Digital transformation is essential for future of British retailers

10 December 2018 Consultancy.uk

Despite facing a period of poor sales and increased competition, British retailers remain reluctant to fully commit to programmes of digital transformation. Nearly one in five organisations reported they struggled to obtain managerial buy-in to transformation efforts, while only 1% of firms have managed to advance their digital maturity to the level they desire.

A potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit have seen multiple casualties in the British leisure and retail scene throughout the year, with no end in sight. With UK retailers facing one of their most difficult periods since the global economic crisis, finding savings and areas for efficiency improvements has become essential for the survival of many stores.

One area many traditional market incumbents are banking on hard to deliver such improvements is digital transformation. This ranges from additional business intelligence and effective stock management, to the retooling of websites to drive digital sales, or even the reorganising of supply chains to deliver quicker and cheaper services.

How mature is digital transformation in the retail sector?

When it comes to defining the priorities of digital transformation programmes in the retail sector, a survey of retail decision-makers by Hitachi Consulting has found that enhancing the online experience of customers was very popular, at 34% of respondents. With ecommerce eating its way into the profit margin of bricks-and-mortar stores, that is understandable, but it was not the option with top billing. 52% of respondents said that using digital to enhance back-end infrastructure took precedent. While this is perhaps not the most obvious option from a consumer’s eye view, it boasts the potential of overhauling supply chains to yield improved performance, and profitability.

The most notable changes in retail remain customer facing ones, however. According to the report, one technology example which is booming is 'click and collect'. Over three quarters (77%) of major London retail destinations have embraced click and collect, closely followed by in-store Wi-Fi (74%), showing that large brands are seeking to make shopping easier and more flexible for customers. Furthermore, almost two thirds of these stores also offer e-receipts, indicating that brands are also becoming savvier about linking their in-store and online presence.

“One of the greatest challenges for retailers today is understanding that the person who just walked into your store is also the person who clicked on a winter coat online last night,” commented Pierson Broome, Retail specialist at Hitachi Consulting. “Retailers are becoming smarter about offering technologies that can make life easier for consumers, but have cleverly adopted measures that also link a person in a shop to an online action, like e-receipts and click and collect. This helps stores to offer an ever-increasingly personal shopping experience without slowing down or annoying shoppers.”

Essential change

Hitachi’s study included respondents from fashion, lifestyle, recreation, food and drink and health brands. 9 out of 10 senior decision makers believe retailers that fail to digitally transform will go out of business by 2024. Of that, 24% said that such businesses would struggle to last longer than 3 years, while 65% said that in the next six years these firms would go bust.

Despite this apparent impetus for change, however, most retailers’ digital maturity remains low. Only 1% considered themselves as being where they need to be, digitally, while the majority had not passed the midpoint on their digital transformation journey. 41% of respondents said they were 26-50% of the way through, while another 13% said they were a quarter of the way through.

Barriers to digital transformation in the retail industry

Pierson Broome, Retail specialist at Hitachi Consulting said, “It’s a small minority that are at the more advanced stages of the digital transformation journey, and the majority are therefore missing out on many of the benefits, such as improved cost control and profitability. However, it’s not all doom and gloom. 99% of retailers are now tackling digital transformation – even if some aren’t far along their journey, that’s significant progress compared with a few years ago. Now their focus needs to be on implementing a full and clear digital transformation strategy, guided by the knowledge and experience of experts and backed by senior management, to provide a solid foundation for remaining at the cutting edge of retail IT systems. This will give them the best shot at not only surviving to 2024, but thriving.”

According to the survey, the largest barriers to improving digital maturity are a lack of internal strategy and a lack of knowledge and understanding of digital transformation, both at 29% of responses. At the same time, management buy-in was cited by a surprising 19% as an inhibiting factor, suggesting that despite the clear and present need to invest in digital, almost one in five firms are led by people reluctant to believe the hype. Further to that, concerns over these barriers led a quarter of respondents to state they were “scared” to digitally transform, citing a lack of understanding around how best to begin transformational projects, coupled with a heightened fear of risk. If retailers are to survive this troubled period, then getting over these fears may well prove to be essential over the coming months.

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