Digital transformation initiatives have picked up in the retail sector in recent years as chain stores compete for brand awareness and sales in a rapidly changing market. By 2026, global retailer investments in digital transformation tools are expected to reach $388 billiongrowing 18% a year.
That may seem like retail leaders are all inside, prepared to use new technological tools to extract the maximum value from their operations; ready to embrace change and grab the future by the horns.
But the truth is that many are probably not prepared for what is coming. Having worked with retailers on technology projects for 15 years, I am impressed with their ability to build businesses that sustain and resist in the face of adversity. I am also impressed with your willingness to integrate new technologies into your business. But I am concerned that they are not changing their thinking fast enough to adapt to the changes that are coming.
Are they adopting digital strategies that serve both younger and older populations? Are they successfully untangling their “spaghetti architectures”? Are they using technology to win the margin game? And are their mindsets evolving to do better collaborative work with outside experts?
These common challenges apply to retail organizations of all shapes and sizes: large and small, high and low margin, global and regional, online and offline. How retailers react to these challenges will determine how well their technology investments will truly transform the businesses they run.
Going digital while serving an aging population
As Gen Z consumers come of age, retailers are challenged to serve two audiences whose needs often conflict with each other. Younger digital natives earn more money and attract more attention from the stores they shop at. They’ve embraced the on-demand mindset of being able to browse products online, order from their couches, and, if necessary, make in-store pickups without standing in line. These habits clash with those of retailers’ older customer base, which is used to visiting stores, browsing, comparing products and looking for the best deals.
So the challenge looms: How do stores satisfy the innovation hunger of their younger populations without overwhelming their aging populations with too many digital practices? The answer is to make changes, in incremental steps.
The pandemic marked the beginning of a first round of changes. To offer more secure shopping opportunities, retailers have invested in contactless payments and improved their store pickup services. And online orders sped up. As customers’ long-term digital jitters wane, more are turning to technology to adapt long-standing buying practices.
The future will offer more opportunities to serve both sets of customers. house depositFor example, it is upgrading its Wi-Fi systems to make it easier for clients to design, view, and purchase materials for their projects. The chain is rolling out new handheld devices that allow associates to easily check prices and inventory availability on hand or from more than 40 feet away, which is useful when serving customers and stocking items on the counter. top storage.
Untangling your ‘spaghetti architectures’
Retailers have long used back-end technologies to run specific aspects of their business. They were among the early adopters of ERP, distribution management, warehouse logistics management, and POS. But while these systems continue to work well for certain purposes, they are increasingly less equipped to handle the demands of a growing digital business.
Can the systems connect the stock information from the warehouse to the online store to show what is available? And how is that data reconciled in POS systems to determine the quantity of products in the store? Can the data be used to predict future demand based on weather or local events? Without a central data repository, retailers are hit with a barrier where they cannot build end-to-end connectivity in what becomes a “spaghetti architecture.”
To compete in the future, retailers will need to create architectures that rethink the entire flow of data through their systems. It’s not just about improving interfaces. It’s about making the data architecture data-centric.
Betterware de Mexico, a direct-to-consumer seller of housewares and other supplies, built a data-centric infrastructure to improve its ability to keep up with orders. The increase in computing capacity and the implementation of a hybrid cloud strategy guaranteed against system failures, which allows the chain to make better use of data to optimize its distribution routing strategies. More efficient order processing and delivery helped the company reach more households and increase its market share in Mexico to 24% by the end of 2021.
Winning the margin game with the strategic use of data
It’s no secret that retailers operate in thinner margins than most other industries. Walmart, for example, made $13.6 billion on sales of $573 billion in its last fiscal year. That’s a margin of 2.39%. Every penny saved goes directly to the retailer’s bottom line.
To generate higher profits, retailers will need to make better use of technology to drive efficiencies into their general distribution engine. They can do this by using data to make sure they match supply with demand. This is particularly important in the grocery industry, where better demand forecasting through AI and machine learning leads to less waste, allowing chains to improve sustainability and earn more money.
Salling Group, a Danish department store retailer, offers a glimpse of the future through the success it has achieved in incorporating business intelligence into its real-time merchandising insights. It automatically pulls real-time sales and inventory data from point-of-sale systems in each store, correlating real-time information with seasonal and historical data. This correlation determines precisely what products are needed in each store to meet projected consumer demand. Produces 8,000 reports that are automatically emailed to executive management and 1,500 stores every morning at 6:00 am
Changing mindset and culture
To truly transform a business, technology will only take a company so far. The willingness to collaborate with outside experts and test new processes is often just as important as systems designed to gain insights and drive efficiencies.
Until recently, retailers’ transformation efforts have often been held back by the operating styles of industry leaders. Many retail chains continue to be run by descendants of the families that started them and run them for decades, if not centuries. The chains built their strong reputations over time, and the leaders preferred to trust their own instincts when it comes to marketing and distribution rather than relying on external IT-related advice.
It’s time for retail to change its mindset, just as the auto industry has done in recent years. In the past, automakers bought IT services the same way they bought parts: by pooling suppliers and negotiating for the lowest price. Now that cars have become data centers on wheels, automakers are collaborating with IT vendors as partners that can help them optimize the use of artificial intelligence and machine learning algorithms.
Third-party IT providers working on data solutions across industries can help retailers approach transformations from a fresh perspective. They can help retailers develop systems that can predict conditions, optimize routes, and create merchandising strategies that connect with the consumer.
That mindset shift is starting to happen. The more retailers participate, the more they can overcome the challenges that lie ahead.