Digitizing the Retail Customer Experience and What it Means for Multichannel Retailers Today

Bob Hetu, Research Director, Gartner

The 2016 holiday season is in the books and the impact of eCommerce, and Amazon, is clear. According to First Data, October 1, 2016 through January 2, 2017, eCommerce sales grew 12 percent, while brick-and-mortar sales grew only 1.6 percent. Brick-and-mortar share of total sales fell to 79 percent, -six points from the comparable 2015 period. According to Slice Intelligence, Amazon garnered 37 percent of eCommerce sales between November 1 and December 16. Many multichannel retailers have reported comparable store sales declines and growth of eCommerce activity but none are vying with Amazon for online market share. Amazon, for good or bad, is the pacesetter for retail now, including physical bookstores and Amazon Go. The fear of what Amazon might do, often dominates how retailers are thinking about competitive threats. Some retailers want to be it, some live in dread of it, some admire it, but all think about it. Remember this, you cannot copy your way to success, each retailer’s strategy will be unique, based on customer expectations.

Digital is not a One-size-fits-all Strategy

Many multichannel retailers mistake an eCommerce strategy for a digital strategy. Clearly eCommerce is a likely component of a digital strategy, but digitizing retail requires a comprehensive, “brand-right” strategy. Each retailer must respond differently with an effective digital strategy. The store will continue to be the leading channel for most multichannel retailers and must function as the hub of multichannel activity. Retailers will use a variety of digital technologies as they enhance the customer experience. These include advanced analytics, algorithms, smart machines, internet of things (IoT), mobility, data security, and virtual personal assistants (VPAs). Use your understanding of these technologies to engage the business in developing customer centric retail strategies that can be enabled through technology. For example ensuring that pricing, promotions, and offers are consistent across channels for individual consumers or using IoT to develop automated replenishment of consumables in customer’s homes.

The powerful combination of digital and physical is where a multichannel retailer can exert itself

If you Don’t Have a Digital Strategy, it’s Almost too Late

The expectation for harvesting results in the next year is high for those already executing an effective digital strategy. The pace of change in technology is allowing consumers unprecedented control and choices in how they search, purchase and fulfill their consumption. For retailers that are not yet delivering on a digital strategy, the future is in fact significantly more uncertain. Competitive pressures require significant action now to avoid loss of market share.

Customer Experience is the Key Differentiator for Multichannel Retailers

It all has to go back to the consumer, for each environment, you have to assess what the consumer will interpret as value. Rather than trying to create one view of the customer, retailers will benefit most from using digital technology to demonstrate to their customers that regardless of channel, they can expect a single unified experience. In this way customers can confidently transact across the retailers channels without any artificial boundaries. Regardless of the number of retail channels, customer expectations of consistent and flexible shopping mean that all of the retailer’s customer-facing processes must be unified. These processes should be defined in their most basic terms: Consume, search, purchase, fulfill, and return. Retailers of all types must engage in digital business transformation built on a foundation of customer understanding to facilitate a unified retail commerce experience.

Physical Retail Space is a Prime Target for Enhancing the Customer Experience through Digital

The symbiotic relationship between stores and eCommerce for most traditional retailers is in fact the thing that allows them to have a significant online presence. Any single store location, even if unprofitable, likely has a relationship with customers who shop mostly online. In fact the powerful combination of digital and physical is where a multichannel retailer can exert itself. Manifestations of this include click–and-collect and order online for in-store pickup but much more is needed to reinvigorate the physical shopping experience.

It’s not only about being Omni-channel, rather it is about focusing on providing a unified customer experience. This focus will become transformative when retailers and suppliers collaborate to build an effective consumer ecosystem centered on customer experience.

Advanced Analytics must be Applied to the Customer Experience to Drive Reorganization around the Customer

The impact of digital business and IoT will require advanced analytics to support real-time decision-making to take advantage of momentary business opportunities. These opportunities will demand a different approach to marketing, merchandising, pricing, distribution, store operations and almost every other internal process. Ultimately, the retailer will need to be able to decide in a split-second, if an opportunity is potentially desirable or should be passed up in favor of the next momentary opportunity. Success will require retailers to use a combination of knowledge, innovation, speed, and strategy to maintain and grow market share in the digital economy.

Watch-out for Known Barriers Impacting Digital Transformation Success

Retail CIOs need to be cognizant of the top barriers to success, developing a game plan for each. Five key areas to focus on are as follows:

1. Existing Skills and Resources Comprise the Largest Impediment. One major area of concern focuses around advanced analytics skills that are required for digital business. Start by doing a gap assessment and working with HR to facilitate change in hiring and promotion.

2. Leadership is a Major Retail Issue. This may be driven by the complexity of the retail organization structure, as well as turnover in key positions such as the CMO or chief merchant. The impact of digital on traditional retail business models is so pervasive that success is improbable without strong, long term leadership. Start by educating the senior executives on the impact of digital technologies.

3. Funding Remains a Significant Barrier. There is some improvement on IT spending for retail, but this is a constant challenge.

4. Culture and Organization Structure Issues Manifest in a Variety of Ways. The most common remains cross channels silos that inhibit the organization’s ability to deliver a truly unified retail experience. As the retailer increases its focus on customer experience, the organization structure must evolve to support customer expectations.

5. Technology Challenges Plague Multichannel Retailers. Many still rely on a complex web of legacy applications, including those internally developed and many still on mainframe technologies. Do not begin execution of a digital strategy, without having done a gap analysis and identifying the foundational steps that will enable success.