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The State of Digital Transformation in Retail Industry- Challenges & Trends 2021

  • mm
    by Aharsh MS on Wed Dec 30

The landscape of the retail industry is facing several challenges in the aftermath of economic lockdowns. As the consumer demand for digital services is growing like never before, retail disruption with digital transformation is inevitable for businesses to stay afloat in these changing times.

According to a recent report, more than 1,700 retail stores are closing in 2020 as the retail apocalypse drags on. This includes stores of retail chains — Pier, Gap, Forever 21, Sears, Macy’s and the list goes on.  According to estimates from the real estate firm Cushman & Wakefield, over 12,000 major chain stores could close in 2020. With the future looking alarmingly bleak, many retail owners have decided to pull up their socks by introducing new innovations in their stores.

In this article, we will take a look at some of the challenges faced in retail sector and major digital transformation trends in retail industry we can expect in 2021. 

  • Drivers of digital transformation in the retail industry
  • Challenges in digital transformation
  • Consumer trends in retail 
  • Digital transformation trends in retail
  • Benefits of digital transformation

Before we dive into market trends, let us clearly understand the meaning behind digital transformation. Put simply, digital transformation refers to a constantly evolving process that involves the implementation of digital tools and strategies that cater to the customer’s expectations. Many organizations focus on digital transformation to improve their services and provide products that can meet growing demands. One of the primary aims behind this concept is to adapt to volatile market trends and consumer preferences. 

It involves several different aspects of an organization, ranging from human resources to technologies being implemented in external communication. Retailers are constantly looking for innovations that can help them scout for new opportunities in revenue generation and business expansion. An organization may decide to begin digital transformation for various reasons. In cases of business continuity crises like the COVID-19 pandemic, retail outlets have realized the importance of adapting quickly to supply chain disruptions, time to market pressures, and rapidly changing customer expectations. This is why digital transformation has become a priority for many. 

In some of the previous articles, we’ve explored how different technology is helping the retail industry to perform better. In case you missed it;

  • In-store Customer Analytics for driving sales growth
  • Top 5 retail analytics solutions for accelerated sales
  • Automating Recurring Customer Incentivization
  • Business Intelligence & Data Analytics in Retail Industry
  • How Blockchain technology is disrupting the retail industry

Drivers of digital transformation in the retail industry

There are a few primary drivers that power digital transformation in retail stores. We can observe them as follows: 

  • The volatile demands of the market: The market is constantly changing and retailers need to make an effort to keep up with this change. Most shoppers prefer using digital media and don’t mind switching channels in order to buy a particular product. They would like to access offers from social media to websites and applications. Digital tools can affect purchase associated processes like looking for products and comparing costs along with post-shopping tasks like testimonials, customer service and word of mouth.

  • Merging physical and online customer experiences: Many retail outlets have started blurring the lines between their in-store and online experience. Emerging technologies like the Internet of Things (IoT) or immersive experiences provided by Augmented Reality (AR) and Virtual Reality (VR) make this much easier to implement.

  • Challenges associated with supply chains: Retail owners who have not gotten around to digitizing their supply chains are facing many issues with visibility and tracking. Digital transformation can help increase transparency, speed, and time to delivery.

  • Extreme competition with industry leaders: By implementing digital transformation, retailers can compete better with the leaders in the retail sector by improving customer experience dramatically despite having less resources.

  • Complements human resources: Digital tools can make life easier for employees from various departments including sales, marketing and logistics. They can empower staff members and make them much more productive.

  • The need for personalized experiences: Customers have started expecting personalized shopping experiences from retailers. They know that companies gather consumer data about them and they expect a personalized approach in return. 

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Challenges in digital transformation

Although there are several benefits that come with digital transformation in retail, many store owners face a multitude of challenges as well. Some of the primary barriers that retailers have to deal with during digital transformation include: 

  • Abrupt organizational change

Several departments in an organization function quite differently from each other. They deal with different touch points and follow various standards. Digital transformation entails changes to processes, job roles, organizational structures and types and uses of technology. Many employees find it difficult to adapt to these changes, which makes it hard for retailers to implement them. Additionally, changes in job roles can result in many difficulties regarding ROI verification and task tracking.  

