and messaging to drive more advanced digital transformation. They should build digital competencies at the board and senior leadership levels, as 19 percent of survey respondents indicated that a lack of digital expertise was the root cause of delays. Furthermore, only 25 percent of respondents noted that they had the majority of skills needed to deploy digital technologies already on board.
- Understanding Requirements: Delays and cost overruns have stalled digital adoption for retailers, with 75 percent of respondents citing issues with both. However, with the necessary preparation beforehand, this can be avoided. Consider that 50 percent of respondents stated the delays were a result of a lack of complete or well-understood requirements. By understanding the requirements and technologies that need to be implemented, retailers can avoid having to outsource to complete digital transformation.
- Preparing IT Departments: A retailer’s IT department is a key component to digital transformation success. As such, IT departments need to adopt new tools and techniques to help increase throughput and improve responsiveness. IT will be in a race against time, as 75 percent of survey respondents indicated they expect moderate to significant reductions in their typical batch processing cycles in the next three years. Additionally, 87 percent of respondents have a mixed environment of applications, making this a significant undertaking. It's important to make sure IT teams are prepared, staffed and funded appropriately to ensure success.
Change isn't a futuristic idea for the retail industry; it’s happening now. With their survival at stake, retailers need to take their digital transformation strategies seriously and make sure the necessary steps are being taken — and quickly. As the survey noted, retailers that readily adopt digital technologies will outperform competitors and capitalize on changing trends and consumer patterns, strengthening their chances of survival. The onus is now on retailers to make sure they’re committed to their digital transformation.
Oliver Guy is the global industry director, retail, Software AG, a digital transformation and intelligence platform.