Retail digital transformation journey slow: Cisco

Retail digital transformation journey slow: Cisco

Author | exchange4media News Service | Thursday, Jan 19,2017 2:14 PM

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Retail digital transformation journey slow: Cisco

National Retail Federation (NRF) Convention and Expo - Cisco - Analysts are hailing 2016 as the best year for holiday sales growth since 2005. However, this growth is not coming from the traditional brick-and-mortar channel. Instead, internet shoppers saved the holiday season by setting new records for online sales during Black Friday, Cyber Monday, and Bounceback Tuesday. This has huge implications for the industry and for the retailers’ 2017 technology plans.

The multi-channel shopper is fueling a wave of digital disruption that threatens to put nearly half the retail leaders out of business if they don’t transform themselves digitally. A new research report released today by Cisco, ‘Reinventing retail: Cisco reveals how stores can surge ahead on the digital transformation journey’, reveals that despite the risks, retailers around the world are moving too slowly when it comes to digital transformation and may not be investing in the right places. The holiday season’s choppy sales report and the recent closing of big box stores is just the beginning.

In an effort to help retailers achieve digital transformation, Cisco previously released ‘A roadmap to digital value in the retail industry’, which guides retailers through three phases: (a) Enabling digital capabilities; (b) Differentiating their brand through new digital capabilities; and (c) Defining new business models through digital disruption.

To understand the progress retailers have made on this roadmap and in executing their own digital transformation journeys, Cisco spent the past 10 months facilitating in-depth workshops with more than 200 retail executives from North and South America and regions of Europe, representing brick-and-mortar retailers, e-commerce, apparel manufacturers, food service, and other segments of retail.

The new report reveals where they are on their digital transformation journey, where they are currently prioritizing their digital technology investments and what they may not know about the flaws in their digitization strategies.

 

Key highlights of this analysis:

 

Retailers are stuck in the early phase of the digital roadmap

Retailers’ digital investment priorities remain concentrated in the most initial “Enable” phase of the roadmap (49 per cent), which is focused on more mature IT technologies that enable existing capabilities and processes, IT agility, and operational efficiency. 

Retailers are not prioritizing investments in employee productivity

Retailers are missing out on a USD 187 billion opportunity by not prioritizing investments in employee productivity. These technologies and use cases deliver the greatest value from digitization by increasing associate efficiency, optimizing the checkout and improving worker collaboration. Prioritizing investments in these areas not only improves operational productivity and associate effectiveness, but also contributes to improved shopper experience and increased loyalty. Just 6 per cent of the retailers’ investment priorities are focused on employee productivity use cases despite the fact that Cisco estimates that these use cases deliver the greatest return on investment for retailers.

Retailers are not investing enough in areas that create competitive differentiation and new revenue streams

Only 29 per cent of retailers’ investment priorities are currently focused on the “Differentiate” phase and only 22 per cent on the “Define” phase, the second and third phases of the roadmap, respectively. These are the more advanced phases of the roadmap, where retailers can differentiate their brand based on unique digital capabilities and services, or define new business models and revenue streams through digital disruption.

These findings indicate that most retailers have not made enough progress when it comes to digital transformation and may be at risk of being out-performed by faster moving, more innovative retail ventures.    

Retailers are investing too much in customer experience

In contrast, retailers are prioritizing the majority of their digital technology investments in customer experience use cases (37 per cent) that aim to improve personal engagement with consumers. While these use cases can deliver an estimated USD 91 billion in opportunity, overemphasizing their digital investments in customer experience use cases may limit retailers from getting the operational value they could from digital transformation of their business functions and workforce.

However, some sub-segments of the retail industry are making more progress on their path to digital transformation than others. New York-based apparel manufacturers and garment industry retailers have placed 58 per cent of their digital investment priorities within the “Differentiate” and “Define” phases of the roadmap, compared with just 39 per cent by the brick-and-mortar retailers, department stores and food service retailers that Cisco spoke with in the southern region of the US.

Retailers in South America are prioritizing more of their technology investments in the earliest, “Enable” phase of the roadmap (67 percent) compared with their counterparts in North America (51 per cent), indicating that South American retailers have not made as much progress in transforming themselves digitally. This may be due to economic conditions in South America, causing retailers there to invest first in digitization of facilities, energy and other operational functions that help lower costs and free up capital. 

“The shakeup caused by digital disruption is already underway with many major retailers announcing the closure of hundreds of their brick and mortar stores in recent months in order to better compete in a landscape where physical and digital channels are increasingly converging,” said Kathryn Howe, Director, U.S. Commercial Digital Transformation, Retail and Hospitality Industries, Cisco.

Yet, there remains a tremendous opportunity, with the potential for retailers to generate more than USD 506 billion in value through digital transformation, Howe further said. “Retailers need to make more progress in digitizing their workforce and their core operations in order to execute on the innovative customer experiences they want to deliver, and to position themselves for success in the new retail landscape,” Howe added.  

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