June 2018

THE PRACTITIONER’S GUIDE DIGITAL TRANSFORMATION IN THE RETAIL SECTOR 2018

www.regalix.com Summary

Digital technology is disrupting industries across the globe. The retail industry is no exception.

With the advent of online retail and the emergence of a more demanding consumer, the retail landscape is gradually but definitively changing. With nowhere to hide, traditional retail are beginning to adapt to this change.

Technologies like , , and the Cloud are ushering in a new era of personalization and mobility into the retail trade. Virtual Reality and Augmented Reality are creating rich immersive customer experiences. The consumer is omnipresent today. The retail trade needs to provide a unified retail experience to the customer across all sales channels and devices to be able to win and retain her.

With huge volumes of data now being made available, retailers also need to look at using advanced analytics to understand the customer journey better; and be able to provide the customer with a more meaningful experience at every touchpoint. In the long run, this could very well be the factor separating the winners from the losers.

QR code (Quick Response) code is a type of trademarked matrix barcode. It was first designed for the Japanese automotive industry.

01 The practitioner’s guide: Digital transformation in the retail sector 2018 Retail is going digital

On January 22, 2018, opened the doors of a first-of-its-kind, partially- automated, grocery store in Seattle, Washington. Here, customers are able to walk in, basket what they need, and walk out, without meeting a cashier or standing in line at a checkout counter. All this made possible by an app on the mobile phone of the customer.

Heralded as using the world’s most advanced shopping technology, Amazon Go, is built on computer vision, deep learning algorithms, and sensor fusion, to deliver a seamless, unparalleled, customer experience. That’s where retail is heading. The shift has already begun.

A key driver of this shift, is digital. Data from the last few years indicate a robust move in the retail sales sector toward e-commerce and, particularly, towards m-commerce or mobile retailing.

In 2017, retail ecommerce sales worldwide reached USD 2.30 trillion, a 24.8% increase over the previous year. Mobile was a key factor, as m-commerce accounted for 58.9% of digital sales.

Total retail sales in 2017 reached USD 22.64 trillion, up 5.8% over 2016. Ecommerce made up 10.2% of that, up from 8.6% a year prior. Global m-commerce sales rose 40.3% last year to USD 1.36 trillion, representing 6.0% of total retail expenditures.

By 2021, retail ecommerce is expected to touch USD 4.88 trillion with m-commerce accounting for 72.9% of it.

The impact of digital on retail

Service has been the pillar on which many retailers have built their companies. Knowing what a customer needs and delivering it faster, and in a manner that is more unique than the competition, has been the basis of differentiation for many years. However, the industry is passing through the cusp of an inflexion point where the rules of the game – indeed, the game itself - is changing. Retailers need something more if they are to survive, let alone win, in the retail .

Today the customer’s journey, from awareness to purchase, is unpredictable and more transient than ever before. Digital, to a retailer, is no longer just about an online store. Online forums, comparison vlogs, detailed experiential articles, and many more, form the basis of the decision tree for customers. Increasingly, customers are turning to their peers to inform and influence their decisions. Businesses, though in possession of vast amounts of data about their customers, have smaller spheres of influence, and have to use that data intelligently in order to continue to

The practitioner’s guide: Digital transformation in the retail sector 2018 02 be a participant in the conversation at the table. Success, today, necessitates an extraordinary and consistent experience that delivers value beyond a customer’s expectation, wherever they are at a given point in time, through whatever channels they choose to engage.

Surprisingly, retail was one of the first market segments to adopt online selling, but it has yet to see the mass shift to digital that has transformed financial services, transportation, hospitality, and media.

But there is plenty of scope for disruption. Key players like Amazon and non- traditional competitors like Sun Basket are re-shaping the future, which will lay down the new rules of the game, of how buying and selling will be done in the future. Traditional retailers will have to reinvent their business models.

Digital transformation is all about customer experience

At the heart of digital transformation is customer experience.

According to a recent Gartner report, “customer experience” is the area in which digital will have the greatest impact on a retailer’s business (Figure 1).

In this paper, we take a look at the various trends and technologies that are driving customer experience in the retail sector.

