Are retailers shortchanging the digital transformation?

Photo: RetailWire
Oct 13, 2017
Martin Mehalchin

While 90 percent of commerce may still be offline, 95 percent of the growth in retail is expected to come from digital (e-commerce + digitally influenced). And with asymmetric competition — whether big (Amazon, Walmart, etc.) or niche (Harry’s, Casper, Everlane, etc.) — benefiting from the law of accelerating returns, pursuing linear, incremental progress instead of step function change will get you killed in the long run.

Yet digital commerce and marketing technologies — married with a good strategy and the right internal talent — are available to help retailers fight back against the “Amazon effect.”

Last week’s CARMA conference in New York City hosted by Custora featured several retailers who are waking up to this and starting to take advantage. However, most retailers I’ve talked to in the last couple of years are not doing nearly enough.

So how are retailers getting it wrong?

Far too many who are still thinking about their investment approach with a linear, static planning model. In a resource constrained retail business, if you are investing in a traditional business intelligence platform that doesn’t offer a customer-centric view of your data instead of a solution that provides that view and allows your digital marketers to create segments on the fly, you are doing it wrong. Or if you are spending a year or more to upgrade to the next release of a POS system that was built around the traditional cash wrap without seriously considering one that is built around a mobile first, check-out anywhere model, you are doing it wrong.

On a more macro level, if you are one of the many retailers who still devotes 70 – 80 percent of your capital budget to store openings, remodels and internal-facing system upgrades instead of allocating at least half to building the digital future of your company, disruption and accelerating competition are about to come along and leave you in the dust.

DISCUSSIONS QUESTIONS: Do you see retailers focusing too much on traditional business investments at the expense of the future digital opportunity? Into which areas should they be shifting their investments? How should retailers balance such needs?

Please practice The RetailWire Golden Rule when submitting your comments.
"Without constantly innovating to meet customer needs, legacy retailers will not succeed. Full stop. We all know this."
"Digital competition requires a digital response. How can we get the message across?"
"Seems like investment strategy should be dictated by how tech and digital supports the retailer’s delivery of a compelling customer experience."

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19 Comments on "Are retailers shortchanging the digital transformation?"

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Mark Ryski

There’s no question that retailers need to focus on their future digital opportunities, and many need to do much more than they are today. However the traditional businesses and physical stores are still very much part of this future. This is not an either/or proposition. Customer experience and service delivery must seamlessly move between online and physical and so investments need to focus on technologies, platforms and services that most effectively deliver that for their customers. I disagree with the argument that retailers are investing too much in their traditional businesses — physical stores are and will continue to be relevant. As noted, 90 percent of business is still done offline.

Doug Garnett
Doug Garnett
President, Protonik
1 year 1 month ago

Thoroughly agree, Mark. In fact, I found this line — “95 percent of the growth in retail is expected to come from digital (e-commerce + digitally influenced)” — needs some serious questioning.

There’s no way that we can imagine “digitally influenced” is the primary driver of that growth. Rather, digital influence on the purchase is important. And in these numbers it looks to me that “digitally influenced” is the lions share of the growth.

So… That really leads right back to your point about physical stores and finding solutions within their traditional businesses.

Imprecise statement of numbers like these is a very destructive problem within the retail sector right now. We need clear thinking — not numbers that attempt to dress up fuzzy thinking to make it appear precise.

Jeff Sward

Mark nails it — this is NOT an either/or proposition. Yes, mall traffic is down and, yes, some malls will close. Now let’s talk about quality of execution in the remaining bulk of the business.

The quality of basic merchandising and brand management is all over the place in mall retailing. Color management, seasonal conversion, balance between high risk and low risk product — simple, clear story telling on the selling floor. I see skill levels ranging from A to F throughout the mall. And no amount of digital razzmatazz is going to solve the sales and margin issues for those retailers getting a grade below B.

Of course digital is the driver of much of the future growth and, of course, it needs its share of the investments in the business. But retailers with skill sets in need of upgrading at the brick and mortar level do not necessarily do themselves any favors by over investing in digital “solutions” before they have their primary house in order.

