Retail 2018: Disrupt or be Disrupted (Part One)

Retail’s death greatly exaggerated

The last few years have seen a bevy of high-profile retailers either go bankrupt or close stores across the country, raising concern that brick-and-mortar retailers are doomed. Just this year (January through August 10th) roughly 4,379 U.S. stores have closed, according to Coresight Research (as reported in WSJ). Add to this a steady parade of well-established retailers filing for bankruptcy in 2018, including Toys ‘R’ Us Inc., regional department-store operator Bon-Ton Stores Inc. and teen chain Claire’s, among others.

While it’s undoubtedly true that consumers are buying more and more goods online, and that's putting pressure on some retailers, reports on the death of retail as we know it are greatly exaggerated. As reported in SupplyChain247, U.S. Census figures surprisingly show that physical retail stores still generate 90.7% of all retail sales.

Retail isn’t dying; it’s evolving, as it always has, only faster and at a greater scope than ever before.

To be sure, the recent carnage in retail has been painful, but from an evolutionary perspective it has weeded out weaker competitors and cleared out some of the overcapacity that has plagued the industry. The selection pressure on retail businesses is changing, and those that fail to adapt certainly face decline and even extinction, but the reality is retail as an industry continues to grow. The path has changed and continues to morph, but retail is not going away any time soon.

The survivors have sharpened their focus on customers, are plowing money both into their physical stores and websites, and have become smarter about how they market to customers, manage their inventory and run their business. As a result, they are on more solid footing and are getting a boost from a stronger economy.

Today’s consumers are primed to spend. Unemployment is low, disposable personal income is rising, consumers are benefiting from low inflation, rising house prices and a strong stock market — putting more money in their pockets for retailers to compete for.

In 2017, retailers reported $3.53 trillion in sales, a 3.9% bump from 2016, according to preliminary estimates from the U.S. Census Bureau (as reported in Forbes). Heading into the critical 2018 holiday season, the National Retail Federation raised its annual sales forecast to a minimum of 4.5% growth compared with last year. Previously, the trade group had expected sales to increase by a range of 3.8% to 4.4% (as reported In WSJ).

Disrupt or be disrupted

Despite today’s rising consumer confidence and rosy sales forecasts, retailers still face numerous and daunting challenges. The status quo is no longer an option. Whether we call it disruption or evolution, retailers that fail to transform top-to-bottom, backend-to-frontend, core-to-consumer are not long for this world.

The blistering speed of technology adoption by established competitors, the unrelenting emergence of smaller, more nimble niche players and — topping all — increasingly fickle, frugal, informed and tech-savvy consumers have put retailers on notice: disrupt your industry or prepare to be disrupted.

But caveat retailer: investing in innovation for innovation’s sake, a trap many retailers fall into, amounts to little more than sticking a band-aid on a sucking chest wound. If it’s not directly helping to provide customers an immersive, convenient and satisfying experience, no amount of technology investment will be enough to stave off disruption. In the end, only seamless integration of myriad technologies — connecting core systems to all customer touch points — will have a lasting and positive impact on the customer experience and, ultimately, a retailer's success.

Customer satisfaction, omnichannel excellence and supply-chain mastery are the top three broad yet vital areas on which all retailers should focus their transformation strategy and budget. In part two of this article, I’ll discuss in detail why (and how) retailers must win this transformation trifecta, but first let’s turn to the difficult but unavoidable question of funding.

Funding transformation

Despite retailers’ high expectations for the potential of digital transformation to boost their revenues, only a few are actually meeting that goal. According to a survey released at the 2018 National Retail Federation (NRF)'s annual convention and expo, only 3% of retailers have completed company-wide digital transformation projects.

The bulk of retailers investing in digital transformation have only begun the process, with 22% still in the planning stage, 55% running pilot programs, and 19%saying they have completed projects in some areas of the business but not others.

A common hindrance for transformation initiatives often is the question of funding. Should digital initiatives be self-funded, covered by existing budgets or paid for by making budget re-allocations? Will business leadership “trust” the business benefits, knowing innovation requires budget and timeline flexibility?

At NTT DATA, we see funding digital transformation as a three-fold challenge: establishing initial funding, planning for perennial or annual funding, and developing and applying principles for administering the digital fund now and moving forward.

Closely tracking outcomes and reinvesting positive gains is absolutely vital to keeping your digital program on track and moving forward. On this score, we’ve worked with customers to keep funding for digital projects flowing by reinvesting gains from completed projects — such as better-than-planned-for savings, labor savings, maintenance savings and a percentage of new revenue.

By approaching transformation in a strategic, incremental manner and ‘paying forward’ measurable gains, confidence grows as positive outcomes mount up and your organizations’ transformation progress never stalls.

NTT DATA works closely with our clients on drawing funding from the following areas:

• Freeing funds through Robotic Process Automation (RPA)
• Migrating to an on-demand cloud and reducing total on-premise spend
• Revisiting re-shoring/outsourcing options
• Driving operational efficiencies, lower transaction costs, improvements in revenue, and sales growth with supply chain and procurement solutions from SAP Ariba
• Eliminating anachronistic/non-critical services better handled by new, digital processes now possible via SAP Leonardo
• Cost and efficiency savings through enterprise application portfolio rationalization and migrating to S/4HANA. Join us for a 30-minute webinar and learn how to unlock the benefits of S/4HANA.

Retailers thrive with SAP from NTT DATA

SAP provides omnichannel customer engagement and commerce solutions that allow retailers to build up a contextual understanding of their customers in real time, deliver a more impactful, relevant customer experience, and sell more goods, services and digital content across every touch-point, channel and device. Through customer data management, context-driven marketing tools and unified commerce processes, SAP solutions delivered by NTT DATA have helped some of the world’s leading retailers to attract, retain and grow a profitable customer base.

Read Retail 2018: Disrupt or be Disrupted (Part Two), where I explore the importance of customer satisfaction, omni-channel excellence and supply-chain mastery and detail how SAP and NTT DATA are helping leading retailers win on all three fronts.

At NTT DATA, we invest in SAP innovations to ensure that our retail clients always get the most from their SAP investment. We invite you to engage with us to help you define and execute your transformation journey.

Contact NTT DATA today.