Shoptalk, one of retail’s biggest conferences, is descending on Las Vegas in early March. The conference brings retailers and innovators together to create the future of retail based on the latest trends, technologies, and business models. Chief among topics this year - as well as in years past - is how retailers can achieve digital transformation to meet consumer demands and thrive in an on-demand, online economy.
Online or Obsolete?
What does digital transformation mean for retailers? Forbes contributor and VP of Retail Innovation at Aptos Nikki Baird says, “It’s about moving from the traditional product-centric model to one that is customer-centric.” She goes on to explain that transforming from product-centric (buy low, sell high) to customer-centric means retailers need to focus on the digital value chain -- collecting customer data, turning that data into insight, and then turning those insights into action. How quickly and well retailers do that will determine their success.
Is brick-and-mortar dying? Hardly. At present, online shopping only accounts for 10 percent of U.S. retail sales. It’s more accurate to say that physical retail is evolving. In a 2016 study, Deloitte found that digital experiences influence 56 cents of every dollar spent in physical stores. Even when customers are making in-store purchases, they’re still, at least partially, shopping online. That means retailers’ digital strategies influence more than half of their total in-store revenue.
While brick-and-mortar retail isn’t going away any time soon, digital transformation is still critical to retailers’ futures. According to Harvard Business School, digital leaders have a three-year average gross margin of 55 percent, compared to 37 percent for digital laggards.
For many retailers, digital transformation means overhauling their business model. Cloud platforms give retailers the technology required to change their business models quickly and affordably and afford them the flexibility to evolve with consumer demands.
Brick-and-mortar to Omnichannel
The evolution of the way consumers shop has pushed retailers to take an omnichannel approach to sales, which gives customers a seamless shopping experience whether they’re on a computer, a mobile device, or in a brick-and-mortar store. The approach requires integration among distribution, promotion, and communication channels on the back end, which is often powered by cloud.
The cloud helps retailers create a modern supply chain, which eliminates silos between online and physical stores and manages inventory as one marketplace. Going omnichannel also enables new customer experiences, such as going registerless or offering pop-up storefronts. With payment security and inventory management taken off premises, retailers can more easily serve customers outside their physical stores and decrease on IT costs.
Direct-to-Consumer Sales (DTC) on the Rise
Many retail brands, such as Abercrombie and Fitch, Milly, Theory, and Comme de Garcons are developing lines for exclusive distribution through DTC sales to appeal to online shoppers, streamline inventory management, and increase profit margins. For Abercrombie and Fitch, it’s working. The retailer’s DTC sales made up 28 percent of their receipts in 2017, and Abercrombie now runs 20 sites and apps in 11 different languages. The company anticipates that online sales, combined with a strategic downsizing and redesign of its brick-and-mortar operations, will grow its sales from $3.49 billion a year to $5 billion.
Adapting to consumer preferences is one way brands are moving from being product-centric to customer-centric. Over 8 in 10 consumers expect to be able to buy directly from brands when shopping online and nearly 9 in 10 would prefer to make direct purchases, a BrandShop Digital Consumer Preferences survey says.
Nike’s Consumer Direct Offense is also leveraging the power of digital to create one-to-one connections with consumers through key cities and use customer data to accelerate innovation and product creation. Nike is one of many retail brands using cloud technologies to personalize their customers’ shopping experiences. Not only does the cloud allow them to store and analyze large amounts of consumer and product data affordably, it lets them build capabilities fast enough to hold the attention of digitally connected consumers throughout different phases of their shopping experiences.
The Elephant in the Retail Cloud
For many retailers, cloud computing is critical to competing in the digital marketplace and achieving digital transformation.
AWS is by far the biggest cloud service provider (CSP). It boasts the most sophisticated capabilities, and it’s leading the way in cutting edge technologies useful for retailers, such as artificial intelligence, big data, and machine learning. Microsoft Azure is a distant second in terms of CSP market share, followed by Google Cloud Platform. But Microsoft and Google are quickly picking up retail customers, who don’t like the idea of lining the pocketbook of major competitor Amazon. Albertsons signed a three-year agreement with Microsoft to make Azure the grocer’s preferred public cloud. Retailers and grocery chains have been migrating to Azure at a faster pace since Amazon's purchase of Whole Foods and expansion of Amazon Go stores. Google’s recent big deal brought BigCommerce, an e-commerce technology provider that supports more than 60,000 merchants worldwide, to its cloud platform.
While some retail giants, such as Nike and Under Armour, are AWS customers, retail is one of the few industries it’s not dominating. Retailers, wary of getting cozy with a competitor are taking their business elsewhere, giving Microsoft, Google, and other smaller CSPs the opportunity to win big retail customers. On the flip side, retailers who use AWS maintain that the end user’s experience matters more than rivalries and AWS’ speed and capabilities offer the best customer experience.
Whether or not choosing AWS as a cloud platform is a conflict of interest for retailers is likely to be a topic of debate at Shoptalk this year, with retail leaders passionately on one side or the other.
Cloud computing is revolutionizing retail, enabling retailers to innovate with accuracy and agility. Today’s consumers have more information, more options, and are expecting a more personalized shopping experience in every channel. Regardless of the cloud platform retailers choose to partner with, cloud technologies allow them to continually improve the customer experience, and that’s the future of retail.