Art Suriano
The article makes good points however what I see lacking is a balance between the necessary technology of today along with the essential needs required at store level. When a retailer focuses their investments only on digital and e-commerce, they sacrifice the opportunities they have to win at store level. Technology provides conveniences, but those comforts have to be ones customers want rather than just ways for the retailers to save money that put more onus on the customers and don’t make the experience a pleasant one. I agree with Martin that retailers should not be focusing on opening more stores, but I do feel there is a great need to update and renovate existing stores. Bring in technology? Absolutely. But the in-store experience must be one that “wows” the customer with the technology they want along with an excellent opportunity to browse, see, touch and try merchandise and be assisted by well-trained associates. E-commerce sales will continue to increase, but brick-and-mortar will be around for many years to come. The ones who will survive… Read more »
Jasmine Glasheen

The short answer? Definitely. There’s no need for more retail square footage, what we need is better retail square footage. Customers aren’t impressed by acreage anymore… it takes more than that to build a brand.

Instead of investing in excessive expansion, retailers should be focused on exceptional customer service, creating a personalized and seamless omnichannel experience, and in-store events and education.

Most importantly, with Gen Z it’s all about the product. Focusing fundage on sourcing something exemplary will get retailers a lot further than building aimlessly.

Bob Amster

While I agree that investing in an e-commerce platform that doesn’t connect to the brick-and-mortar customer database or investing in a POS system that doesn’t consider mobility are both wrong investments, there are other “traditional” systems in which retailers should continue to invest notwithstanding the emphasis on this movement we call the digital transformation and omnichannel retailing.

Such systems as loyalty programs, warehouse management, financial management, inventory management, etc. cannot be forgotten in favor of these shiny new objects usurping every trade headline. They too help to run the business.

Kim Garretson

I agree there is too much focus on the traditional, but also too much wasted spending on predictive analytics platforms that still make guesses about what individual prospects and customers actually want. I return to the great Seth Godin who argued for Permission Marketing, where we simply ask each person how we can help them with product, price, service, etc. Smart retailers are using opt in alerting to do just this today.

From Seth: “Permission marketing is the privilege (not the right) of delivering anticipated, personal and relevant messages to people who actually want to get them. It recognizes the new power of the best consumers to ignore marketing. It realizes that treating people with respect is the best way to earn their attention.”

Cathy Hotka

I’ll take this in a different direction. In a time when online competitors are taking a whack at traditional retail, it’s almost unbelievable that IT shops are begging for more funding and not getting it. Digital competition requires a digital response. How can we get the message across?

Neil Saunders

For traditional retail businesses, it can be hard to make investment cases for new technology, especially that which is untested. However, it is increasingly necessary to take risks and to pioneer new things in the digital space – just as Amazon does.

Part of the solution is to ramp up R&D budgets and to set aside people and funds to innovate and incubate new ideas. This more entrepreneurial approach has been used to good effect at retailers like Walmart and John Lewis.

All that said, as vital as digital is, traditional retailers must still invest in their stores and physical assets. If they don’t, they run the risk of falling into the trap of so many department stores which are now playing catch-up to modernize the shopping experience across their estates.

Joanna Rutter
1 year 1 month ago

Without constantly innovating to meet customer needs, legacy retailers will not succeed. Full stop. We all know this. Deploying better tech or investing in new channels is not PR icing. It’s the ticket you have to shell out for in order to get out of the 1980s. (Walmart’s acquisition of Parcel comes to mind.) Jasmine said it beautifully below: Square footage alone doesn’t suffice. Developing internal systems to collect, analyze and take action on both online and offline customer data is an obvious, urgent need, but it takes a great internal leadership team to take action. Because retail is fear-driven right now, and that’s the real “Amazon effect.” It’s paralyzing to face the two options of either risking failure or slowly deteriorating. I appreciate that this fear is waking up a whole industry that desperately needed the call. And I’m excited to see legacy retailers pivot and succeed, and prove the naysayers wrong.

Gib Bassett

Seems like investment strategy should be dictated by how tech and digital supports the retailer’s delivery of a compelling customer experience. For traditional retailers with stores, that footprint woven into digital is probably going to underpin this. How it’s architected and delivered though is based on insights reflecting the customer experience. It probably needs to be an ongoing effort, not a fixed end point, that gets tuned over time based on insights. Leading with a technology conversation is probably not the right approach.

