Investment in Digital Technology is Paying Dividends in the Retail Sector

by Balazs Fejes, Co-Head Global Business

Technology is changing the way people shop. The emergence of online – and increasingly mobile – is transforming the retail space and consumers are increasingly engaged with non-store options when making purchasing decisions. Inevitably, this will reduce market share for traditional retailers who must get themselves up-to-speed regarding online, mobile and digital platforms if they are to remain relevant and competitive.

According to the Economist Intelligence Unit online sales channels will continue to take an increasing proportion of the market; in the UK, for example, online retail sales accounted for almost 11% of total sales in the third quarter of 2014, compared with under 7% in the US, but these shares are expected to double, or even triple, over the next two decades.

The Centre for Retail Research has also forecast that in Europe alone, online retailers in 2015 are expanding 14.2 times faster than conventional outlets and this will inevitably create major strategic issues for store-based retailers.

The old retail model based around a network of physical store locations is becoming less relevant to consumers.

An omnichannel approach that facilitates different customer needs and allows the customer to engage with different channels at different stages of the purchasing process is becoming the new normal.

In the retail sector a number of retailers such as John Lewis and Tesco are trying to build greater online customer traction with an online audience who want to marry a number of experiences: the online experience where a customer wants to research products; the physical experience where customers want to be in-store and interact with the product directly; and the mobile experience which can guide customers in-store to find the products they want.

The growth of ‘click and collect’ for example is one area where retailers have seen success in merging the online and in-shop customer experience. In January John Lewis reported that online sales had grown by 19 per cent, representing 36 per cent of trade, with the click and collect delivery option accounting for more than half (56 per cent) of online orders.

Technology is changing the way people shop.

Achieving this level of success however requires a greater understanding how customers use different channels to interact with the brands that they buy from and making sure the journey between each delivery channel is seamless.

While many big retails increasingly accept that they must offer a seamless service across different delivery channels online sales are still a relatively small share of the retail market so omnichannel progress is slow. Coupled with this, the traditional shop network model that many retailers have operated under means that different business support functions such as online sales, telephone sales and inventories, for example, are very siloed and the application of an omnichannel approach requires major operational overhaul.

A number of retailers however are effectively embracing digital transformation and buggy-to-babywear retailer Mothercare is a good example of how technology innovation can be adopted to positively impact a business through customer engagement. Last year they entered a £100 million round of fundraising to fund the modernization and digital overhaul of their UK business.

An omnichannel approach that combines different channels when making a purchase changes the way that customers use the retail store.

Online and offline channels are beginning to merge and an increasing number of online sales are now taking place on the shop floor. Collect+, the parcel delivery service that delivers to Collect+ store locations rather than to a home or business address, is one such service that is evolving product purchasing and putting customer choice firmly at the heart of its business model.

Mothercare has responded to this and uses in-store technology – the installation of around 25 video panels in its new stores – to display product information as well as video walls, iPads and customer WIFI. This keeps the customer in store and allows them to better research products, change product sizes and colors in real time and broadens the range of products available in store. This hybrid approach means that store locations are increasingly used for browsing and research before the customer decides when to buy and over what channel – customers who otherwise would have left the store to purchase a product are now retained in the store environment.

Only through strategic investment in technology will retailers be able to move from a static relationship with their customers to one driven by user experience.

Big data has also been a powerful force in transforming the retail sector towards digital adoption. Firms like Apple and Amazon have harnessed the power of customer intelligence and data capture to create personalized experiences for their customers. This in turn helps build loyalty to the brand while elevating the firm from a simple seller of products to an all-encompassing service provider that caters for all of the customer’s needs.

Mothercare has also overhauled its customer database and now captures data such as child due date and the birth date so the retailer can keep in touch with the parent and make product recommendations as the child grows up. Once a floundering high street brand Mothercare’s sales have shot up in recent months and their investment in digital seems to paying off. The FTSE SmallCap listed company saw its shares rise 6 per cent at the end of the last Quarter – the result of a 5.1 per cent increase in its sales since the start of the year to March 28.

Digital transformation has the capability to enable firms to link the online, digital, physical and mobile experience in a way that delivers a really powerful proposition for the customer. However, only through strategic investment in technology will retailers be able to move from a static, store-based relationship with their customers to one driven by user experience, that builds brand loyalty and takes the customer on a multi-channel journey through a range of complimentary services that they need.