2020 Retail Digital Transformation Survey RETAIL’S NEW DIGITAL DRIVE RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 2 BDO’sTable 2020 of Contents Retail Digital Transformation Survey 1 2 3 03 INTRODUCTION 19 DIGITAL TRANSFORMATION CHALLENGES Survey Methodology Introduction Snapshot:Challenges on the2020 Road to Transformation Digital DigitalLessons LearnedOutlook from Failure Transformation Value Drivers 06 SNAPSHOT: 2020 DIGITAL OUTLOOK 22 DIGITAL TRANSFORMER SECRETS 11 DIGITAL TRANSFORMATION BENCHMARKING YOUR DIGITAL VALUE DRIVERS 24 TRANSFORMATION EFFORTS 1. Boosting Operational Efficiencies Digital Enablers Defined 2. Strengthening Data Capabilities CONCLUSION 3. Improving Customer Experience 31 4. Tempering Cyber Fears 4 5 6 7 Digital Digital Benchmarking Conclusion Transformation Transformer Your Digital Challenges Secrets Transformation Efforts RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 3 BDO’sIntroduction 2020 Retail Digital Retail has been a testing ground for digital innovation for decades. Well before the coronavirus was on retailers’ radars, the “Amazon effect” TransformationToday, digital transformation is a requirement for retail success. In fact, and digital innovations like mobile apps, self-checkouts and augmented 100% of retailers have either developed or are planning to develop a reality were reshaping the retail landscape, separating the haves from digitalSurvey transformation strategy, according to BDO’s 20201 Retail Digital the have-nots. Now,2 in the pandemic’s wake, that separation is 3a nearly Transformation Survey. insurmountable chasm. Those who have not fully embraced e-commerce or invested in the digital customer experience cannot stay solvent in a shut-in In early 2020, retailers had big plans for digitalIntroduction transformation for this economy.Snapshot: These laggards 2020have a dwindling window of time toDigital digitize their year and beyond. However, the current pandemic has likely shifted the business before they’re beyond the point of recovery. objectives and tactics within those plans. As COVID-19 continues to disrupt Digital Outlook Transformation business operations and impact revenues throughout the industry, the But even among retailers who are relatively digitally savvy, the current crisis has highlighted the necessity for retailers to evolve business models, environment is no piece of cake. The Amazon effect hasValue been exacerbated Drivers increase efficiencies and strengthen their digital presence. by the pandemic, their sales skyrocketing over the last few months. Already Digital transformation can drive these imperatives. thin profit margins will be strained further by COVID-related expenses and increasing transportation costs. Amid these challenges, retailers must still But strategy isn’t enough. Execution is key to the success of any be proactive in reimagining the future state of retail and the next iteration transformation initiative, and as the effects of COVID-19 plunge many of omnichannel customer experience. Retailers that lack the agility to players in the retail industry into financial distress, the ability to not just adjust their business and operating models for the next phase of industry conceive but adopt new digital capabilities may be the deciding factor evolution will be left behind. between recovery and bankruptcy. 4 5 6 7 Digital Digital Benchmarking Conclusion Transformation Transformer Your Digital Challenges Secrets Transformation Efforts RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 4 As retailers begin to resume operations and reopen their doors, BDO’sunderstanding 2020 and adapting to the pandemic’s impact on consumer behavior will be crucial to recovery. Given the recent acceleration of Retaile-commerce Digital is largely crisis-based, retailers should be prepared to adjust inventory and distribution options to shifts in customer purchasing trends, Transformationlike desires to bulk buy or preferences for contactless delivery, that may be long-lasting.Survey Retailers who strategically use data and1 technology to 2 3 reallocate resources, amplify their digital presence, improve customer experience and prepare operations for a reimagined future will be better positioned to endure the turbulence that liesIntroduction ahead. Snapshot: 2020 Digital Digital Outlook Transformation Value Drivers While COVID-19 has likely disrupted most retailers’ initial plans for digital transformation in 2020, it has also served as a widespread case study for the effectiveness of digital solutions in optimizing operations, cutting costs, mitigating risk, and increasing omnichannel agility. Looking ahead, the shut-in economy has offered a glimpse into the future state