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Alexa, How Can Retailers Compete?

In less than a decade, e-commerce sales are expected to quadruple, accounting for 40 percent of total revenue. For traditional retailers, this meteoric rise of digital is no small concern. In most cases, the fastest growing channel is typically the least profitable, as features like same-day delivery, price comparison tools and hassle-free returns, made popular by marketplaces and digital natives, chip away at increasingly thin margins. The harsh truth of the digital landscape for many established retailers isn’t that business will simply be displaced from one channel to another, it is that profits will be erased.

To remain viable in the coming years, traditional retailers must optimize digital channels across several dimensions, three of the most effective being: commerce platform design, customer experience, and the use of data and algorithmic models. For example, by switching to a cloud-based commerce platform, retailers can effectively reduce costs, improve stability and enhance performance. By refining the customer experience, organizations can address key areas of friction in the user experience, especially those on mobile, such as mobile payments and progressive web apps (PWA).

Meanwhile, the effective use of data is a key success factor for retailers as they develop a profitable omnichannel business. With enough high-quality data, retailers can identify trends that can help anticipate buying patterns, optimize inventory levels, employ the right number of associates or fulfillment staff and set prices and promotional policies that maximize revenue. In a world of seemingly endless choice, data can enable the organization to create personalized and relevant product recommendations. For example, at what point in the customer journey is a customer most likely to abandon his or her cart? What steps can be taken to ensure popular SKUs are never “temporarily sold out?”

The good news is that many retailers have vast amount of data gathered over years, if not decades, from in-store transactions, web traffic and loyalty programs. The bad news is that the systems which capture, store and analyze that data are woefully outdated. What worked well for an older, traditional retail model, simply does not support today’s unified commerce retail model. This is particularly true of traditional retailers whose legacy systems are not as flexible or agile as those of digital pure-plays and new entrants.

As retailers overhaul their use of gathering, analyzing and making sense of data, leaders are focused on designing an organization that is capable of making the most of machine learning (ML) and artificial intelligence (AI). These technologies draw on a vast array of data sources including past transactions, behavioral data, social media activity and geographical location, to create algorithms and models that give the organization both a more complete customer profile and greater awareness of the business. This information can be used to identify and target digital channels’ biggest drains, such as a dynamic product availability, pricing optimization, customer support and personalized offers. Yet they require organizations to link teams in new ways, often driving reorganization and new areas of collaboration.

Perhaps the most concerning part of this digital evolution isn’t just that retailers need to act—but that they need to act now. In 2018, e-sales grew 15 percent and represented more than half (51.9 percent) of total industry gains1. More importantly, marketplaces and e-tailers claimed a substantial portion of the opportunity with Amazon alone accounting for 43 percent of e-commerce gains in the U.S. last year.2 With an enterprise AI program taking up to one year to design and deploy, traditional retailers who delay their efforts stand to lose significant ground to competitors as the growth of digital channels continues to surge. Put simply, retailers do not have the luxury of waiting to create a holistic data strategy and begin their transformation journey. Those who do may find themselves asking Alexa a different question: Are you hiring?

Author

Hilding Anderson

Head of Strategy, NA Retail