Innovating for a New Retail Reality
Most retailers shifted their focus to digital during the pandemic. However, as the pandemic subsides, it brings residual challenges in the form of supply chain slowdowns and talent shortages. The right approaches and investments are requisite to align offline and online channels with a responsive supply chain, to facilitate a frictionless customer journey and deliver a high-quality, repeatable customer experience.
But how do you get there? Avoid the mistakes of the past. One trap to be aware of when it comes to digital adoption is embracing the latest tech without a strategic focus on how it drives innovation across your business and improves customer experience. It may be tempting to approach digital transformation across every aspect of your business all at once. Instead, successful value creation and digital adoption begin by mastering three foundational areas; your digital business, your digital backbone and your digital process.
BDO’s 2022 Retail CFO Outlook Survey polled 100 retail CFOs on their plans for innovation in 2022. For the purposes of this report, retail CFOs self-assessed their company’s performance as thriving, surviving or struggling:
A Portrait of Innovation in 2022
For retail, 2022 will be about reimagining delivery models and distribution channels. For retailers that have fallen behind on transforming the retail model, this may require forming a partnership in order to gain access to the necessary technical and operational expertise.
Innovation also looks different depending on overall company performance. Thrivers are experiencing robust growth and thus may have the capital and strategy to go all in on breakthrough innovation required to achieve the new and evolving retail model. Expanding products or purchasing channels can create new demand and markets. Membership models, ultra-fast delivery, new SKUs, and creative store formats may help survivors make the jump to the thriver category. For strugglers, a strategic partnership or collaboration should help elevate them to stable financial footing and give them the necessary tools to pursue innovation.
Digital Transformation: An Imperative Investment
Even those that may not be actively pursuing digital adoption understand the risk that falling behind presents, with 38% of retail CFOs saying it poses a significant risk to their business. CFOs may feel that digital adoption requires major upfront investments that they cannot afford. However, the transition to a tight integration of offline and online models into a single new model, can be achieved with off-the-shelf solutions from third party service providers, tools and platforms.
The key is not to undertake tech adoption everywhere and all at once, but to target specific areas where tech will ultimately improve the customer experience (CX). According to BDO’s 2021 Retail Digital Transformation Survey, CX is the number one digital priority for retailers. As brand loyalty becomes difficult to maintain in a disruptive landscape, a strong CX will ensure customers return to your brand.
When it comes to digital adoption, efficacy is more important than scope. Having cutting edge tech is worth nothing if it’s not executed properly within your organization.
The Rise of the Social Consumer
Digital touches every aspect of the retail business, including integrated business models, efficient supply chains and digital marketing that drives customer engagement and experiences.
As many as 62% of Gen Z and Millennial consumers say they have made a purchase as a result of social media posts or influencers. In response, retailers are turning to social commerce, where consumers can view and make purchases on social media apps, or through live stream shopping events.
BUILDING AN INFLUENCER STRATEGY TO COMPLEMENT SOCIAL COMMERCE EXECUTION
For social commerce to be effective and gain new customers, brands should consider partnering with an influencer. But macro-influencers with millions of followers not only come with a hefty price-tag, they also don’t always hold the same sway over their audience that micro-influencers do. Micro-influencers have a highly engaged follower base that looks to them for recommendations. Boasting an 8% like rate, compared to the 2.5% for macro influencers, micro-influencers hold more trust. A brand partnership with a micro-influencer may result in fewer eyes on your brand, but the influencer’s followers are more likely to become customer leads. However, it’s important for brands to make sure they are the right fit for the micro-influencer they’re targeting. An energy drink might be the right fit for a Twitch streamer, but the partnership will immediately feel disingenuous to the followers of a vegan lifestyle vlogger, even if the goal is to present the health benefits of the drink. Not only does the influencer risk losing followers, but the wrong partnership could damage brand reputation. Younger consumers are media-savvy and won’t be fooled by clever marketing.
Understanding the customer journey and potential pain points is the first step in identifying where digital adoption can reduce customer friction. A pain point could be as simple as a long wait for e-commerce purchases. BOPIS can allow customers to get products much faster, but only if orders are available the same day, not if the customer is forced to wait days for their pickup to be ready. The tools you implement need to create an experience that keeps the customer coming back. You’re only as good as your last sale.
With retailers already grappling with increased costs, high levels of returns can have a significant impact on bottom lines. But there’s a strong correlation between online purchases and returns: Thirty percent of products ordered online are returned, compared to 9% of products purchased in store. Ease of returns helps improve customer loyalty, but at the same time, retailers want to minimize returns as much as possible to keep costs low. To achieve this, they are turning to tech.
While more than half of retailers say they’re investing in virtual try-on tech and AR, this could be a case of shiny object syndrome. Try-on tech requires significant costs when it comes to implementation and training and may not provide the ROI that retailers are looking for. Nailing the basics, like product display and logistics and inventory management should be the priority before retailers move on to VR and AR investments.
2021 was a year for significant e-commerce adoption and a critical rethink of the traditional retail model, following 2020’s pandemic driven shift to digital. Now, retailers are improving these channels while looking ahead to what’s next.
Some retailers are continuing to pay off debts incurred during periods of store closures and are now facing the added challenges of rising costs. Therefore, getting the funds to properly pursue innovation may present a challenge. However, transitioning to the new retail model can be achieved with a realignment of resources. With e-commerce driving a greater portion of revenue year after, a large store footprint could be an unnecessary cost. Consider closing underperforming stores and shifting investments to digital infrastructure to support the innovation of e-commerce channels.
In addition to reallocating costs from real estate towards digital infrastructure, the right partnerships can also support the pursuit of digital adoption. A partnership or use of third-party technology may already be on the 2022 agenda, as 75% of retailers with revenue between $500 million and $1 billion say they are planning to pursue M&A, a joint venture, PE investment or VC investment in 2022.
While realigning costs or engaging in a partnership can be the ticket to advance digital adoption, the simplest solution is often the right one. Add-on tech, third party platforms and outsourcing can provide value with only a moderate level of investment. Remember, expensive does not always equate to better.
Ultimately, the true value of digital comes down to how technology improves or enhances the customer experience, but it’s not one and done. It’s an ongoing process to advance, improve, optimize and stay competitive within the market.
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BDO’s 2022 Retail CFO Outlook Survey polled 100 retail industry CFOs with revenues ranging from $250 million to $3 billion in October 2021. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.