of retail, in which service delivery models and operations are contactless. Retailers need to be rethinking their businesses now to prepare for the4 new industry normal when doors re-open.5 6 7 Digital Digital Benchmarking Conclusion NATALIE KOTLYAR TransformationPartner and Retail & Consumer ProductsTransformer Your Digital National Practice Leader, BDO USA Challenges Secrets Transformation Efforts RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 5 BDO’sSurvey 2020 Methodology Retail Digital BDO’s 2020 Retail Digital Transformation Survey was conducted —prior to the COVID-19 pandemic— by Rabin Research Company, an independent Transformationmarketing research firm. The survey included 100 c-level executives in a wide range of capacities, for middle market companies with annual revenues between $250 million and $3 billion. Survey 1 2 3 WHO WE SURVEYED Introduction Snapshot: 2020 22% Chief InformationDigital Officer or Chief Information Security Officer 26% $250 million to $500 million Digital Outlook Transformation 17% Chief Technology Officer 26% $501 million to $750 million or Chief InnovationValue Officer Drivers ANNUAL EXECUTIVE 14% COO REVENUES 24% $751 million to just under $1 billion TITLE 19% $1 billion to just under $2 billion 14% Chief Marketing Officer 5% $2 billion to $3 billion 13% CFO 11% CEO 9% Line of Business Executive RETAIL SEGMENTS 427% 22%5 18% 617% 16%7 Digital Digital Benchmarking Conclusion Transformation Transformer Your Digital Challenges Secrets Transformation Big Box Retailer Department Store Specialty Retailer EffortsDiscount Retailer Pure Play E-Commerce RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 6 BDO’sSnapshot 2020 / 2020 RetailDigital Digital Outlook Transformation A BRIEFSurvey SNAPSHOT OF RETAIL ORGANIZATIONS’1 2 3 DIGITAL TRANSFORMATION PLANS FOR 2020 Introduction Snapshot: 2020 Digital Digital Outlook Transformation Value Drivers 4 5 6 7 Digital Digital Benchmarking Conclusion Transformation Transformer Your Digital Challenges Secrets Transformation Efforts RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 7 Consumer demand drives focus on customer experience (CX) BDO’s 2020 RetailTOP DIGITAL Digital PRIORITY* Transformation32% 25% 20% 12% 11% Survey 1 2 3 Introduction Snapshot: 2020 Digital Digital Outlook Transformation AdoptValue a New Business Drivers Improve Customer Optimize Change Simplify or Modernize or Revenue Model Experience Business Processes Management Legacy IT Digital transformation remains a double-edged sword TOP DIGITAL THREAT* 34% 23% 17% 14% 12% 4 5 6 7 Digital Digital Benchmarking Conclusion Cyber Attacks or Disruption by Disruption by Poor Customer Commoditization TransformationPrivacy Breaches** IndustryTransformer Competitors Industry Outsiders Your DigitalExperience Or Automation Challenges Secrets40% see industry disruption Transformation as the #1 digital threat Efforts *Retailers’ top digital priorities and threats may have shifted in the wake of COVID-19. **As the COVID-19 outbreak has worsened, IT security vendors have reported a sharp increase in cyber threats. Cloudflare noted a 37% increase in cyber-attacks during the month of March, and Barracuda Networks found a 600% increase in COVID-19-themed phishing emails during that period. RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 8 BDO’sCX 2020 IS TOP SHORT-TERM PRIORITY Retail Digital Transformation TopSurvey Overall Business Objectives1 2 3 COVID-19 may cause organizations to focus more on operational efficiencies and cost savings in the short-term. However, business objectives for the longer term are likely to hold steady. Introduction Snapshot: 2020 Digital Digital Outlook SHORT-TERM Transformation Value Drivers 71% 59% 57% 54% 52% 51% Improve Customer Modernize IT Bolster Increase Operational Diversify Revenues Increase Market Experience infrastructure Cybersecurity Efficiencies Differentiation LONG-TERM 50%4 42% 5 41% 40% 6 40% 31%7 Digital Digital Benchmarking Conclusion Transformation Transformer Your Digital Challenges Secrets Transformation Modernize IT Diversify Increase Operational Bolster Increase Market Improve Customer Infrastructure Revenues Efficiencies CybersecurityEfforts Differentiation Experience RETAIL’S NEW DIGITAL DRIVE / 2020 RETAIL DIGITAL TRANSFORMATION SURVEY 9 Transformation sought across business functions BDO’s 2020 Retail Digital TRANSFORMATION FOCUS AREAS Transformation Survey 1 2 3 68% IT 38% Introduction Snapshot: 2020 Digital Customer 59% Service 38% Digital Outlook Transformation Marketing & 59% Value Drivers Sales 32% Finance & 47% Accounting 33% 46% HR 36% Core Business 45% Operations 38% Risk Mgmt & 41% Compliance4 5 648% 7 29% Tax Digital Digital 37% Benchmarking