Disruptions in Retail Through Digital Transformation Reimagining the Store of the Future November 2017
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Disruptions in Retail through Digital Transformation Reimagining the Store of the Future November 2017 Disruptions in Retail through Digital Transformation Message from ICC Retail Summit Chair The word “Innovative Disruption”, to Transformation in Retail” which will quote from Mr. Clayton Christensen, the immensely benefit the businesses, Start- Author of “Innovator’s Dilemma”, refers ups to SMEs to large enterprises and the to an organization or entrepreneur various stakeholders in their journey of anticipating Customer’s needs, exciting growth ahead. passionately falling in love with Customer and creating a market where We wish to thank the Deloitte leadership none existed. The rapid pace of such team for the extensive work done disruptions mostly shake up established including the interactions with Retail traditional business models and make industry leadership teams in various the earlier known Rules of Success or Companies. Growth redundant in today’s “Phygital” ICC is also delighted to host its First connected world especially Retail. Retail Summit in Southern India and Technology is getting intertwined and I thank the ICC leadership and MC becoming seamless in both B2B as well members for the Initiative! as B2C experiences. Cycle times and Planning times are expected to shrink All the best, as complex processes get reconfigured through Bots and concepts like AI and IOTs. With this backdrop and booming outlook for growth, Retail Sector in India is clearly poised to become one of the largest beneficiaries of the disruptive era that has begun. ICC is proud to associate with Deloitte team who have taken the efforts to bring out the S KANNAN “knowledge paper” on “Disruptive Digital SUMMIT CHAIR 01 Disruptions in Retail through Digital Transformation KONNECTED to consumers Foreword by Deloitte The modern economy has been built performance on these parameters. This digital technologies help to understand on the foundations of the industrial approach is an incremental response to consumer needs (e.g.: cognitive), revolution with its roots in scientific the opportunities presented by digital provide greater assortment (e.g.: Visual concepts of deductive reasoning and and is primarily driven by a low risk merchandising), help shoppers decide the economic logic of maximizing self- propensity to allocate scarce resources to (e.g.: Virtual Trial Rooms), lower cost interest. Digital has helped build a what can be a fundamental disruptor to (e.g.: robotics & process automation), parallel narrative of inductive doctrines the business model of retailers. However, increase loyalties (e.g.: blockchain) and where focus is on looking at convergence there have been a few retailers who enhance customer service (e.g.: AI base between sectors, breaking down have truly awoken to the possibilities self-learning systems). However the risk functional silos within organizations presented by Digital. They have seen is to view digital only through this prism by customer-centric, opportunities digital as an opportunity to shape a long of technology investments. At the core to collaborate even with competition term sustainable business model which of digital for any retailer is a wider ability by developing a co-opetition mindset, is a departure from the paradigms of the to build a culture of collaboration, the co-ownership of investments through past. capability of using data to break through franchisees/alliances for scalable growth functional and organizational boundaries, Integral to this digital approach is the with low levels of asset intensity, building the art of using technology to unearth view of the retail eco-system as a network relationships with the new generation new possibilities for enhanced customer of suppliers and franchisees supporting of inter-connected customers who are value and in the process completely the central actor (retailer) in orchestrating involved in co-creation of products/ reimagine the store of the future… a business model with the long term services and a long term orientation of objective of maximizing customer continuous learning through feedback lifetime value and not just focused on a to better improve the customer delivery transactional approach. The fundamental model. tenets of this approach is a collaborative Retailers have had two options in the mindset where the retailer is the first way they have responded to the digital among equals in the wider network opportunity. A vast majority have seen who invests in building the capabilities digital as an enabler of better customer of the entire network to be agile and service or greater operational efficiency responsive to consumer needs. Attracting and have hence implemented many and retaining shoppers is the shared Anand Ramanathan digital technologies to improve their objective of the entire network and Partner, Deloitte 02 Disruptions in Retail through Digital Transformation Executive Summary Digital provides opportunities for disciplinary view of implementation peers and is more willing than ever retailers to acquire new customers, with a mix of analytical and creative before to share experiences and let engage better with existing customers, capabilities others profit from his/her interactions reduce the cost of operations, and with products/services. Consumers • Customer Centricity: Functional improve employee motivation along help co-create the value proposition boundaries within organizations with various other benefits that have a basis their willingness to provide are also being dismantled to align positive influence from a revenue and feedback which helps refine delivery structures to customer needs. The margin perspective. models on an ongoing real time basis. process has been further accelerated For the purpose of this report, digital through digital as big data is now • Continuous learning: Self learning has been defined as a technology making it possible to analyze shopper systems through AI and cognitive enabled combination of resources (can behavior in great detail and customize modelling has enabled feedback from include instruments, devices, bots, the delivery format to individual past experiences to optimize the tools, teams, protocols, processes, consumer requirements through shopping experience for consumers networks, methodologies) which enables personalization and hence impacting satisfaction and loyalty to be enhanced. the availability of content (can be data, • Co-opetition: This is a revolutionary information, expert/social reviews, mindset that combines competition This report focuses on the impact of reports, analysis, games) for the user with collaboration. Suppliers and Digital on three key elements of the (employee or customer) to make more retailers are no longer competing for retail business & operating model: productive (can impact cost, time or limited resources but are working 1. Strategy – includes elements of service level) decisions and satisfying together to profit from enhanced segmentation, positioning, operating choices. customer value being delivered. formats and business models There have been several instances of The ability to collect, process and share (location, assortment, size, pricing) collaboration between retailers even large quantities of data has led to some from an India context (e.g.: Future 2. Front end - Customer facing fundamental disruptions in the design Group and Flipkart) operations including store front, of business models. The key factors Merchandising & Promotion, impacting this change include: • Co-ownership: From a retail context Customer experience including digital has helped monitor and control • Convergence: The traditional Loyalty, Marketing and quality in franchising agreements boundaries between sectors Communications, Pricing & POS to achieve greater alignment of is collapsing. Innovation at the Solutions the business model to shopper boundaries of sectors such as requirements presenting an enhanced 3. Back end – Supply Chain, Logistics & payment systems (Financial Services opportunity for retailers to drive scale Warehousing, Digital Procurement & Telecom), e-commerce (Retail at a fast clip without compromising & Vendor management, Assortment & Telecom), Industry 4.0 (ICT and on the brand promise and sharing the mix & planning, People, Finance Manufacturing) etc. is fundamentally investment burden with their partners Automation disrupting businesses. Any disruptive approach in digital transformation for • Co-creation: The new digital shopper retail hence, needs to factor in a multi- is highly interconnected with his social 03 Disruptions in Retail through Digital Transformation Traditional Retailers… Store of the future... Illustrative Examples Where to Play? Segmentation Adopt mass, demography Use data Analytics for micro- Advanced AI based based segmentation segmentation analytics to create customer • Provide personalized microsegments offerings • Targeted communication Positioning Compete on price and quality • Offer additional services & Theme-based digitally- alone facilities enhanced experiential stores • Leisure provisions and Strategy shopping environment • Convenience Operating Predominantly Brick & Mortar Disruptive & innovative On-demand grocery delivery Formats led with a catchment-focus formats aided by digital- initiatives to expand reach (Omni channel approach) Business Models Adopt single dimensional Disruptive business models Subscription model, business models using digital enablers Hypermarket model Traditional Retailers… Store of the future... Illustrative