PricewaterhouseCoopers recently reported that 75% of retail sales growth since 2000 has been through online channels. That stark number helps to explain why formerly successful brick-and-mortar companies, such as Borders, RadioShack, BeBe Stores, Gymboree, Rue21, and Payless Shoes, have either filed for bankruptcy or closed their doors completely.
Sergei Gorloff, president and CEO of Petrosoft, a leading end-to-end retail technology company located in Pittsburgh, Pa., says many traditional retailers are struggling because of application-centric computing environments, which often isolate data into silos and make business innovation much more complicated and expensive.
“Most brick-and-mortar operations still use these environments,” Gorloff says. “The lack of free-flowing data constrains them and slows down innovation.”
To compete, these companies must transition to more flexible platforms. Successful retailers, such as apparel designer Rebecca Minkoff, are demonstrating how on-demand cloud services can be used to create omnichannel experiences whether customers are shopping online or in physical stores.
Success involves creating seamless online and real-world experiences for customers
While e-commerce is driving retail sales growth, online purchases represent only 7% of global sales. This statistic indicates consumers remain attached to visiting “showrooms” during the purchase process.
It also suggests that a complete shift away from physical stores could be counterproductive for established retailers. Camilla Dahlen, vice president of ISV, Cloud and Platform Partnerships for SAP North America, thinks many customers want retailers to integrate their online and real-world experiences.
“Sephora is innovating in this way,” she says. “It is using digital technology and digital transformation to engage with customers and carry that over into its stores.”
The French cosmetics company recently combined its digital and traditional marketing teams under the leadership of a single chief digital officer. “This sends a message internally that digital is really important,” Dahlen says.
Cloud services allow SMEs to compete with larger organizations
Small-to-medium enterprises (SMEs) have fewer resources to expend on digital transformation, but they are often able to act more nimbly than their larger competitors. Streamlined business models, simple product portfolios, small headcounts, and newer infrastructure mean they can refine their business models with greater speed and lower costs than their more entrenched competitors.
Because they need to act quickly and without excessive cost, Gorloff says SME retailers often gravitate to on-demand cloud services. “Distributed technologies like the cloud reduce the competitive advantage of large organizations over smaller brick and mortar companies,” he says. “The technology puts enterprise power into the hands of everyone who wants to use it.”
The cloud makes it possible to shift a new or existing business toward a data-centric model of operation. Focusing on data makes it easier to internalize data-driven decision-making and build a culture that is focused on promoting customer engagement and delivering personalized offers.
Proactive engagement is where digital transformation is headed
The migration to data-centric retail is going to become more critical as the industry’s ability to capture and analyze data continues to improve. Innovations in machine learning, artificial intelligence, and the Internet of Things will accelerate this process as strategies for digital transformation become more pervasive.
Gorloff foresees biometric devices, such as voice and face recognition systems, taking the place of standard forms of identification and transaction in many retail environments. Moreover, he believes these systems will be able to identify customers proactively, observe their behavior, and use predictive analytics to generate personalized in-the-moment offers.
“A lot of people are afraid of biometrics,” Gorloff says. “But in reality, this technology will make our lives safer [by providing a more reliable form of identification]. This is an example of how brick and mortar can catch up in the digital universe.”
As innovation continues, the competitive pressures on established brick-and-mortar operators are likely to intensify. To succeed in this marketplace SME retailers need to act quickly or risk being overtaken by more agile, aggressive, and technically sophisticated competitors.
“It is not a question of if you should,” Dahlen says. “It is a question of how fast you should transform your business.”
Interested in learning more? Listen to the SAPRadio show: “Retail Digital Transformation: Freedom of Choice for Stores and Shoppers.”