As a customer-facing sector, retail has been at the forefront of technological innovation during the last decade. Consumers all over the world are becoming used to new technologies and devices, and their preferences extend to how they interact with retail brands and how they shop.
Retailers who want to prepare for the future need to acknowledge that only digital transformation initiatives can help them capture valuable customer data, transform it into meaningful insights, and use them to gain a competitive edge.
In this article, we zoom in on digital transformation in the retail sector to show you what benefits it brings to retailers, what its key drivers are, and the most important future trends all retailers should know.
What is digital transformation in retail?
Digital transformation is affecting every single industry we know today, from financial services and entertainment to education, manufacturing, and healthcare. Companies go digital to boost their services and offer products that are in line with customer expectations. The core goals of digital transformation are becoming more responsive to changing customer preferences and market trends. That's why digital transformation involves many aspects of an organization, from its employees to technologies used in external communication.
This is exactly how digital transformation plays out in retail. Retailers are reaching for innovative solutions to find new opportunities for generating revenue and building modern business models. As technologies and digital tools evolve, they have a greater influence not only on the services and products provided by the company but also its culture, management, and workflow organization. Digital transformation offers employees occasions to obtain new knowledge and master new skills.
Digital transformation is a long-term process where one initiative builds a change that leads to another, and then influences other organizational elements involved in the process. In its essence, digital transformation in retail is about adopting digital tools and building brand-new processes to understand what customers want — and then deliver it to them as quickly as possible.
Benefits of digital transformation for retail
Easier connection with customers
Thanks to digital transformation solutions, retailers can communicate with their customers easily, using a variety of contact channels — from websites and social media accounts to mobile applications and chatbots. Such new channels open up new opportunities for engagement, boosting customer loyalty, sharing promotions, and inspiring customers as they pass the steps down the sales funnel.
By implementing modern tools based on cloud technologies, retailers can improve their operations internally and externally. It's simple — cloud-based tools allow employees to reduce the time spent on manual tasks by automating processes. Moreover, companies can benefit from tools that make customer knowledge more transparent and use them to improve client support.
Thanks to tools powered by artificial intelligence (AI), customers can shop in brand-new ways — for example, by following the product recommendations of an AI chatbot. The automation of internal processes can enhance both the employee (more time for mission-critical tasks) and customer experience (delivering services faster). Moreover, retailers can use digital transformation tools to sell their products, not only in physical stores but many other channels, starting with websites and mobile applications and ending with social media.
In retail, digital transformation is the key tool for generating more than one channel of income and giving businesses the chance to reach a wider target audience. Retailers can engage new customer segments by using different channels and going global in no time.
Better customer experience
Practically all of the changes originate from the core goal of digital transformation – to impact customer experience positively. Digital tools allow employees to be more productive, making service quicker and more efficient. That way, consumers get higher quality service, and their journey towards making a purchase is far more pleasant.
The entire concept of digital transformation revolves around customer-centricity. The idea is to help businesses to become better at understanding customers and helping them find exactly what they need at the right time.
Drivers of digital transformation in the retail industry
Here are the key drivers that power digital transformation among retailers that are responsible for the changes we are seeing in the retail sector today:
- The changing expectations of new customers. The so-called digital or omnichannel shoppers don't mind switching channels in order to make a purchase. They want to access offers wherever available, from social media to mobile apps. This is also called a channel-agnostic shopping journey. Digital tools can impact many shopping-related tasks such as seeking products and comparing prices, carried out through digital platforms or in-store, as well as post-shopping activities such as reviews, customer service, future purchases, or even word-of-mouth marketing.
- Blurring the in-store and online experiences. The trend for disappearing borders between digital and physical is already part of the consumer mindset. Innovations such as the Internet of Things (IoT) or immersive experiences offered by Augmented Reality (AR) and Virtual Reality (VR) only boost this driver.
- Supply chain challenges experienced by organizations all over the world. Retailers who failed to digitize their supply chains are already experiencing problems around visibility and tracking. Transparency, speed, and time to delivery are the key factors that influence the implementation of digital tools in this sector.
- High competition from digital-native champions of customer experience and giants in the retail sector. Thanks to new digital tools, retailers can lower the cost of operations, digitize their supply chains, and enjoy greater access to customers—all of that despite having fewer resources than the leaders in their fields.
- The evolution and new opportunities offered by areas such as data-driven management, optimization, sales, and marketing. There's no denying that digital tools lead to the empowerment of staff. New technologies help employees to become more productive and knowledgeable – and retailers are certainly aware of that.
- The trend for personalization. Shoppers today are looking to have a personalized experience. They are perfectly aware that brands collect information about them and want to receive a fully personalized approach in exchange for that. This is next to impossible without digital tools that collect and store data to analyze it and offer retailers insights necessary to create an immersive shopping experience.
- Mobility is another key factor driving digital transformation in retail. Since customers use digital tools at every stage of their shopping journey, and Millennials are the largest consumer segment today, omnichannel shopping tools are essential to reach them. These consumers like to have the opportunity to make a purchase on their mobile devices and on the go. Moreover, while in stores, such customers expect to be engaged through their mobile devices that blur the line between the digital and physical thanks to mobility technologies such as IoT.
Future trends in digital transformation for retail
Augmented Reality (AR)
Experts claim that 2020 will be the year when consumers will finally feel confident enough to buy products thanks to AR implementations.
For example, Toyota recently launched an AR program that allows users to try out their new line of cars without having to go to the salon and picking up the keys. Consumers also don't need to download an app to try out the experience.