Lee Peterson

What we hear from most retailers is, “we can barely keep up with the lines we have to deliver (focus on the basics), let alone get ahead of the game.” It’s a cost issue, always has been. Walmart and Amazon don’t have those problems or they have the foresight and cash to get past them. Having said that, if retailers don’t start to compete in every modern sense of the word, they won’t have to worry about it for much longer.

Mohamed Amer
This is what I call a core versus edge conversation. Core is the existing status quo; here it’s the traditional store where nearly all commerce is transacted while digital channels are creeping in from the edges of the revenue picture and usually come from non-traditional players. To muddle things more, the influence of those digital touchpoints gets lost as operational and financial metrics continue to reflect the core. The traditional customer journey was straight forward starting with brand ads pulling you to a store to try a new product or reinforcing and validating your purchase decision. The trip to your favorite store was taken for granted and everyone was happy with that setup. The manufacturer, wholesaler, retailer and consumer all had clear roles and benefits in that equation. With the massive adoption of the Internet, social media and smartphones, the apple cart got turned over in unprecedented ways. It takes time, and a changed mindset, to recognize and then formulate a strategic response to the changes that are upending nearly every taken-for-granted assumption about how… Read more »
Peter Luff

It’s an eternal struggle to invest in the here and now, as well as finding the breakthrough ideas and concepts. Retailers do though need to keep the lights on while they transition to the new promised land. Investing in the fundamentals like new store openings, staff training and KPI management has to continue and cannot be neglected; these are all hygiene factors.

With these items under the belt, retailers earn the ability and the right to look at the “new toys” available. Going all out for the new toys is a brave approach. Remember, many new items simply will not cross the chasm; putting all your eggs in that basket is therefore a seriously high risk approach as much as we may all get excited by these wonderful new capabilities.

Cynthia Holcomb

Digital… For the past 20 years, retailers have not crossed the digital chasm! As Martin notes, retailers still today use “linear, static planning models.” Why? Retail tech solutions rely on computer science, linear decision trees, neural networks, collaborative filtering, clustering, graph theory, etc. All are completely worthless in understanding the “how” and the “why” individual humans process memory and emotion into the decision to purchase a product/brand.

Because retail tech solutions are linear, they are incapable of processing customer-centric data into customer preference intelligence.

For 15-20 years retailers have floundered with digital technology solutions, completely missing the fact their customers are human! And now, retailers have a new challenge. The new digital tech revolution is hiding in plain sight. New cognitive processing, human based solutions resulting in the creation of new, customer centric, enterprise scale digital consumer insight and feedback loop technologies, empowering the human customer through multiple touch points in a holistic, multi-channel digital retail experience.

Kenneth Leung

The challenge fundamentally for any retailer that isn’t Amazon is that digital is the strength of Amazon, and playing to the strengths of Amazon on its own isn’t going to win the battle. Brick and mortar retailers have to find a way to win through the store’s infrastructure that they own, and use digital to enhance the overall experience. Trying to play catchup to Amazon tech investments online is not a way to win.

Vahe Katros

In the spirit of digital transformation, here’s my video answer from the movie Apollo 13. It’s only 1:03 in length. Find it here:

Work The Problem

Sarah Nochimowski

Brick and mortar retail should be about the customer experience; otherwise, let’s just shop online. Stores should become a destination, a place that people want to visit. This is the real reflection of the brand image. People will buy online, but thanks to the retail stores, so investments should go hand in hand.

Yoav Vilner
1 year 1 month ago

The most important aspect each retailer should focus on has always been and will always be customer service. No matter if the investment is done digitally or offline, without a successful customer service retailers will be left out. If retailers really want to fight back the feared “Amazon Effect” they HAVE TO guarantee customer satisfaction and, in order to do that, they need to realize where most of their customers come from, whether online or offline. That will give them a better idea of where they should concentrate their investments. The retail world is slowly (yes, slowly) becoming more and more digital but let’s not forget about the traditional customers that are always looking for an outstanding customer service experience when they physically walk into a shop.

"Without constantly innovating to meet customer needs, legacy retailers will not succeed. Full stop. We all know this."
"Digital competition requires a digital response. How can we get the message across?"
"Seems like investment strategy should be dictated by how tech and digital supports the retailer’s delivery of a compelling customer experience."

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