It's the End of the Store as We Know It

Survival of tradition-bound brick-and-mortar retailing requires more than just hitting quarterly numbers and making incremental enhancements. Survival requires mercilessly assessing existing business processes, identifying weaknesses, sharply improving consumer convenience, and merging innovative technologies with new capabilities.

The in-store digital transformation of the store starts with checkout and POS, but it goes far beyond the area of traditional transactions. True digital transformation includes digitally empowering a host of in-store, back-office and customer-facing capabilities, often including cloud-based platforms. It is built on a foundation of next-gen Wi Fi networks that operate in milliseconds without dead spots anywhere, anytime.

This Wi Fi 2.0 environment will drive a host of enterprise applications on associates' mobile devices, run self-help kiosks and digital displays in the aisles, and deliver location-based sensing and messaging to customers' smartphones wherever they are in the store. Shoppers will get personalized messages, both promotional and friendly, to build engagement. Associates will be fully empowered to deliver high-touch experiences, such as recognizing the status of high-value shoppers, possessing deep product information to become passionate advocates, and performing such store tasks as sales audits, inventory counts, and changing merchandise sets in a faster, more efficient way to help reduce in-store labor.

Viewed from this perspective, digital transformation implies the death of the store as we know it and a new rebirth that is aligned with millennial shoppers and the digital age. Is this a radical vision that is too extreme for traditional retailers to absorb? The answer is "no," according to the RIS Custom Research report, "Reinventing the Store." Among the key findings:

• 100 percent of retailers surveyed believe they are already engaging in a major digital transformation.
• The top three areas of store operations that will be profoundly changed by digital transformation are: in-store marketing/promotions (63 percent), store and product merchandising (57 percent) and inventory management/replenishment (50 percent).
• The top four software applications that will be profoundly changed by digital transformation are: promotions management (63 percent), analytics/BI (57 percent), mobile apps for managers/associates (59 percent), and loyalty programs (53 percent).
• 3 percent of the IT/store operations budget is devoted to digital transformation, but that figure will more than double next year and triple by 2020.
• Nearly four out of 10 retailers said the ROI for digital transformation is two or three years.

As noted, survival requires assessing business processes, identifying weaknesses, improving consumer convenience, and implementing innovative technologies. Some retailers might balk at the volume of change and speed required, but not all. For example:

• This summer, Walmart rolled out its mobile payment solution, Walmart Pay, to all 4,600 Walmart stores, including 3,300 stores in three weeks. The goal is to offer shoppers frictionless checkout, easy pickup in stores and convenience. Walmart has also expanded its grocery pickup services to 50 markets and is working on a test for last-mile delivery through Uber, Lyft and Deliv.
• Target announced it will invest $1 billion on new store enhancements with the initial goal of focusing on 25 stores in the Los Angeles area that will serve as test labs for analyzing 50 innovations prior to chain-wide rollout. Target has also converted stores into flexible fulfillment centers in a way that does not add cost to stores and actually decreases costs for freight flow through the supply chain by reducing variability of inbound shipments at its DCs. Incidentally, 30 percent of Target's 2015 holiday sales were fulfilled from its stores.
• Whole Foods is placing a lot of emphasis on rolling out its 365 by Whole Foods concept, which is primarily a lower-price model. However, on the back end Whole Foods is heavily investing in a customer analytics/marketing platform built into a new POS system that will enable the grocer to offer personalized coupons and support real-time market basket analysis to better understand purchasing trends as they are occurring.

The convergence of new shopper behaviors, hot startups and the Amazon juggernaut are fueling a digital transformation in stores and once again proving the point that in our fast-paced, disruptive environment old methods will not produce new results.

Joe Skorupa is editorial director of RIS (Retail Info Systems) News, a sister publication of Retail Leader.