Retail Digital Transformation: On the threshold of the future

Note: the article was updated in September 2020.

Digital transformation is no longer a buzzword but a reality for many companies across different industries, and retail is no exception. According to Tech.’s report, 75% of American retailers mentioned that the need for retail digital transformation has increased since 2016. And Gartner predicts that global retail tech spending will exceed $203.6 bln in 2019. Retail is one of the sectors that tries to reap the maximum benefits of the new digital world. Let’s find out the difference between digitization vs digitalization while looking at the main advantages of these two for the retail sector.

Benefits of digitalization for retail industry

• Sales-driving tools

Infosys research says that 70% of Americans are ready to spend 13% more with companies delivering excellent service. Business digitalization helps retailers to tackle this challenge. First of all, tech is increasingly used to attract the customer’s attention. It starts from classic online order forms to short newsletters, digital event invitations or social media posts. With the help of digital transformation technologies, retailers can also analyze the interests and buying intentions of their clients and create personalized offers. This, in turn, will improve retailers’ chances of increasing sales and making higher returns.

• Next-gen shopping experience

Business digitalization brought retailers a variety of innovative solutions aimed at keeping customer loyalty and providing a great shopping experience. Autonomous shopping carts, automated checkout, mobile check-out, digital price tags, mobile wallets, interactive windows in the stores, AR/VR showrooms are only a few examples of countless opportunities that retail company digitalization can bring.

• Easier & faster back-office operations

Digital transformation services also help the retail teams simplify the work and become more productive. Today, salespeople are equipped with software that gives them all the information about items availability and characteristics, so they can provide better service to the customers. Merchandising teams have tools that allow them to get information on inventories and products immediately. And marketing teams have a lot of new digital channels to communicate to promote their brand in the best possible way.

Digitization and digitalization: what’s the difference?

The terms digitization and digitalization trick many people with their similarity, so let’s define each of them once for all to avoid further confusion. Digitization stands for converting data to a digital format, like loading a software system with customer information an employee received from talking to a person. Or changing the paper document base to electronic one by manually typing in the existing information in a PC. 

Digitalization, in its turn, is a process of using technology to manage a company’s operations with a minimal amount of manual labor. Internet-connected devices, CRM and ERP software, automated reporting and analytics ― these are the components of digitalization at workplace. 

As you can see, even though digitalization is a broader term, the transformation isn’t possible without taking the digitization measures as the first step towards digital transformation for any business. Regardless of their close connection, the two discussed terms should not be used interchangeably with one another, since it might affect the meaning you put in your content.

Digitalization of business: the biggest trends in retail

The boom of tech startups, growing smartphone adoption, deployment of 4G networks, have an enormous impact on shopper’s preferences and therefore, on retailers’ business activities. There are many ways in which company digitalization is changing the retail world, but the following are the trends that will probably continue to shape the future of the industry.

Smart Beacons

Smart Beacons are small transmitters that send signals to other smart devices with the help of low-energy Bluetooth technology. Beacon technology was first introduced in 2013 by Apple and now is widely used in various industries, including retail.

How exactly can Beacons help to increase customer loyalty and engagement? There are different areas of applications of beacons. They can be installed in the parking lots and help drivers comfortably navigate to a free parking space when they arrive at the shopping mall. Smart beacons can assist shoppers in finding their destination with in-store navigation.

Location-based communication

Beacons are also a great tool for marketers as it helps them to reach the right people at the right time. The technology can send push messages with coupons to the customers passing by the restaurant or provide the information about the best offers to the visitors of the shops. All this increases the likelihood of a visit as well as of the purchase. In addition, with the help of beacons retailers get a chance to develop the individual client approach by tailoring personalized product suggestions or providing special deals to loyal customers.

The analysts predict that demand for smart beacons is expected to grow in the future. According to the researchandmarkets.com report, the beacon market is expected to increase from 1,363 mln in 2017 to 19,805 mln by 2023.