  • High effort in implementation

The implementation of digital transformation can be quite difficult. Such a process does not happen overnight and retailers need to dedicate themselves towards achieving complete business transformation. There are also several instances where digital initiatives are being undertaken, but aren’t transformational enough. For example, if a company develops a website, their customer experience barely improves. However, if they add an online store to the website, there will be a dramatic change. Proper digital transformation requires good leadership, sufficient resources, a decent budget and ample time.

  • Complexity

Digital transformation is not simple. In fact, it is a challenging, lengthy and complicated process. Many retailers find it impossible to handle everything on their own. This is why many of them will have to consider outsourcing the work. However, this comes with its own set of risks as the selection process for the vendor will have to be done carefully. The chosen partner will need to have the ability to accurately identify opportunities for transformation and respond to them properly. 

  • Technical support 

In order to facilitate digital transformation, the foundation of the retail store needs to be strong enough. There needs to be a firm base of products, inventory, customers or a scalable architecture to support dynamic changes in the business. Additionally, retail owners will have to be very prudent while choosing the right technology and software for their business. 

Retail owners need to properly understand how different technologies and software solutions can impact their business. By doing so, they will be able to identify the best options to digitize and expand their business. A self-assessment can go a long way in identifying problem areas that retailers should focus on.

Need help with Digital Tranformation?

Contact us for a free consultation

Contact Us

Consumer trends in retail 

  • Growing popularity of Internet and social media

We live in a digital age. The majority of the population has started to heavily depend on the Internet for various activities like research, education, shopping, transactions etc. Today, the Internet would have garnered billions of users from all over the world. The introduction of wireless devices equipped by technologies, including 3G, 4G and public Wi-Fi, has accelerated this process even more.

  • Boost in smartphone users and the popularity of mobile commerce

On average, a person spends over 2 hours and 51 minutes per day on their smartphones. Out of this, 51% of users check their mobile devices a few times per hour and 22% of users look at phones every few minutes. Over 2.71 billion people in the world have smartphones and it is expected that mobile owners worldwide will increase to 7.33 billion by 2023. Evidently, smartphones are here to stay and its usage is becoming more widespread by the day. In turn, this has led to an increasing popularity in mobile commerce. Many consumers have started to rely on mobile applications to make purchases over the internet. 

  • Digital infrastructure

Emerging technologies like AI and virtual reality have blurred the boundaries between the digital world and the real world. Data analytics tools that use deep learning algorithms to predict consumer behaviour has completely changed the way brands approach consumers today. Many organizations are now able to gather large data sets from physical locations in real-time, execute advanced analytics to generate new insights and make more effective decisions. This means that consumers have now started expecting a personalized approach in their shopping experiences. 

Digital transformation trends in retail

There are several digital transformation trends that have gained traction this year. Many of these trends have helped retailers realize the full potential of technological innovation. They have also helped improve customer experiences and subsequently boost revenue generation. Some of the major trends that we can see in the retail industry include:

  • Augmented Reality (AR)

Augmented reality provides customers with a try-before-you-buy digital experience. This allows them to browse and visualize products in real-time without the need to get out of their homes.  For instance, Toyota launched a new AR program that enables customers to try out ten different cars without even picking up the keys. Companies like Target, Lowe’s and Amazon have also started using AR technology to reduce the number of returns on products. Since customers have a better idea of what they are purchasing, the chances of them being happy with the purchased product is much higher. 

  • Mobile applications

Having a mobile application can help retail outlets connect with their customers much more effectively. These applications allow customers to look at reviews, product prices and offers with the click of a button. Customers can also contact customer support in case they have any problems. Many retailers are incorporating mobile applications into their digital transformation strategy as it allows them to enhance their customer experience and offerings. 

  • Virtual Reality (VR)

Virtual Reality technology can be a real game changer for the retail sector. It can improve customer experience and allow users to properly evaluate homes, cars and other products from the comfort of their homes. The retail giant Walmart employs VR headsets in over 4,500 of its stores for managing grand shopping events like Black Friday. VR training has boosted the confidence and productivity of Walmart’s associates and has increased their rate of retention. 

