GUEST COMMENT Why are retailers struggling to adapt to the forces of digital disruption?

Many brick-and-mortar retailers seem to be caught on the wrong side of the digital shift, with some stuck in a dangerous cycle of diminishing foot traffic, declining comparable-store sales and increasing shop closures. However, given that some retailers, like Nike and Zara, have embraced the digital age so successfully, why have others had such difficulty?  Especially when considering that the retail industry has been the epicentre of innovation for almost two centuries.

The speed and magnitude of change

The proliferation of new channels and touchpoints, alongside the continuous evolution of innovative technologies – including wearables, virtual assistants, cognitive computing, and virtual and augmented reality – has challenged retailers to analyse, adapt and invest at a remarkable pace.

What makes the challenge even greater for retailers is that a number of these emerging technologies are so far unproven in the retail sector, requiring a high level of customisation and reskilling to drive consumer value. Knowing what to invest in, at what time, in what sequence and with what underlying infrastructure is no mean feat at the pace of change that this disruptive market demands. It truly challenges the analytical capacities of traditional retailers.

Balancing the cynical relationship between humans and technology

There is no question that technology is a disruptive force in the industry and essential to the success of modern retailers. However, there is a delicate balance that retailers must manoeuvre.

The retail sector has traditionally been a high-touch industry, in which consumers have relied heavily on the expertise and emotional intelligence of the people serving them. Modern retailers must calculate the optimal blend of human and technological innovations, and this has proved to be a major challenge.

Too little technology, either to support or to supplement store associates, will make it difficult to meet the evolving expectations of today’s consumers. On the other hand, too much technology at the expense of human interaction can make the customer experience feel cold and impersonal, ultimately weakening the retailer’s underlying value proposition. Particularly when considering that – at least for the foreseeable future – even the most ingenious combination of robots and artificial intelligence cannot fully replace the emotionally empathetic and social connections that humans have with other humans.

Rethinking the traditional retail value chain

Perhaps the greatest challenge that retailers face in adapting to the digital revolution is that, unlike many of the sociological, economic and technological changes that retailers have encountered in the past, it confronts the traditional value chain upon which the entire retail sector has historically relied. And as this underlying foundation crumbles, the very definition of retail is eroding.

Traditionally, retailers were the primary connection between the brand and the consumer. Their role was to buy products that people wanted and then sell them at a reasonable profit margin. To succeed with this model, retailers needed the right product assortment, the correct store locations and to capitalise on their local geographic monopoly. In the modern retail ecosystem, new players are increasingly applying digital technologies and innovative approaches to wedge themselves between traditional retailers and their consumers, connecting brands and manufacturers directly with consumers.

Consider NotOnTheHighStreet.com, a marketplace that provides a platform for small businesses and individual entrepreneurs to open online stores and sell a seemingly endless variety of goods directly to consumers. Whereas Taobao, an online shopping marketplace owned and operated by Alibaba Group, takes it one set further by providing a social element of peer selling. Consumers can share product information, communicate with each other, raise questions, comments or concerns about a product to past purchases, and receive real-time messages from vendors. And with more than 500 million monthly active users, more than two-thirds of whom are mobile users, Taobao has truly transformed the Chinese retail sector.

These digital upstarts have an advantage point on influencing where and what consumers buy. Firstly, they provide new and unique sources of value to consumers, often using AI and deep learning, to influence shopping behaviour by providing the right offer or experience at the right time and on the right channel. Secondly, they enable brand owners, manufacturers and other producers to go directly to the consumer by augmenting their business capabilities. These practices have usurped retailers’ traditional place in the value chain and ultimately reduced their importance. And this is forcing retailers to redefine where and how they compete.

Survival of the fittest

Now more than ever, as manufacturers and brand owners increasingly reach consumers directly, retailers must fight to stay relevant. Traditional retailers cannot wait for consumers to decide to buy a product before they engage; they must establish and maintain a strong, personal connection themselves while deploying new technologies that will fascinate consumers and maximise the upsell opportunity. 

More importantly, to thrive and prosper in the changing digital economy, traditional retailers must transform the business fundamentals. It Is time to break down the historical ways of working. Survival will favour those retailers that embrace change, test, experiment and respond with agility to opportunities as they emerge

Author: Scott Clarke, chief digital officer and global consulting leader, retail consumer goods, travel and hospitality at Cognizant

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