Figure-1

In What Area Will Digital Have the Greatest Impact on your Business

Customer experience 68%

Distribution, Sales and marketing 15%

Product and service offering 10%

Fulfillment / delivery 8%

Not sure 3%

Corporate oversight and control 0%

Other 0%

Source: 2017 CIO Agenda: A Retail perspective, Gartner, February 2017, Gartner report.

03 The practitioner’s guide: Digital transformation in the retail sector 2018 5 Key trends driving digital transformation in retail

Trend 1: Getting personal

The goal of personalization is to deliver messaging, imagery and value to a customer through whichever channel the customer prefers, based on his or her behavior in the past. It entails providing a tailor-made experience to the customer that matches her expectations, and must be linked to other customers with similar tastes and choices.

The challenge of personalization is the ability to fully determine the context of the interaction with the customer in real-time. Context itself has many variables – location, past behavior, purchase occasion, browsing history, time of day and any recent social activity. Personalization in the digital age can be taken to a level that is totally beyond the scope of traditional retailing.

Customers today, especially repeat ones and those in loyalty programs, expect – even demand - special attention from retailers. This necessitates a deep understanding of customer needs and aspirations which, in turn, requires collecting and managing data from online and offline customer interactions and enriching them with relevant third-party data. Such data can come from sales channels, support center interactions, social media engagements, and local events. What you end up with is data that is large and diverse, and the retailer will need tools to understand and process this data to gain actionable insights. The retailer, for example, will have information on what products the customer has purchased, her loyalty status with the company, her support history, where she works, perhaps what kind of car she drives or home she owns, her interests and sentiments on social media, and who her friends are. Armed with this prodigious amount of data, the retailer must then be able to make offers that are relevant at each given point in time. Retailers must be able to fine-tune the personalization for the many interactions that they may have with the customer along the customer journey.

Trend 2: Providing a unified retail experience

Digital penetration based on simple parameters like “online sales” is no longer an adequate measure of digital leadership. The goal of retailing in the digital world is to remove all barriers between channels, and to give the customer the ability to make purchase decisions, pay and receive goods at anytime, anywhere. The process goes beyond merely adding more channels. It must enable the customer to seamlessly move between channels, according to her will and choice.

The practitioner’s guide: Digital transformation in the retail sector 2018 04 Unfortunately, most retailers continue to remain siloed with respect to their various channels. This is no longer a viable strategy. To be competitive, retailers must give their customers a consistent and unified experience encompassing all online and offline channels; it must cover all touchpoints along the customer journey. There should be consistency in terms of product selection, pricing, offers and promotions, and messaging.

Additionally, customers expect an accurate, transparent and seamless view into the business systems and processes with which they are dealing. For example, they would like to check product or service availability, order status, shipment tracking, return and refund status, all in real time. Providing the customer with a unified experience mandates that retailers (and their business partners) offer a totally integrated, seamless, composite business process that can be executed and monitored by their employees, business partners and, most importantly, by the customers themselves.

Trend 3: Making mobile the center of the customer journey

“Mobile-first” is often seen as the guiding principle for investment in digital. Sometimes this can narrow down the field of vision to merely facilitating a transaction on a mobile device. The real story of mobile-led digital transformation is not just about enabling a purchase, but putting mobile at the core of every aspect of the customer journey. It covers a whole range of use cases, including having mobile-armed sales staff at the store, creating mobile-responsive websites and pushing discount vouchers via apps while at a physical store.

According to recent study, 82% of smart phone users consult their phones in the store while making their purchase decisions. Smart phone features like camera and GPS give mobile users the ability to do things with their app that they cannot do otherwise.

Picture this:

Walgreens has an app that knows when you’re in one of its over 8,100 stores across the US and will bring up features most useful to someone who is shopping in-store, like their rewards program and in-store specials and coupons.

TurboTax’s app lets tax preparers scan their W2s and import them into the program and gives them direct access to experts through video calling.

