Riding the digital wave
Predicting the future is impossible and there have been many great examples of influential people getting it completely wrong, such as IBM predicting a world market for only five computers, or Gerry Harvey initially writing off e-commerce as a fad.
While we can’t predict the future, we can identify key trends that have been reshaping retail and look at what building blocks we have to put in place to best prepare our businesses to take advantage of these changes.
In my opinion, there are six macro trends driving change in digital retail today.
Consumers becoming increasingly connected
This is an obvious one, but the implications are not always well understood.
Smartphone adoption has been significant in the past few years but there are many other ‘screens’ that are staring to connect today’s consumer to the web and retail. Today, my car, television, Xbox, book (Amazon Kindle), tablet, and phone all have screens and web browsers. In the future this will extend to appliances and other devices.
Consumers are using these devices more and more to do their research and buy. Some devices lend them themselves to certain uses better than others, and often the path to purchase includes multiple devices interacting with your brand over a period of days.
Amblique has been studying an aggregate dataset of 24 mid to large Australian apparel retailers and mobile traffic has increased by 89 per cent in the past year.
In March 2012 mobile represented 19 per cent of web traffic; by March 2013 it was 36 per cent, and one month later in April 2013 it was 38 per cent.
The rate of adoption is staggering, and previously published predictions that mobile website visitation will overtake traditional desktop users by 2015 is like to occur much earlier – in fact, we have seen isolated retailers where that is already the case.
The world is becoming a smaller place and cross border commerce as well as global players physically entering the lucrative Australian market is an ongoing threat.
A recent article by Bill Rooney Inside Retail Magazine predicted that some 28 international chains will cannibalise billions in Australian retail dollars within the next few years. From a digital perspective we are observing similar trends.
Using Hitwise data we have analysed website traffic changes for the top 20 players in 10 key categories (200 retailers in total), and found that 39 per cent were international businesses currently taking 39 per cent of all the traffic. Furthermore, traffic for these international players grew by 70 per cent and domestic players only grew 53 per cent, which reduced the domestic total traffic share by three points to 61 per cent.
Amazon on its own showcases this trend. The undisputed global digital retail leader grossed $61 billion in 2012 and if you include its market place GMV that number is closer to $90 billion to $100 billion.
Despite Amazon not having any local Australian fulfilment capabilities and shipping times being quoted as between three and 32 days, this digital behemoth is getting the lion’s share of Australian online mass merchant traffic.
According to Hitwise data, in March 2013 Amazon represented 35 per cent of all traffic in the top 100 mass merchant websites. To put that in perspective David Jones, Myer, Target, Kmart, and Big W had a combined 10.5 million visits that month, while Amazon had 19.5 million visits from Australian users. And these numbers exclude visits from mobile devices connected to a mobile carrier.
Transparency on price and availability
The ease of cross border trade has applied pressure on localised pricing.
Broad smartphone adoption now means that customers can compare prices instore on their phones within a matter of seconds. Mobile price comparison apps such as Red Laser have been around for some time, however, availability is becoming part of that equation with many retailers enabling customers to view online or store availability via websites and mobile sites.
Google Shopping is becoming more powerful and in countries like Australia where Google has such strong market share (upwards of 90 per cent) this is something retailers must take very seriously.
Google Shopping now shows instore availability, so users don’t even have to leave the search engine to see what products are available at which retailer, price, if they provide free shipping, or the closest store that stocks the items. Google Shopping also provides maps and store contact numbers all in one place.
This is a game changer as price and instant gratification are two purchase motivators that have become extremely transparent.
Consumer voice and trust
It is often said that the internet has given the consumer a voice. Not that consumers couldn’t talk before and recommend or complain within their physical network, but the rise of social media has put this in such public light. Everything is online, often searchable and given context by location and product category.
Many retailers have taken advantage of this trend and actively engaged with consumers via social networks or interactive feedback systems such as product ratings and reviews on their websites. Approximately 70 per cent of the top 20 most trafficked mass merchant websites (based on Hitwise) currently feature ratings and reviews.
The digital and contextual consumer voice has changed brand reputation and how we assess trust. Brands must think about capitalising on this to build a strong digital reputation that drives acquisition and also provides consistent and speedy customer service to protect their perceived public image.
Collaboration – co-creation and the ‘crowd’
Consumers seek freedom of choice and these choices define their view of value. This trend is closely related to the previous one as these choices are now public and a form of self expression.
There has been an explosion in personalisation offers in recent years, with anything from personalised lunch box labels, to tailor-made shoes and custom brewed beer widely available.
The technology and customer experience innovation behind these propositions can be quite complex, and 3D printing is only going to push this further. Shapeways.com is one interesting example utilising 3D printing technology to sell 3D objects.
This trend is not just happening at an individual level also but at a wider level – the ‘crowd’. The internet has been a real enabler for collaboration and communication at a group level and this is also effects retail in some forms -crowdsourcing, group buying, group investing, and group lending, etc.
Peer to peer transactions are on the rise and there is plenty of innovation that will appear in this area and have the potential to be game changing.