Offering an augmented experience right inside the internet browser will become such an important trend for retailers in the near future.
Companies such as Amazon found out that using Augmented Reality is especially helpful in lowering the number of returns from online shoppers. Since the revenues of online shopping will hit $5 billion in value by 2021, and experts estimate that 25% of purchased items are sent back, you can only imagine what amazing cost reductions we're talking about.
Augmented Reality is an excellent technology to help retailers keep more of their sales revenues. Moreover, technological advancements such as augmented reality headsets that are lighter and other wearables will make AR experiences more achievable for retail companies.
Shortening delivery times
The explosive popularity of Amazon Prime showed is that shoppers aren't willing to wait more than two days to receive their products. Amazon's recent introduction of one-day shipping shows that consumers are even less patient today.
A research study revealed that 88% of consumers are willing to pay for the same day or faster shipping.
This is the reason why we see more and more apps such as Shipt or Instacart. Consumers are drawn to them not only because of the convenience but the ability to get what they want without having to visit the store themselves.
Retailers who fail to offer expedited delivery options might see their shopping cart abandonment rates skyrocket. The question is now how smaller retailers can keep up with this speed. That's why experts predict the rise of third-party logistics companies helping smaller retailers to expand their instant delivery services and help them compete with giants like Amazon.
Consumers want to receive offers that are relevant, tailor-made and match their particular interests. They are constantly dropping hints at the type of things they like, as well as how much they're willing to pay for them.
The smartest retailers out there are already gathering information from various sources, ranging from the Internet of Things sensors to social media. They use artificial intelligence and deep learning algorithms to understand their customers better and deliver a fully personalized experience.
The trend for personalization is only going to grow as businesses leverage the power of machine learning to consolidate omnichannel customer data and personalized experiences at every single stage of the purchasing journey.
This is a seamless experience and a dream come true of digital transformation. Retailers are turning to technologies such as social shopping and visual search because they facilitate the journey down the sales funnel like no other tool.
Imagine being able to take a photo of a pair of shoes someone on the street is wearing, checking their brand and price, and then ordering them instantly.
That's why Instagram has become such a powerful selling platform. Consumers can simply click a dress they see on their favorite social media influencer, instantly check its price, and order it an online shop.
In the near future, retailers are going to create more omnichannel experiences and make use of social media for engaging customers.
How to get started? Tips for retailers
Here are three key pillars retailers need to focus on when transforming their businesses with digital transformation solutions:
- customer experience,
- supply chain.
The customer experience (CX)
Customer-centricity is a critical focus area in digital transformation. If your company can't deliver the customer experience up to the expectations, it's a huge problem. But how can you keep pace with the changing customer trends? Digital transformation helps a lot here.
Make sure that your digital tools can capture customer data and feedback to help you develop a seamless experience that works for customers. Also, don’t forget to test your products and services for accessibility.
This will help you engage more customers, retain them on board, and boost their loyalty.
Fragmentation and complexity are two of the greatest challenges that stand in front of innovation and digital transformation. For retailers hampered by their legacy IT infrastructure, a fast-growing digital-native retail startup could pose a serious threat. That's why digital transformation efforts need to focus on simplifying the core systems at speed and harnessing the potential of automated processes.
It's also essential to equip your employees with the right digital tools to fully benefit from the technology to implement. Such a digital core will allow your organization to become more agile and responsive to the constantly changing customer needs and market trends, providing a consistent and compelling customer experience.
Today, the most competitive supply chains are multidirectional and use closed-loop feeds where employees and customers innovate together to boost the buying experience and shrink product development cycles. Digital transformation efforts need to focus on empowering supply chains to deliver this type of experience.
Authenticity and personalization need to be at the core of your supply chain strategy.
That way, your organization becomes more transparent, and you're bound to discover opportunities for cost savings.
Outsourcing IT expertise in the retail sector — case studies
Since many retail companies don't have large IT teams and aren't looking to hire this type of expertise in-house, they can take advantage of specialized software development agencies to help them carry out digital transformation initiatives. Since digital transformation relies on changes in both frontend and backend processes and technologies, it requires appropriate expertise.
The following case studies show how such a technology partnership could look like – and what benefits it brings to retailers.
Case study: Home24
Home24 is the leading online store for home decoration accessories and furniture, serving thousands of customers in 8 countries. The e-commerce leader turned to us because the company wanted to optimize its technology stack and gain additional support in the backend, frontend, and mobile development.
We provided Home24 with three dedicated teams of experienced software developers specializing in the backend, frontage, and mobile technologies. This allowed us to deliver multiple lines of support and implement significant improvements in the platform, including the development of new features and functionalities, such as displaying products with Augmented Reality.
Case study: Total
The company is a leading provider of aviation fuel, meeting the needs of both large commercial airlines and light aircraft owners. Our client lacked the appropriate technical resources for optimizing the technology stack and boosting the project architecture.
We set up a dedicated team of experts who carried out key research and delivered a number of suggestions to the client. We then helped Total in backend and frontend development of the web application, adding with many different functionalities such as the option to choose and order fuel shipped to a particular address. By teaming up with us, Total took advantage of our expertise in the field without having to build an expensive in-house development team of experts.
Retailers who wish to survive in the future market need to start adding digital tools into their processes as soon as possible. Consumers have plenty of options to choose from today, and only the retailers who are able to meet them halfway can gain (and retain) their attention.
If you're looking for help in digital transformation, reach out to us. We have delivered many projects for retailers focusing on digital tools and process automation to help our clients achieve their business goals and solve their core problems.