The most successful retailers today – the ones enjoying the largest revenue gains – began making substantial investments in digital transformation several years ago and are now reaping the rewards. Investments in digital transformation pay off over time and retailers that began early are reaping the rewards today. A short list of these booming retailers includes Walmart, Target, Ulta, DSW, Sephora, lululemon, Nike and Kroger.
The term digital transformation in retail refers to a radical rethinking of how to use technology to pursue modernization and improve revenue streams and business models. Retailers pursuing digital transformation are deploying technology in innovative ways that blur the lines between the physical and digital worlds.
The volume of activity pursued by these leaders – and continuing to be pursued in a consistent pattern of investment – is breathtaking. It includes everything from data-driven stores with curated assortments to cashierless checkout, from cloud-hosted platforms to robots in stores, and from AI-driven personalization to augmented reality mirrors and displays.
Digital Transformation 2019
In the recently released RIS Targeted Research report we zero in on digital transformation to get a better understanding of where retailers are putting boots on the ground and allocating budget dollars for investment.
The big four digital transformation investment areas for 2019 are:
- Expanding unified commerce (or ominchannel) capabilities
- Cloud software (SaaS) or cloud platforms (PaaS)
- Advanced personalized (one-to-one) marketing
- Creating new business models and services.
However, the road to digital transformation is paved with challenges. The list of top challenges cited by retailers in 2019 is headed by protecting customer data security systems (45%) and retiring legacy systems (42%).
Two major challenges on the list have recently acquired a sense of urgency – employee engagement (associated with salaries, training, flexibility and HR benefits), which was chosen by 32%, and turnover and retention in a tight labor market, chosen by 26%.
Opportunities for Growth
The study also examines growth opportunities from both a topline and bottom-line perspective. The number-one topline growth opportunity retailers plan to invest in 2019 is optimizing digital commerce both online and mobile, which was chosen by 68%.
Other topline growth opportunities include expanding in-store mobile (39%), expanding omni-commerce capabilities inside stores (35%), and expanding last-mile delivery and fulfillment capabilities (32%).
Heading the list for bottom-line projects that increase margins are out-of-stock optimization (58%) and proprietary products and brands (55%).
Other key bottom-line investment opportunities include in-store task management (29%), omnichannel order management (26%), the omnichannel supply chain (26%), and AI-driven price management (19%).
One of the major takeaways of the report is that an overwhelming majority of retailers (65%) say they will seek external specialist help to achieve their digital transformation goals. Areas where retailers say they have the greatest shortage of talent are IT architecture (32%), data analysts (29%), customer experience/CRM (29%), and store systems (29%).
The external expertise will be needed when retailers migrate core applications to the cloud. The top applications for cloud migration are E-commerce (chosen by 50%), ERP/financials (48%), CRM (40%), merchandising (38%) and supply chain (35%).
Finally, we wanted to find out how much of the retailer IT budget will be devoted to digital transformation in 2019 – more than a fifth (22%) of the planned IT budget for 2019 is targeted to digital transformation projects.
These are just a few of the key takeaways in the report. For a full set of charts and complete analysis click here.