05 The practitioner’s guide: Digital transformation in the retail sector 2018 Trend 4: Delivering an immersive customer experience

We are living in the age of experience. While marketers have been focusing their attention on the millennials, there is a whole new generation of consumers that is growing up known as the iGen. This is the generation that is born with mobiles in their hands. Gaining their attention is going to be harder than it is with the millennials. The unmistakable implication of this is that retailers need to create richer experiences around their brands to engage with them.

Technologies like Virtual Reality (VR) and Augmented Reality (AR) are making this possible.

The AR explosion is expected to be as big a deal as when were introduced, and top talents from Ridley Scott to James Cameron are already getting themselves familiarized with this world. In fact, Robert Scoble, a futurist and one of the world’s authorities on Mixed Reality, says, going forward, every brand will soon need to define an AR strategy for itself.

Picture this:

Imagine you’re an ice cream manufacturer. You have a unique manufacturing process that makes your ice creams retain more of their flavor. How would you let the world know this convincingly?

By setting up a 360-degree video camera and implementing virtual reality capabilities, you can invite people from all over the world to tour your production facility from the comforts of their homes. If they like what they see, they might go out and try your product.

US brand Rebecca Minkoff has tried to fuse the best of both worlds to create a superior customer experience in their 11 global outlets, by using digitally-driven technology to create an immersive user experience.

Every store has “smart” mirrors in fitting rooms that allow shoppers to browse for other sizes or products that might complement what they are trying on. Smart walls also suggest new styles when people pass by.

According to the brand, the fitting-room technology in particular has been the catalyst for a boost in sales, with 30% of customers reportedly requesting additional items, thanks to the smart mirror recommendations.

The practitioner’s guide: Digital transformation in the retail sector 2018 06 Trend 5: Gathering deeper insights using advanced data analytics

Data, it is said, is the new oil.

Data on users can be gathered from many sources – including transactional records, browsing history and social media engagement. These present fantastic opportunities for retailers to gain competitive advantage in an expanding industry space.

More than ever, customer experience drives sales and retention today. Marketers need to gather insights from the data that they have to understand every customer journey across a multiplicity of sales channels and devices. These insights can then be used to improve customer conversion, increase revenue, personalize campaigns, and reduce churn.

Picture this:

Retailers, particularly fashion brands, can benefit from understanding how consumers are using apps like Instagram. By analyzing what people are wearing in photos taken in fashion centers like Paris, Tokyo, or Milan, retailers can detect and predict fashion trends and design clothing accordingly. If more people are wearing floral-print miniskirts, they can design matching leggings. If more people, on the other hand, are dressing in denim, they can ramp up production on jean jackets.

4 Key technologies to watch out for

Internet of Things (IoT)

There are 6.4 billion IoT devices currently installed, and this is expected to go up to 50 billion by 2020. These will generate incredible amounts of data that, if used smartly, will enable retailers to personalize shopping experiences and present the right products to potential customers at the most opportune time.

Many retailers are now implementing IoT technologies, including beacons, RFID tags to track inventory, digital signage, smart shopping carts, and sensors that track a customer’s path through the store. These can boost sales, create new revenue channels and increase operational efficiencies. Juniper Research forecasts that

07 The practitioner’s guide: Digital transformation in the retail sector 2018 RFID devices that identify and locate retail assets in real time will become a killer app, and that the number of connected devices in retail will grow from 2.7 billion in 2016 to more than 12 billion in 2021.

Picture this:

If a customer is walking through the aisles of your store, you could offer them the opportunity to scan a tag on a shirt with their mobile device and instantly give them access to outfit ideas or show them accessories that match the top.

Sensors, meanwhile, could track where a shopper is in a store, allowing your retailer to send timely and relevant offers based on their location.

Burberry upgraded its flagship store in London into a digitally integrated showroom. Here a customer can pick up a garment fitted with an RFID tag and trigger a video that shows how the product was made and what other items complementary to the product are available in the store.

The MaxiCode is a public domain, machine-readable symbol system that resembles barcodes. It is used by the United Parcel Service to track and manage the shipment of packages.

