Digital transformation taking a toll on retailers
The “CEO Viewpoint 2017: The Transformation of Retail,” a new report prepared for JDA Software Group Inc. by PwC, surveyed more than 350 global retailers late last year. It shows that more players in the industry are looking to leverage digital technologies to reach the modern shopper, but high delivery costs, rising return rates, and the labor required to pull merchandise from shelves for in-store pickup is a big problem.
As omnichannel retailing continues to mature and retailers have blurred the lines between online and store, their attention has shifted to execution and profitability. Omnichannel execution amongst global retailers continues to lag in areas of order fulfillment, and profitability is still a challenge, with only 10 percent of those surveyed able to make a profit while fulfilling omnichannel demand. Only 12 percent of CEOs surveyed, down from 19 percent in 2014, provide a seamless shopping experience across channels. These retailers are finding their omni-channel offerings to be too complex or expensive and are choosing to scale back.
Seventy-four percent of respondents believe that the cost of customer returns is impacting profits to at least some extent. As CEOs look to regain profitability, their chosen areas for order fulfillment investment are prioritized by those that are the most important and net the most financial return.
The survey also found that retail CEOs are increasing their investment in buy online, pick up in-store (BOPIS), with 51 percent of survey respondents saying they offer or plan to offer BOPIS in the next 12 months – up from 47 percent in 2016. Buy online, ship to store has picked up steam in the past year with 48 percent of retail CEOs investing in this service or planning to, in the next 12 months. Conversely, fulfillment options that are becoming costlier and less profitable are areas where CEOs are decreasing investments in 2017. These include same day delivery (reduced to 33 percent, down from 43 percent in 2016), and providing specific delivery time slots (down to 27 percent vs. 48 percent in 2016).
The rising costs of order fulfillment are also pushing executives to rethink their strategy overall. This year will see increased charges for online orders (57 percent plan to or will make this change in the next 12 months), a rise in minimum order thresholds for free standard home delivery (62 percent plan to or will make this change in the next 12 months) and raising the minimum order value for BOPIS (55 percent plan to or will make this change in the next 12 months).
“While retailers have increased fulfillment options over the last year to meet consumer demands, as BOPIS becomes a staple and buy online, ship to store emerges as another core fulfillment capability, retailers now need to balance the effectiveness and profitability of the fulfilment channels they offer - with customer satisfaction. Because if shoppers experience a problem with home delivery or in store pickups, that is a lost sale – and customer – that retailers can’t afford in a highly competitive market,” said Lee Gill, JDA's group vice president of global retail strategy.
Still, retailers remain focused on leveraging digital technologies to better understand and connect with their consumers, giving customers reason to engage with them across retail channels. Despite the obvious importance of having a digital transformation strategy in place, surprisingly, more than half of respondents – 52 percent – have not defined or started implementing a digital transformation strategy yet. Globally, Chinese retailers are more likely to be implementing their defined digital transformation strategy (58 percent) than the U.S. (40 percent), with 19 percent of U.S. retailers struggling to or choosing not to define this strategy at all.
Mobile-enabled applications (85 percent), big data (86 percent) and use of social media data (85 percent) are the top technologies survey respondents are investing in or plan to over the next 12 months (is), while automation and IoT are lower on the list for investment but gaining momentum as they are perceived as true game changers. The use of social media and big data is highly valuable in giving retailers deep insights into rich sources of customer information allowing them to create credible customer segments, while gaining insight into shopper preferences.
“Since JDA first commissioned PwC to conduct this survey in 2014, we have witnessed unprecedented change sweeping across the retail industry that continues in earnest as retailers reimagine their strategies to transform the customer experience, making it seamless and personalized, no matter how they shop. Supply chain complexities and cost will continue to challenge retailers and the difference between winners and non-winners will be how much, or how little, retailers understand their customers moving forward,” concluded Gill.
PwC conducted this survey in late 2016 with 351 responses from executives in the United States, Mexico, the United Kingdom, Germany, China, and Japan. Thirty-two percent of responses were from top 250 retailers (over $5 billion revenue), with another 53 percent from top 1,000 retailers. Respondents identified themselves as coming from hard goods, soft lines, grocery, ecommerce, and CPG verticals, and from related retail and consumer goods sectors.