Perhaps more than any other industry, retail has been changed by digital migration. For proof, one need look no further than Amazon.com and the massive disruption it brought to many household names.
More so than in many industries, digital transformation in retail has concentrated intensely on the customer journey. Together with two other critical areas — culture and competitive positioning — the customer journey forms one of the “three C’s” that are driving retail companies as they hone their digital strategy.
Retail has undergone two distinct waves of digital transformation, says Carrie Tharp, chief digital officer at Neiman Marcus. “The first was all about e-commerce,” she says, as retailers rushed to create online sales capabilities in the early 2000s. “Now we’re in the second wave, which is about data-driven decision making in a customer-specific landscape.”
Improved ability to meet customer demands ranks among the top priorities for retailers’ digital strategy (49%), according to The Economist Intelligence Unit’s recent survey of board and C-suite members at more than 600 companies worldwide — higher than for the overall survey group (43%). Similarly, nearly three out of four retailers (74%) cited improved ability to meet customer demands as the area in which their digital strategy has had the greatest impact thus far.
Serving the customer better in a digital environment translates as “hyperpersonalization,” Tharp says. Neiman Marcus now defines itself as “a luxury platform that doesn’t just sell high-end items. We are creating an ecosystem that gives our customers an immersive experience fueled by individualized insights and an end-to-end understanding of their shopping journey that enables us to work better with our brand partners to meet client expectations.”
Faster cloud computing capabilities enable Neiman Marcus to collect data on web visitors’ transaction records, browsing habits and the parts of a particular web page they hover over with the mouse.
Using machine learning (ML) technology, the company can then “optimize what the client is being shown, based on who they are,” Ms. Tharp says, more precisely distinguishing the preferences of a regular customer from “one we haven’t seen in a long time [and] from one who hasn’t bought from us before but engages in luxury shopping.”
It’s the digital equivalent, she says, of “the crane of the neck” that department store workers are trained to notice in browsers; only with artificial intelligence (AI) and ML, more information can be extracted, and there are more systematic ways to analyze it.
Digital tools also suggest how far the seller can go in pressing the buyer. While many web retailers now have chatbots that can follow visitors around the site and make suggestions, “we think that’s usually too intrusive,” Ms. Tharp says. “We wait until we see an indication that support or assistance is needed. Then we can pop up a chatbot when you’re deeper into consideration and may be wondering what size you need. It’s all part of understanding your journey online.”
According to 70 percent of retail respondents, their organizations’ digital strategy has enhanced their competitive positioning.
Thus, the results of retail respondents’ digital innovations have been more than encouraging, and respondents expect that to continue. Slightly more than 60 percent of retailers said that annual profitability over the past three years has increased because of their digital strategy, and 74 percent said they expect it to grow over the next three years.
Ms. Tharp says Neiman Marcus’s digital strategy “has driven significantly increased customer-acquisition rates, more efficient website traffic growth and more frequent mobile conversions.” All of this has “helped support healthy growth rates” for the company, “especially in the United States, where the luxury market has been growing in the low single digits.”
Over the past two years, Neiman Marcus estimates it has generated nearly $200 million-plus in sales specifically tied to its efforts to personalize the customer experience, Ms. Tharp says.
Digital transformation and competitive success will only become more tightly enmeshed, retailers said. Asked what the key drivers of success are for their organization’s digital strategy, respondents named as the top two a commitment to integrating digital and business strategy (52%) and focusing on maintaining a competitive position in an increasingly technology-dominated world (44%).
Yet retailers also expressed confidence that organizationally and strategically, they are properly placed to meet these challenges. More than three out of four (76%) said they are confident they will become a more data-driven organization, while 73 percent said they are implementing the wider business processes and organizational changes their digital strategy requires. Sixty-six percent said they are properly assessing and adopting new digital tools (e.g., AI and blockchain).
The importance retailers ascribe to organizational change highlights another critical part of a successful digital strategy. “It ties back to cultural readiness,” says Tharp. “That cultural change element can never be overestimated.”
Survey respondents agree: 69 percent of retailers said that a change in culture has been critical to implementing a successful digital transformation at their organization.
Traditionally, retailers used to organize around product categories. Now, though, the flood of data they can capture enables retailers to look “across those categories,” Tharp says. “We need to understand that journey in stores and online: why a person who buys a handbag may then buy shoes next.”
Those patterns and preferences change; to stay competitive, retailers need to create a culture that is more agile and even experimental in its efforts to appeal to customers. In our survey, 68 percent of retail respondents agree that agility is a leading benefit of a well-managed digital transformation.
Previously at Neiman Marcus, the IT department housed a collection of innovation labs that developed ideas for individual product areas. To make this a less isolated exercise, Tharp says the company is embedding innovation teams in the functional areas themselves — for instance, store operations. At the same time, it has grouped marketing, branding, analytics and data science under Tharp, to refocus them on forging a “more end-to-end customer experience.”
The result is a “test-and-learn” approach to digital design, by which the company can rapidly introduce changes in a given product — in sizes, styles, colors, even a specific word in the website product description — and quickly get a read on what works and what doesn’t.
Today, Neiman Marcus can introduce hundreds of such changes at a time, Tharp says: “If it fails, it fails, and the next person who comes to the website won’t see it.” Previously, it would have taken months to work through each of these trial changes.
Cultural readiness in turn requires the right kind of talent in the right numbers. More than one in three retailers (35%) ranked lack of a tech-savvy workforce as one of the major barriers to implementing a digital strategy, and 30 percent said recruiting more digital-savvy employees and consultants will be one of the three most critical areas of digital decision making for their organization in the coming year.
Just as importantly, retailers must recruit talent that helps them build the “hyperpersonalized” platform they need. “Understanding the ecosystem we need to build is complex and difficult,” Tharp says. “We have a very scaled e-commerce business and a lot of rich interaction with our clients, some of whom spend $600,000 a year and up with us.”
Her tech team therefore includes a mix of people who know the business well and individuals who may not know it intimately when they are recruited but who are expert at analyzing and interpreting customer data flows.
That ability is increasingly central to all of the “three C’s” of retail: crafting a satisfying customer journey, improving the company’s competitive position in a digital landscape, and creating an organizational culture that can sustain it.
Thus far, retailers appear to have found the effort worth the investment; 81 percent of respondents said they expect their organization’s investment in digital technologies to increase in the coming year.