The practitioner’s guide: Digital transformation in the retail sector 2018 08 Virtual Reality/Augmented Reality (VR/AR)

One of the biggest hurdles of getting customers to buy online is that many customers prefer to hold, touch or try on their purchase. Both virtual reality (VR) and augmented reality (AR) are closing the gap on that problem by enabling consumers to “experience” the product without physically holding it in their hands. These technologies hold tremendous potential especially for those who are located far away from the object they want to buy. VR can enable a potential buyer to test drive a car or inspect the inside of a home without actually being there. Customers can now walk into a store with VR headsets and try on items without ever touching them physically. (See Figure 2 for growth forecast of VR headsets).

Retailers like Ikea, Home Depot and Target can easily leverage AR and VR to help customers shop for furniture, appliances, flooring, and wall coverings sitting in their homes. On the other hand, using these technologies, retailers like Nike, Old Navy and Guess can create an entirely new universe of in-store experiences for retail shoppers.

Figure-2

Forecast virtual reality (VR) headset installed base worldwide from 2015 to 2020 (in millions), by platform

Units in use in millions Mobile Console PC Standalone

100

80 5

19 60 2 13 15 7 40 11 8 3 5 20 30 37 44 16 24 4 0 2015 2016 2017 2018 2019 2020

Source: Statista 2016

09 The practitioner’s guide: Digital transformation in the retail sector 2018 Cloud

According to a recent report by , investments in cloud technologies rose from USD 4 billion in 2011 to USD 15 billion in 2016. is playing a transformative role in business and the retail industry has started to embrace it. Here are three ways retailers are embracing the cloud.

• Selling Products Retailers who offer their services to mobile-based customers are at a competitive advantage. Nearly 60% of e-commerce purchases are done on mobile devices and 80% of customers use a mobile device or app before making a purchase decision. More than ever before, retailers need to offer a convenient, seamless mobile experience to customers. Moving to the cloud will help retailers achieve the flexibility and scalability they need to achieve this.

• Creating Products Cloud technology enables retailers to access big data analytics and use this information to make quantitative decisions about products that they can manufacture and sell. To help retailers make informed business decisions in real time, the cloud pulls data from search engines, e-retailers and social media.

By making big data analytics available to retailers, the cloud has removed the guesswork about what will sell and what is likely to fail to catch the buyer’s interest. Additionally, by leveraging smart data provided by the cloud, retailers can now identify and produce more unique items each year.

• Managing inventory For any retailer, one of the most important assets is their inventory, and optimal use of this asset is vital to the success of their business. Using cloud technology, retailers can now manage this asset more efficiently. For example, Hallmark Cards, the largest manufacturer of greeting cards in the United States with almost forty thousand stores worldwide, tracks its inventory in real-time including store orders, stock availability and shipping details, using a retail-as- a-service (RaaS) solution that runs on a private cloud platform. This enables Hallmark to spend less time on routine operations and more time on what matters most to their business - providing great customer service.

The practitioner’s guide: Digital transformation in the retail sector 2018 10 The Aztec Code (named after the Aztec pyramid), does not require a surrounding blank “quiet zone,” unlike other matrix barcodes.

AI/ Machine learning

Artificial Intelligence (AI) is set to play a big role in retailing. Grounded in big data and , AI is enabling retailers to understand customers’ preferences and anticipate their needs even before they do themselves. AI is the powerhouse that recommends products that customer might like to try, send coupons for products already bought and in some cases, even redesign web home pages instantly to suit a user profile. AI can replace archaic purchase tracking systems and use real-time sensors and analysis of buying history to reward customers for loyalty as soon as they click “buy”.

In the future, AI is likely to replace human “” in the retail business. Shoppers need no longer go around searching for an expert on the floor. AI can play the role of the expert, helping shoppers find exactly the product they need – be it the right cheese for your wine, the right camera for shooting portraits or the right novel to spend your weekend with, based on your likes.

11 The practitioner’s guide: Digital transformation in the retail sector 2018 Popular e-commerce platforms

Shopify: Beginner level ecommerce entrepreneurs who need a conventional e-commerce solution can benefit from Shopify. It is easy to use and can help to quickly launch an ecommerce business. Based on requirements and budget, the retailer can choose from various Shopify packages.