Grab and Go

The idea of Grab and Go technology isn’t new. It was first introduced more than a decade ago by IBM with its RFID technology. Grab and Go was pushed forward by the world’s largest retailer Walmart. In 2015 both Walmart and Walmart-owned company Sam’s Club launched applications that allowed customers to scan products and pay through the mobile app.

Checkout-free stores, for real

In 2016 the cashier-free store Amazon Go was opened by the retail giant Amazon. How does it work? You check-in at the store, take the products, and then simply walk out. The technology allows to add items to the cart and pay the bill automatically. A regular flow of customers at Grab and Go proved a real appetite for the technology so Amazon is planning to expand the concept. According to Bloomberg, the retailer is planning to open 3,000 Amazon Go locations by 2021.

It seems that retailers who have long struggled with how to engage millennials in the shopping process have found the solution. Grab and Go gives them what Generation Y want – speed and convenience. The cashier-free stores are here to stay and there is no doubt that the technology will be developed and matured with time. For example, Sam’s Club has recently announced its plans to test a new Scan & Go system that uses computer vision and machine learning to simplify the mobile scanning.

Artificial Intelligence

Not surprisingly, AI is one of the hottest trends in the tech world. And it promises a lot of opportunities for the retail sector. Retailers have already found many ways to apply AI in their business. One of them is IBM solutions known as IBM Commerce Insights and Watson Order Optimizer. With the help of AI, the software analyzes data, including weather data, consumer data and other information to make the supply chain more efficient and predict demand to avoid empty shelves.

Humanless customer care

Another example of using AI in retail is chatbots. Juniper foresees that by 2023 chatbot e-commerce transactions will reach 112 bln dollars a year. Analysts also predict that more than 70% of all chatbots accessed will be based in the retail segment. How do retailers use chatbots? For example, the clients of coffee giant Starbucks can chat with the Starbucks Barista app and place their orders via voice command or messages. Thus, by using new technology the company enhances clients’ loyalty and engagement. Another example is one of the world’s largest retailers Macy’s that uses chatbots to help customers navigate when they’re in the store. By downloading the app and chatting with a bot the client can receive the information about the product availability, get the direction to the specific item as well as send an alert if he needs the help of a human employee.

No doubt that the retail industry will continue to harness the potential of AI in the future. According to Juniper Research Global, investments in AI by retailers will grow from 2 bln dollars in 2018 to 7.3 bln dollars by 2022. Global Market Insights predicts that retail spending on artificial intelligence will reach 8 bln dollars by 2024.

Augmented/Virtual Reality

The advantages of brick and mortar stores are clear. However, technology advancement,as well as the changing consumer preferences, requires new innovative approaches. That’s where AR and VR come into play. Those technologies allow broadening the shopping experience to the new digital level that provides many opportunities to the customers, thus improving their loyalty to the retailer drastically.

Check the insides without opening the box

Ikea is one of the first companies that started to use augmented reality. The company developed its own AR app that lets its customers preview what furniture would look like in their own houses. And a Danish toy production company Lego has set up AR kiosks in its stores known as “digital boxes”. Those kiosks allow shoppers to scan boxed LEGO and to view the product from all angles with the help of a 3D animated model. Some companies went further and managed to surprise their clients with fancy VR solutions. For example, One Aldwych Hotel in partnership with Dalmore Whisky offers its clients a “VR whisky cocktail” also known as the Origin. While the guests of the hotel are drinking the cocktail they can also virtually visit the Dalmore’s distillery in the northern reaches of the Scottish Highlands.

The era of AR/VR in retail has just started, but shoppers have already appreciated the benefits of the technologies. The survey by Interactions says that 71% of consumers will buy with a retailer more often if it provides AR experience and 72% of customers made impulse purchases in the past because the shop had the AR solution. Analysts predict that retail will stay one of the most promising industries for Augmented and Virtual realities in the future. According to the Goldman Sachs report, the market for AR/VR in the retail sector will reach 1.6 bln dollars by 2025.