The Innovation Sweet Spot: Straddling Today And The Digital Retail Enterprise

Chong Mock Seng

Innovate or go bust!

Retailers recognize that—so stop telling retailers they must innovate.

More than almost any other industry, retailers have been told they need to innovate. Forbes reinforced that in July 2018 with the piece, “The Innovation Retail Needs.” Statistics have also been thrown in to underscore the innovation imperative. Earlier, CNN reported that 2017 set the all-time high record of shops closing. Business Insider highlighted that this trend is continuing in 2018. One key reason is the unsustainably high per capita retail floor space; the other known key reason is the e-commerce paradise that promises ultra-convenience, incredible variety, and unbeatable prices.

The fact is, retailers know all this. They know that differentiated customer experience is critical to survival. I hear this time and again when I engage with Asian retailers. So industry experts need to stop telling retailers they must innovate.

Start telling them how (with what they have today)

Instead, start telling retailers how they can act on it now—and importantly, how they can act on it with what they have today.

Recognizing that most retailers don’t have the luxury of discarding and replacing legacy systems with new shiny digital capabilities, the key questions must change to: How can retailers shift to the midway groove where they can remain competitive without ditching all that they have? How can retailers bestride this in-between position and remain future-proof?

I brought this up in my earlier blog on retail fundamentals and I said that I will address these issues shortly. So here it is.

Indeed, the elephant in the room when it comes to “expert advice” has been how retailers can do more with what they already have. Very few, or almost no one, wants to be seen talking about that. Understandably, it’s because “experts are at the forefront of new research,” “consultants are supposed to tell you to change,” and “it’s just not sexy for a tech evangelist to discuss this.” But that’s position is not useful to manage the real pain points of many retailers. I vouch for that with first-hand feedback.

Straddling between mode 1 and mode 2

From the work we have been doing, we know that retailers know they need to turn the “voice of the customer” into delightful, personalized customer experiences to captivate and enthrall them, thereby creating new possibilities and revenue streams to drive profitability. That entails predicting customer demand, spotting consumer trends, orchestrating supply chains and creating seamless touchpoints – all of which point to the need for a digital core.

But without ripping out legacy systems, how and where do retailers start?

What we have done with some of our customers – and witnessing results – is to help them straddle between what I simply call, “Mode 1,” the current state, and “Mode 2,” a scalable innovation add-on that’s easily enhanced (or even removed when it’s not working).

To begin, we create a bimodal framework that allows retailers to enhance existing systems and processes. The amendments rapidly enable a taste of state-of-the-art digital capabilities where it’s most significantly felt while providing a reasonable timeframe for digital transformation on the backend. Now, where it is most significantly felt is different for different retailers. So, we identify key areas in conjunction with the customer rather than put up a piece of technology as the game changer.

An example

A retailer had an antiquated Mode 1 system. Shortly before a major festive season, because buyers could not forecast how many of which products to buy, when to buy them, and for which stores, they simply overstock everything in fear of stock-outs. Inventory carrying costs ballooned with the frenzied buying. Unfortunately, the stocks didn’t move as much as the business had hoped, and when the season was over, they had no choice but to markdown steeply to clear unsold goods. Evidently, the festivities weren’t generating the kinds of margins the business had hoped for.

A clear capability that would make a significant difference in this instance is predictive demand forecasting coupled with intelligent replenishment strategies. With volumes of data already being collected, big data analytics can help the retailer better grasp buying behavior for accurate replenishment and perhaps even influence purchase decisions to increase sales volume.

The suggestion to move forward was to add on an innovative peripheral solution (Mode 2) which would enable the capability while providing the flexibility to scale should the retailer like the results. The retailer was happy with this palatable approach which turned out to be a real win. By knowing its customers, the products and the time of the purchase, the business now can set ideal stock levels for all product-store combinations. With that, the business could look forward to improving stock-turn, experiencing greater sell-through of full-priced stocks and best of all, recouping the investments!

By adding Mode 2 capabilities to existing Mode 1 resources, the retailer quickly realized value in a risk-free manner, allowing the business to move forward while planning for a Mode 1 refresh.

Today, the business is in a more secure position to explore the next level of innovations such as embedding machine learning into the core processes. The conversation certainly makes a lot more sense at this stage than when it was struggling with replenishment.

Future-proofing tomorrow right now

The key I’m trying to drive home is that innovations and transformation are not a luxury solely for the “big boys” who have the stomach and funds to rip and replace entire systems. Retailers don’t have to look at it the way an Amazon or Alibaba would. Rather, it is about identifying the sweet spot – the area where the impact of innovation will be more significantly felt and then moving from there.

Often, this involves knowing where the critical gaps are (which when bridged often become strengths) and then capitalizing on your strengths. In the earlier example, the retailer saw that it had volumes of dormant data. This spelled potential for new retail occasions, new customer experiences and new revenue streams beyond the replenishment issue it was trying to resolve. It was the sweet spot.

And acting on that absolutely helped the retailer create new muscle to flex – future-proofing tomorrow, right now.

Do you know your sweet spot?

Mock Seng is passionate about helping retailers find the right space to innovate toward a more sustainable tomorrow. That’s why he’s always engaging in conversation. Drop him a line!

For more on this topic, see Omnichannel Strategies And Digital Transformation In Retail.

Chong Mock Seng

About Chong Mock Seng

Chong Mock Seng is Retail Industry Leader of Southeast Asia for SAP. He has focused on retail, consumer products, and high tech manufacturing customers in the Asia-Pacific region and has a wealth of insights and practical experience through his myriad engagements in which he enjoys sharing with his customers in his current role as Retail IVE for Southeast Asia. He is most passionate about dialogues and action plans on transformative retail engineering in the disruptive digital era.