Magento: For enterprise level online stores with a huge volume of products, Magento is the right choice. Not recommended for SMBs due to its complex store setup, cost and highly technical management requirements.

YoKart: SMBs can use YoKart to its full potential. The startup package is the most affordable. This is a pragmatic method to test the viability of your . Once you are sure of your business, you can easily upgrade to higher versions; GoQuick, GoCustom Lite or GoCustom.

BigCommerce: BigCommerce is an ideal solution for e-commerce entrepreneurs who want a full-fledged store without the hassles of coding, integrating plugins and other technical hurdles. If the retailer can make do with the lack of free themes, or want to spend on a premium theme, BigCommerce is the go-to e-commerce solution platform.

VTEX: Businesses with an annual turnover of a million dollars (or above) along with a significant number of monthly transactions can benefit from VTEX and its significant increase in conversion rates. However, VTEX can be expensive for SMBs.

WooCommerce: WooCommerce is a viable option if you want to stick to WordPress websites and don’t anticipate having a large, high-volume store.

Tictail: Going global, but unsure if your business model will succeed? Tictail is a great platform to take a test run. However, it is not designed for large enterprise businesses.

The practitioner’s guide: Digital transformation in the retail sector 2018 12 A Data Matrix is a two-dimensional barcode where information can be encoded through text or through numeric data up to 1556 bytes. This barcode consists of black and white “cells” or modules arranged in a matrix.

PDF417 is an acronym for Portable Data File, where each pattern code consists of 4 bars and spaces and is 17 units long. This stacked linear barcode is used in a variety of applications, primarily transport, identification cards, and inventory management.

GTIN-12 The Global Trade Item Number is a number symbol encoded in UPC-A barcode. It consists of 12 digits. The first and last digits of this code are placed outside the symbol as ‘Quiet Zones’.

POSTNET (Postal Numeric Encoding Technique) is another barcode commonly used by the United States Postal Service. Often delivery points are added, being the last two digits of a PO Box number or an address.

13 The practitioner’s guide: Digital transformation in the retail sector 2018 Code 128 is used worldwide for shipping and packaging as an identification code. This high-density linear barcode can store a wide range information as it supports all ASCII 128 characters.

References: 1. https://www.emarketer.com/Report/Worldwide-Retail-Ecommerce-Sales-eMarket- ers-Updated-Forecast-New-Mcommerce-Estimates-20162021/2002182

2. https://www.tibco.com/sites/tibco/files/resources/wp-digital-transformation-in-retail. pdf

3. https://www.forbes.com/sites/danielnewman/2017/03/14/top-five-digital-transforma- tion-trends-in-retail/#498795fe655e

4. https://marketingland.com/3-big-brands-cutting-edge-mobile-share-secrets-first- mobile-success-179159

5. http://www.brandquarterly.com/power-immersive-experiences

6. http://www.digitalistmag.com/customer-experience/2018/01/03/retail-tomor- row-how-todays-technology-is-shaping-retails-future-05682564

7. https://www.datameer.com/blog/five-big-data-use-cases-retail/

8. https://luxe.digital/digital-luxury-reports/big-data-drives-luxury-brands-growth-be- yond-digital/

9. https://futurumresearch.com/virtual-showrooming-vr-ar-future-retail/

10. https://percentotech.com/bobbyjdavidson/cloud-computing-retail/

11. https://www.inc.com/bill-carmody/top-seven-ecommerce-platforms-in-2018.html

The practitioner’s guide: Digital transformation in the retail sector 2018 14 About Regalix

Regalix has been helping companies acquire and grow customers, and re-imagine customer experience in the hi-tech, ad-tech and retail domains. The company combines technology and human intelligence to also deliver such experiences seamlessly across the entire customer journey for products and services in today’s subscription-based economy. The company works alongside some of the biggest global brands in their efforts at customer acquisition, growth and retention.

Regalix is headquartered in Silicon Valley and has offices across Europe and Asia.

For more information 2301, Leghorn Street, (US): +1 631-230-2629 Mountain View, (India): +91 80-49445010 To find out how we can help you, CA 94043 Email: [email protected] please contact us, or visit us at [email protected] www.regalix.com