Retailers Going Digital

Over the past couple of years we’ve seen a lot of retailers focusing on digital channels, formulating a strong omni-channel strategy and creating personalized experiences1 for customers. To understand the reason behind the shift and how it is succeeding in drawing more consumers online, a look at the current state of affairs for department stores tells an interesting story.

We are into the middle of the year and a noticeable shift in spending patterns is proving costly for U.S. department stores. Shoppers are willing to spend on big-ticket items such as electronics, homes and cars—but they are buying smaller ticket items like clothing less often than before. At the same time, the apparel market is also increasingly being dominated by online retailer Amazon.com.2 This pattern is also observed in Europe, with BHS and Austin Reed filing for bankruptcy.3

“Department stores are struggling because they are based on an outdated business model that relies on bringing a number of brands into one large store,” says Euromonitor analyst Tim Barrett.4 Millennials are looking to find a variety of low-priced products and styles, not brands. Amazon is meeting their need by offering multiple styles online. It’s already one of the largest retailers in the U.S., and on its way to surpass Macy’s by next year.

In spite of decreasing revenues and margins, there was one bright spot observed for department stores during earnings season. U.S. retailers like Macys, Nordstrom and Kohls saw increased sales through their online channels. This is making them increase their investments in technology and digital strategy, especially since online sales generally come with better margins compared to physical stores. Today’s customer is more demanding than ever, and retailers are trying to keep up with these demands via increased personalization5 through online channels and following the customer through their purchasing journey.

But when we look at the U.S. market, online sales account for only 10.5% of total sales.6

That means there’s still a lot of room for disruption.

This is where a Chief Digital Officer (CDO)7 becomes extremely important in driving a digital strategy at the organizational level. Digital Transformation is a journey similar to Enterprise Architecture (EA) maturity framework8—which was adopted by many successful organizations over the past decade. Successful adoption of EA maturity framework led to improvement in strategic alignments and effective business change. This helped distinguish successful organizations from the rest.

The industry is facing a similar situation right now with regard to adoption of Digital Strategy and framework. It is imperative that Digital is considered seriously, and that a well thought out plan is executed with the backing of strong leadership in a timely manner.

Based on my recent interactions with CDOs, they should:

  • Work with a mature “anchor partner” to transform their organization to address today’s digital needs. This is a critical part of the digital journey, and the partner should be able to ‘Walk the Talk’ through their experience with similar customers.
  • Invest in IP to blend digital and physical channels9 in order to retain existing customers and attract new ones. The ability to gather analytics on customers at the floor and increase conversions at the store or through online channels is widely available in the form of IPs by several anchor partners.
  • Build APIs on top of existing investments to integrate physical and digital channels, providing a seamless customer experience. Some of this is already carried out by retailers in the form of inventory checks for local stores, “Order Online, Pickup in Store” offerings, persistent shopping carts across devices, etc.
  • Collaborate closely with other industry partners (Hospitality, Travel) that represent touchpoints in a customer’s daily life, to create a sticky ecosystem. Currently, there are offers provided by partner retailers for airline miles or hotel reward points. More retailers can collaborate with such partners to provide a complete experience to customers, providing them more reason to shop online.

Make Digital Real10 is all about creating an ecosystem around existing investments, redesigning business processes to cater to new channels, and providing a seamless customer experience. Such an approach would definitely help in making retailers digital first and be more competitive in today’s marketplace.