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| 4 minutes read

The tipping point into ‘Digital First’ retail

Enabling seamless omnichannel shopping – the integration of digital and physical customer touchpoints – remains the preferred strategy among global retailers as the behaviours of the pandemic persist and shopping habits are permanently changed.  

Our recent research reveals that omni-shopping is now far and away the most common preference amongst UK fashion consumers, accounting for 73% of shoppers and 80% of overall market spend. Taking this a step further, developing an “omni-aware” economic model of store profitability allows retailers to account for incremental levers such as click and collect convenience, local fulfilment centres, temporary stock holding locations, etc. that traditional store P&Ls often disregard.

Digital transformation, therefore, is at the top of the agenda for every retail business. UK online retail spend is set to reach £75 billion by 2024, rising 30% over the next five years, according to GlobalData. And technology spending across the sector is rising fast, as retailers continue to grapple with the post-pandemic push towards online business models. According to IDC, direct digital transformation investments will accelerate to account for more than half (55%) of all information and communications technology (ICT) investments by 2024.

Digital First: The new normal

The channel shift was well under way before 2020 with the rise of e-commerce, yet we’ve now passed a tipping point where retailers need to be embracing a “Digital First” mindset. 

Digital First retailers must consider their digital channels as the primary route to market, even if they are less than 50% of their business, and their stores – if they have them – as being in service of digital. Whereas pre-pandemic we saw store-based retailers with an online presence develop multi-channel capabilities, they must now think of themselves as Digital First retailers who also have stores. Even brands who state that ‘the website is my biggest store’ are reinforcing the idea that retail is all about pushing stock to stores and having warehouse operations to sell online. 

First and foremost, Digital First retailers create a seamless online experience. They think differently. Boohoo and ASOS, for example, don't think like the online part of a traditional retailer with its lengthy and inflexible supply chains. That's not how they source their product. It's not how they view their market. It's not how they view their customers.

There is much innovation in physical retail too, and the emphasis for Digital First retailers is not only on accelerating simply the growth of their online entities, but also considering a number of other operational implications, not least the optimal make-up of physical real estate to support business strategy and meet consumer demand.

Whatever specific strategy a retail business seeks to deploy, it is clear that a Digital First approach is paramount to remain competitive, and this must be supported by appropriate systems architecture and IT roadmapping. Transforming clunky legacy store-based systems into a more flexible customer-led, online approach is only deliverable with robust technology and platforms behind it.

Even retailers with strong digital capabilities, who have scaled at speed as a result of front-end investments, are finding that their first-generation IT is no longer fit for purpose. Meanwhile, at the other end of the spectrum, traditional retailers who have survived the pandemic are at the steep end of a digital learning curve and have thirty years of complex legacy systems to unpick, as well as trying to add agility at the front end. At some point, a lack of systems capability will become a significant blocker to becoming a Digital First retailer.

Disruptive technology, without the disruption

The answer is not always a belt-and-braces systems rebuild over three or four years and a £100m or more price-tag. Breaking down a hugely complex situation and finding an intelligent alternative route to architect a retailer out of it can tie any technology investment more tightly to the business value proposition.

Ultimately, this can lead to a better technology stack in the short term and for the future, which helps retailers in their day-to-day decision making and supports long-term structural changes:

(i) Data-driven decisions

Data-driven technologies and analytics tools already allow a more scientific approach to decision-making in areas such as merchandising, where the idea of traditional ‘seasons’ is collapsing, and social data is informing buying decisions. The explosion of data delivered through e-commerce, however, poses a challenge for most retailers who are yet to harness it properly to improve performance across their supply chains, particularly in areas such as forecasting and replenishment planning.

Gartner’s 2021 CIO Survey shows that 63% of retailers expect to spend more on business intelligence/data analytics, and 35% on artificial intelligence. 

(ii) Automation

As retail distribution networks have become more complex, automating them has become more critical. Four in ten retailers aim to implement a fully automated supply chain in the next five years and, over six years, the market for retail automation is expected to expand to over US$23bn worldwide, nearly double the market value recorded in 2019. Retailers are also looking to automation to solve longer-term structural issues such as workforce and vendor sourcing, and contract management.

Leading from the top

Technology investments aside, the importance of organisational culture and having a CIO and CEO who are aligned should not be understated when it comes to digital transformation in retail. Unpicking complex legacy structures and implementing platforms that support a seamless online experience can take time and cost a significant share of annual revenue. While some private equity-backed retailers may have a longer-term view of enterprise value, retail is historically a short-term-minded sector, and CEOs of publicly listed companies are often laser focused on the next earnings statement over and above technology transformations.

There is cause for optimism, however. According to Gartner’s 2021 CIO Survey, nearly two-thirds of retail CIOs believe their relationships with their CEOs have been strengthened during the past year, as CIOs have helped guide their businesses through significant disruption.

Retailers must choose the right partner to blend pressing business needs with pragmatic short- and long-term technology solutions, without an eyewatering price tag, significant associated business disruption, or defaulting to the bet-the-business single multi-year technology refresh programme.

Finding an elegant way to implement a better technology stack will, ultimately, be the difference between Digital First retailers and those that fall behind.

Retailers must choose the right partner to blend pressing business needs with pragmatic short- and long-term technology solutions, without an eyewatering price tag...

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digital first retail, digital, retail

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