Digital currencies such as bitcoins are just one example that could be extremely disruptive and change the way the crowd interacts and transacts with retailers and brands.
We have all observed that Moore’s Law in the technology space – the theory suggesting the capacity of computer processing will double every two years – has been quite accurate.
This rate of acceleration, however, is not only occurring within technology, but also from a social and cultural perspective. The five macro trends above are largely enabled by technology, yet it’s the consumer mindset that has been evolving and retailers and brands need to be able to adapt and change rapidly to stay relevant.
It’s about building an ecosystem of adaptable technology, empowered people, and insightful data all centered around the customer. So, how do we do this?
1. Adaptable technology
In the context of e-commerce, the rapid rate of change is forcing retailers to constantly adapt and change. A recent Forrester study found that only 13 per cent of retailers update their e-commerce systems more than once a year.
Traditional build and run software has failed in this sense. The same study found that 70 per cent of retailers struggle with their e-commerce software systems.
Embracing the cloud is one approach to implementing adoptable technology by consuming services now offered by a number of vendors rather than running systems that retailers need to maintain and upgrade overtime.
Cloud-based solutions, which are now used in many areas of business, enable quicker and more frequent innovation as they are centralised and the innovation and deployment is largely outsourced to the service providers.
This approach enables retailers to apply more focus to marketing, merchandising, and the overall customer experience.
Aside from a core commerce platform, retailers should look at a wider eco-system of specialist tools that can enable specific functionality quickly.
A ‘one tool for everything’ approach is no longer workable – there is simply too much innovation for a single vendor to be the subject matter expert on all things digital commerce.
Adopting an open platform that allows retailers to easily add best of breed plug-ins and technologies such as behavioral personalisation, ratings and reviews, social gamification, fraud solutions, and so on enhances agility.
We have all seen the explosion of mobile devices. The iPhone was only introduced five years ago, yet there are many devices now being used by consumers to research and shop online.
Your technology should be device agnostic to ensure when the device with a different screen size hits the market you are not in a position where you need to develop and then maintain an individual solution for each scenario.
Responsive Web Design (RWD) is one approach aimed at crafting sites to provide an optimal viewing experience – easy reading and navigation with a minimum of resizing, panning, and scrolling across a wide range of devices.
Utilising responsive design retailers can feel comfortable that their web experience is working and optimised for any device from a very small screen (smartphone) to a large device (30-inch screen).
Technology in retail is mostly about enabling a better experience for the customer – by this I mean supporting research, purchase, and customer service.
Multi-channel retailers need to consider how to provide this functionality in a channel agnostic fashion. In a world where all technology lives in the cloud and you can have one central view of the customer and your product this should be an easy feat.
While this might be where we end up in the future we know most retailers have a large range of interconnected legacy back-end systems, and to enable this channel agnostic backbone retailers must invest in a real time integration layer that provides external system access to product, pricing and availability, and customer data.
2. Empowering your people
As digital channels continue to grow as a percentage of overall revenue for retailers, the supporting organisational structure needs to evolve to empower the team and maximise this opportunity.
E-commerce and digital as a whole is not simply function of IT or marketing, it touches every element of the business and as such requires appropriate resourcing.
This integral aspect of retail deserves dedicated leadership within the executive team and specialist resources.
Retailers must think about how they can empower marketers, merchandisers, and customer service staff to understand the wider impact of their decisions and affect superior trading profit.
This includes establishing a fair attribution model for both revenue and expenses and a model to understand the impact of trading decisions across the board.
Outsourcing services works well for small to medium retail operations, however, larger businesses need to look at hybrid models to drive team ownership and accountability.
At the large end of town we have seen the formation of innovation centres within retail business, but even small to medium size retailers must think about how they can deliver continual innovation and improvement.
3. Driving action through data
As increasingly sophisticated systems are being deployed we are collecting more data, yet in many cases this data is not being utilised to its full potential.
Customer loyalty is largely driven by the relevance of the offer and service and this is a big opportunity for retailers.
While many retailers are using intelligence derived from big data to execute targeted life cycle marketing campaigns, there are many opportunities to implement this information to improve trade by adopting systems that make smart real time merchandising, advertising, and pricing decisions.
Often retailers focus on metrics such as site traffic and conversion rates which are simply outputs. Amazon is perhaps the best example of an organisation that is data driven which focuses on the inputs.
Whether that is looking at page views weighted by inventory to improve buying, automatically comparing various competitive pricing data to ensure competitive pricing, or challenging the number of contacts per order to improve customer service – all of these measures are data points measured by individuals, empowering them to act and affect change which, if done well, leads to a better outcome.
While there are many complexities to new retail, the solutions are logical.
That said, common sense is not always common practice, so retailers should establish an operational discipline that implements and maintains these building blocks.
This story originally appeared in Inside Retail Magazine. The August/September issue, featuring exclusive coverage of the 2013 Westfield World Retail Study Tour is available now. For more information, click here.
* Justus Wilde is CEO of specialist e-commerce and digital consultancy, Ambique, which provides multi-channel strategies, retail practice, and site optimisation services for retailers. For more information, phone (02) 8272 3800, or visit amblique.com