There are big challenges accompanying the great opportunities for businesses in the retail industry’s digital transformation
Traditional retailers still find some comfort in the Fortune 500 list, which ranks big brands like Wal-Mart and Amazon. However, the rankings do little to help alleviate the struggles and pressures faced by traditional retailers as the industry experiences a metamorphosis that is redefining what retail is about.
The next great transformation has already started, and “new retail” is taking shape. In China, the evolution of the tech-savvy, media-connected consumer, combined with transformative technological innovations, will continue to drive fundamental changes for retail and consumer packaged goods incumbents, emerging players and traditional brands alike. Alibaba and JD are taking advantage of the service and experience economy by expanding offline and further capitalizing consumer data.
Traditional stores are digitizing their business model to stay relevant in omnichannel retail. More than adapting a brick-and-mortar business to a digital future, players will find that the key drivers of success over the next decade will center on building a deep understanding of and connection to the empowered consumer, promptly incorporating disruptive technologies, embracing transformative business models in both the offline and online space, and establishing key capabilities.
It will never be short of challenges en route. Take the situation in China, where, according to Accenture research, more than 40 percent of shoppers would use real-time promotions while in stores. But none of the more than 20 Chinese retailers in our benchmark have this capability.
Nevertheless, the efforts will pay off. To quantify the impact of this digital transformation over the next decade (2017-26), a World Economic Forum report in collaboration with Accenture finds US$2.95 trillion of potential value for the retail industry and consumers.
The retail experience is poised to become more inspirational, exciting, simple and convenient, depending on the consumer’s ever-changing needs. To succeed in this, retailers and consumer packaged goods organizations will need to:
• Build a greater understanding of and a stronger connection to increasingly empowered consumers. Globally, hyper-connected consumers have access to more than 1 billion products offered by a wide range of traditional competitors and dynamic new entrants, and will redefine value. Businesses will have no choice but to remain agile, and will need to innovate and disrupt themselves by embracing new technologies.
• Rapidly adopt game-changing technologies. Technology will be the key driver of retail industry transformation. Disruptive technologies that will be crucial for transformation and will have an impact on labor are the Internet of Things; autonomous vehicles and drones; robotics; artificial intelligence and machine learning; augmented reality and virtual reality; digital traceability; 3D printing; and blockchain.
• Unlock the power of transformative business models in physical and digital spaces. Over the next decade, the line between online and offline will continue to blur. In the future, e-commerce penetration is projected to grow from approximately 10 percent today to greater than 40 percent by 2026. Despite growth in e-commerce, the physical store will continue to be the channel that contributes the most revenue for the majority of large multichannel retailers until at least 2026. However, its value proposition will evolve from being a distribution channel to that of a platform for discovery, engagement, experience and interaction.
In the World Economic Forum report, we point out that retail players will need to form ecosystems or coalitions to both provide full consumer solutions and secure key capabilities.
Additionally, retailers and consumer packaged goods organizations will need:
• A partnership mindset. To keep up with the rapid pace of technological change, all participants will have to develop a culture of collaboration and pursue intra- and extra-industry partnerships, rather than just rely on building their own capabilities.
• Last-mile delivery. For e-commerce to become cost-effective, eco-friendly and consumer-responsive, last-mile delivery challenges will have to be solved, likely through establishing macro-aggregators, investing in containerization and rethinking how costs are split between retailers and consumers.
• Advanced data sciences. Businesses will have to accelerate the journey from simply collecting consumer data to using it to scale and systematize enhanced decision-making across the entire value chain.
Great opportunities for businesses will be accompanied by challenges that must be addressed if the industry’s transformation is to succeed.
New business models will rapidly evolve, but will have wider implications, such as the impact of a reduction in the size and number of stores on the industry’s workforce.
At the same time, adopting a new or evolved business model requires a new level of operational agility, which will have an impact, at a minimum, on an organization’s structure, capabilities, culture and decision-making. The technology-driven transformation will ultimately underpin the development of a new ecosystem within and without.
The author is managing director of APAC Retail Lead of Accenture. The views do not necessarily reflect those of China Daily.