Digital transformation in Retail
This is a sector that we all have knowledge of, emotions around and strong views on. Retail touches billions of people every day, and is facing digital disruption right now. More technologies are available, so it is paramount for the various players in the retail/consumer value chain to model what digital disruption they are facing and analyze the impact it will have on their business and operating models. Disruption intensity, modelling and impact vary across the value chain.
A recent retail study conducted by KPMG showed that 35% of the companies had revenue growth of 6 percent or more over the past 12 months. These high growth companies showed some clear characteristics.
These are the areas most heavily impacted by the needed transformation of retail; data, customer experience, channels and digital operating model.
The amount of DATA already created is immense. With the coming IoT wave, the opportunity that lies in accessing and modelling data is massive. Customers expect hyper personalization...but at the same time growing more and more concerned with the privacy and data protection. Those that succeed will gather the right data, involve the customers in decision making and utilize these data to personalize production, distribution and offering.
Familiarity with technology and EXPERIENCES from leading global players has lifted the expectations that customers have towards retail. They are empowered and willing to adopt new ways of shopping or willing to try out new brands. Millenials prefer access over ownership, highly value convenience and expects full transparency from companies in order to trust them. The share of people > 60 years old will grow from 12% today to 21% in 2050. They also value convenience, but for different reasons. Mix these two with a growing urbanization, and we see a foundation for completely new business models.
The growth of eCommerce is continuing to outpace the growth of physical. Customers want to use digital tools to identify, compare and buy goods. It is just easier. In comes Amazon Alexa as the shopping assistant. What are we giving away for increased convenience? What will the competitors have to do to meet this competition? The role of the shop has already changed. And will change even more going forward, if it is to survive. Experience is the name also here. Digital and physical CHANNELS will be integrated and strengthen each other ideally.
Getting old now...but still worth a look: Amazon Go. For those that have not eliminated grocery shopping completely, at least this experience is more streamlined than you get in typical grocery stores today.
Behind the retail website or the physical shop, even more changes are going on. Smart factories source, develop, produce and mass-customize products and services. The OPERATING MODEL changes. The digital supply chain becomes real-time responsive, integrated and distributed at the same time and is able to predict demand in great detail.
Convenience is a very strong driver, but it will be interesting to see how the sharing economy and the concern for the environment influences the development. Wastage is not acceptable, use of energy should be kept low and we must expect and efficient use of resources. Personalization & the convenience of immediate, home delivery is with the current logistics models not sustainable, so also here we will see new business models coming up.
Changes will happen. Experience from earlier waves of transformation (media, telecom) will help in building scenarios also for retail. Some initiatives are obvious and non-regrettable. Changes in business model and a company's place in ecosystems will require deeper discovering, more modelling and more experimentation.
Yngve leads Digital Transformation | Customer within KPMG Digital in Norway. Follow him on Twitter and Linkedin.