  • Voice recognition and search

All of us are familiar with voice-enabled search engines like Apple’s Siri and Amazon’s Alexa. They make it much easier for us, as we can simply tell the engine what we are looking for and it automatically retrieves results. According to Google, one in every five searches made on android apps in the U.S. was a voice search in 2016. This is why retailers need to make sure that all of their products can be found via natural speech-led voice searches. Voice recognition tools can also be used to optimize employee performance. Many companies are providing earpieces to their staff for more efficient communication. Retailers like Dunkin Donuts, Dominos and Starbucks have started adopting voice recognition tools that allow consumers to order items on Echo and other Amazon based devices.

  • Visual search 

Visual search is a type of technology that allows consumers to find the product that they are looking for by simply snapping a photo of it. Similarly, if a customer finds a photo of a product online and would like to buy something similar, all they need to do is upload it and they will be provided with results of recommended products that they can buy online. This allows retailers to get far more reach than they normally would. Visual search technology also provides retailers with an opportunity to streamline the path to purchase, and to make the customer experience easier and more satisfying.

  • Product customization 

By allowing customers to customize their products, retailers can make their customers feel valued and special. Product customization combines different forms of on-demand manufacturing technology to meet the need for personalized shopping experiences of customers. Levi’s provides its customers with the option of personalized embroidery on their jeans and denim jackets while Nike lets shoppers to completely personalize their sneakers online. 

  • Digital labels 

Digital price tags can make a huge difference in the retail logistics area. The amount of human resources required to attach price tags to physical items while maintaining a stock list is huge. Retail outlets can reduce the burden faced by their staff by introducing digital labels that provide an in-stock status, which helps the sales staff steer customers in the right direction or give further advice based on the need.

  • Data analytics

In order to stay relevant and cater to their customer’s needs, retail outlets have started using data analytics to optimize business processes. Such tools can be implemented at various stages of the retail process from keeping track of emerging products to predicting future demand. It can also be used to optimize placements of offers and products via the heat-mapping of customers. 

  • Payment technology

Consumers are now prioritizing simple and convenient payment processes and check-outs in their purchasing experiences. Nowadays, many retail outlets support card tap transactions, direct smartphone payment and online wallet applications like Google Pay.  Retail outlets need to make sure that their point of sale (POS) systems can adapt to this change in payment technology. 

  • QR Code

The Quick Response or QR code refers to a 2 dimensional square shaped barcode that can be scanned to retrieve information via a cell phone. 60% retail shoppers make it a point to scan the QR codes to access more product information today. Walmart’s new mobile app features allows customers to scan QR codes while shopping and skip lines by paying with the app anytime. 

Benefits of digital transformation

  • Meaningful connections with the customer base

Digital transformation can help retailers improve their communication with their customers through various channels like social media, websites, chatbots etc. This provides a better customer experience and makes the customer feel more valued. There are also many more opportunities for engaging customers, boosting brand loyalty, publicising offers and events etc. 

  • Seamless operations

Cloud-based technologies and digital transformation tools can allow retailers to experience enhanced operational efficiency. By adopting these solutions, stores can improve their operations internally and externally. Employees will have more free time to focus on high value tasks as the monotonous tasks can be automated with solutions like conversational AI, management systems etc. Additionally, companies can also use predictive analytics tools to gain better insights into their consumers and make better decisions. 

  • Convenient shopping experiences

Emerging technologies like artificial intelligence can help improve consumer experience in retail stores to a large extent. For example, many stores have started implementing  AI chatbots that can give personalized product recommendations to their customers. Conversational AI solutions are also being used to reduce the manpower required in-store. Such solutions can answer the commonly asked queries of customers regarding various products and services. Retailers can also use digital transformation tools to sell their products, not only in physical stores but many other channels such as websites and mobile applications. 

  • Higher revenue

To a large extent, retailers can generate higher revenue by implementing digital transformation. This happens because retail stores will be able to engage more customers and potential customers, which considerably improves their reach and promotes brand awareness. 

As the years go by, digital transformation trends will continue to change and evolve in the retail sector. In order to keep up with this change, retail outlets need to pay attention to digital transformation trends and subsequently implement them into their business strategies.

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Aharsh MS

Aharsh is a tech entrepreneur, a visionary. He believes that each of us is here to do something purposeful, ... Read more

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