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The digital
transformation
challenges
confronting retailers
in 2020

Author: Paul Gillin

Few industries faced digital transformation challenges as significant as those thrust upon retailers earlier this year. The COVID-19 pandemic forced nearly every nonessential retail outlet in the US to shut its doors in March, disrupting business as usual. Americans' consumer behavior shifted significantly during the pandemic, McKinsey notes—buyers changed where and how they shopped, who they shopped with and how much they spent. Forbes reported that by April 21, 2020, US & Canadian e-commerce orders had grown by 129% year-over-year.

The retailers that pivoted quickly to alternative channels and fulfillment mechanisms to meet customers where they suffered the least are likely to gain the most over the long term, if they can address three key digital transformation challenges.

Adapting to new customer behaviors

The COVID-19 pandemic forced shoppers from brick-and-mortar stores to online storefronts, and it's not likely that consumers will go back any time soon. EMarketer expects retail e-commerce sales to grow 18% this year and physical sales to drop 14%. CNBC reported a 208% surge in curbside deliveries in April. Logistics firm OptimoRoute found that deliveries of retail orders jumped 67% from March to April.

Social distancing is also likely to be the norm for a while—Harvard's T.H. Chan School of Public Health says that intermittent social distancing could be necessary through at least 2022—and it's forcing retailers into difficult decisions about branch closures, given the likelihood of lower revenue per square foot ratios. McKinsey says that some retailers have been experimenting with "gray" or "dark" stores, which essentially function as fulfillment centers for local deliveries.

The in-store experience is also likely to change. Retailers have had success in recent years drawing customers to brick-and-mortar stores through interactive events like fashion shows and cooking demos. They will need to step up the appeal of those events to draw attention—whether through a livestream or socially distanced crowds—or turn to high-tech tricks to keep customers engaged in real-world retail. Clothier Tommy Hilfiger chose the latter; it's preparing to launch a virtual fitting room where shoppers can virtually try on hundreds of thousands of clothing items, according to The Washington Post.

More than ever, the ability to engage customers and support them through a multi-channel experience will be essential. Look for solutions that offer capabilities in personalization and seamless transition from online chat to call.

Shifting to e-commerce

Once upon a time, a useful and appealing e-commerce site was nice to have. Digital transformation trends in retail have made an attractive online storefront a bare minimum.

With a larger percentage of sales likely to shift online over the long term, many retailers will need to retool their websites to maximize utility and make it as easy as possible for visitors to make a decision and place an order.

"Most retailers with roots in brick-and-mortar simply try to replicate their in-store experience online, but such efforts are fruitless and misguided," Denise Lee Yohn wrote in the Harvard Business Review in July.

Though some brick-and-mortar companies, such as Walmart and Target, have successfully cracked the top 10 online shopping sites, few retailers have the resources to match those giants. They might be better off focusing on strategies like the ones deployed by Glow Recipe, which uses its website to inform shoppers about the finer points of skincare.

In addition to a user-friendly website, first-class mobile apps are important for e-commerce. Most buy online, pick up in store (BOPIS) and curbside delivery customers don't ever enter the store; they place orders at home or even in the car en route to the pickup point. Retailers must also tighten security to keep customer data safe as retail transactions increasingly move online. A data breach could have devastating impacts on customers and on a business's brand image and bottom line.

Diversifying supply chains

COVID-19 revealed a huge downside to the goal of just-in-time inventory management, which has driven retail logistics for the past few years. In their efforts to reduce supply chain complexity, businesses scaled back the number of suppliers they used, making them vulnerable to the kind of regional disruptions that characterized the early days of the pandemic.

Almost 75% of US companies experienced a supply chain disruption in March and April due to coronavirus-related transportation restrictions, according to the Institute for Supply Management. And the world's largest 1,000 companies lost access to more than 12,000 facilities in COVID-19 quarantine areas, the Harvard Business Review says, reinforcing the need for a more resilient supply chain.

Retailers, many of which already operate on slim margins, are going to have to lean on less efficient supply chains in the name of business continuity. The Harvard Business Review recommends that businesses thoroughly investigate the companies that supply their principal suppliers and have at least one backup supplier for critical parts; it also recommends against using multiple suppliers in the same region.

All that costs money—big money. And there's little room for error; S&P Global Market Intelligence estimates that retail bankruptcies will be higher in 2020 than they've been in a decade.

Retail is changing, but that can't stop businesses from doing business. By choosing a partner that can provide managed services to navigate the new normal, retailers can position themselves to excel in a post-pandemic landscape.

Learn how Verizon Retail Solutions & Technology can help you overcome technology barriers so you can keep up with your customers.