Digital Transformation for Retail: Build a Successful Roadmap

Introduction

There’s a very good reason the words digital transformation, machine learning, artificial intelligence, and advanced analytics are dominating the conversations held by retail professionals. In this article, I will explain why these terms are so important, define what they mean, and how to begin developing a cohesive roadmap.

While we watch iconic retailers close stores at an alarming rate (Sears, Payless, Toys R Us, J.C. Penney, Best Buy, and RadioShack, to name a few), we are all left to wonder if we are going through a retail apocalypse (The Atlantic). What did these companies miss? Is our brand next?

According to the Atlantic article:

• More people buy their merchandise online
• There are too many malls
• Discretionary income is being spent on experiences and less on material wealth

Is there a downtrend in some areas? Yes. Does this suggest a retail apocalypse? No. Traditional retail formats of all types (even apparel) – and that aren’t Amazon – are alive and well.  What’s their secret?  According to the latest NRF poll of the fastest growing retailers, these companies have adapted to the customer’s change in expectations.

This new method for learning how to meet customer expectations is coined digital transformation. This involves taking processes that have traditionally not utilized computers to their fullest potential and enabling them with adaptive, predictive and insightful information from the data they already have.

Quick Definitions

Retailers hear these terms every day: digital transformation, machine learning, artificial intelligence, and advanced analytics. “I’m a merchant, not a techie. Does this mean I have to give up my sense of trend, my experience on how to assemble an assortment, and forgo the relationships I’ve created with my customers?” Not at all.

Think of these terms as a process, not as a set of mathematical algorithms. These processes are designed to help you rationalize your way of thinking and to help you make a more informed decision about how to engage your customer in a meaningful way that meets their expectations.

How do I use technology to provide a customer experience (CX) that keeps my brand and my merchandise relevant?  

How do I use my historical sales data to make continually better predictions about how my customer prefers to shop, what inspires them, and what they are willing to pay for my merchandise?

What technologies should I use that require pattern recognition, like recognizing a customer by their portrait?

What methods do I need that will ultimately lead to an improved customer experience?

Digital Transformation Roadmap Suggestions

These suggestions are meant for corporate customer engagement: merchants, planners, supply chain professionals, and all of IT, particularly business intelligence. (There’s a different set of guidelines for store operations, e-commerce, and shared services, which I won’t cover here.) Before starting, always follow the basic tenets of IT investments before you attempt to implement anything new. Jerry Kurtz has a terrific outline that should be everyone’s go-to digital transformation guide, and I highly recommend you start there.

Once you have a well-articulated vision, committed executive sponsors, and a motivated team in place, you should consider these four essential points for your roadmap:

#1 Clean Up and Prepare Your Data

Do you have the features necessary to tell you who is your best customer? Which customers are likely to be your best? Which customers have likely given up?

I’ve been working in the retail industry nearly 30 years and I can confidently say almost every retailer has a terrific set of management reporting features like region, product class, and 4-5-4 calendar attributes, but what they don’t have are features defined through the lens of their customer. For example, was the product available and on the selling floor? Where was the product purchased? Where and how was it delivered? Was it returned, and where?

Some may call this master data management (MDM) or data harmonization, but whatever you call it, this is the most important digital transformation unlock. MDM refers to the features of the data you collect and store for later use.  The hardest part, even beyond deciding what processes need to be improved, is getting consensus on the definitions of the features.  With that in mind, the most important person you can hire with regards to MDM is someone that is resolute to the vision and has the ability to obtain consensus.

#2 Double-Down on Your Foundation

How well can you match supply and demand?  What features or functionality do you need that will significantly improve your foundational processes and meet your envisioned future-state?

Myriad technologies have surfaced in support of retail digital transformation like The Internet of Things (IoT) and smart beacons that recognize when a customer passes your front door. While many of these advances are useful, it is easy to neglect or to overlook the core planning and execution systems like allocation, replenishment, merchandise and assortment planning, general forecasting, and distribution.

Overlooking these fundamental systems is a mistake. Digital transformation must include ways to improve these foundational processes. A sound inventory management process will be necessary no matter what your future state looks like.

There are many software applications that will enable these foundational processes, but they are only as good as the processes you define and integrate as well as the quality of the data you provide. A vast majority of the information that comes from your foundation systems will be used in the advanced analytics, so take the time to reinforce these important systems.

#3 Quick Hits

What processes can you automate or operationalize that will give you a quick ROI?

The best way to identify quick hits is for IT to informally meet with their business partners and ask them: What gaps are not being addressed?  You will soon discover that your business partners have built innovative solutions, typically in spreadsheets they’ve created themselves, to solve their own problems.

These are your innovation ideas, and they need to be in your roadmap. Gather your team and study what these tools do, pick the best, and gain consensus from the rest of the organization on a way to have everyone use it consistently.

 Here are a few ideas you can consider for your roadmap:

Affinity – Here’s a quick primer I wrote on affinity to show how easy this is to implement.
Missed/Lost Sales
Substitution Sales
Prepacks
Predictive Stock Outs
Halo Effects
Size Optimization
Store Clustering
Customer Segmentation

#4 Long Term Applications

What strategic or tactical processes will help you adapt to changing customer preferences and provide a longer term financial benefit?

Prepare yourself. The challenges that come with change management can quickly derail good ideas.  This is where many digital transformation initiatives fail. To get the benefits, make sure these are processes that will be adopted and will truly enable the envisioned process. In addition to your executive sponsorship, you will also need a group of motivated business partners to help keep the project on track.  Here are some areas to consider:

Cloud Migration
Price and Markdown Optimization
Open to Buy
Assortment Optimization
SKU Productivity
Customer Lifetime Value (CLTV)
Omni-Channel Initiatives
Fabric Platforming (Shared Raw Materials)
RFID
Promotional Optimization
For IT:  RESTful APIs

Give honest, careful and deliberate thought to each of these points, and you’ll be on your way to a successful digital transformation roadmap for your retail organization.

References and Other Essential Links

• Jerry Kurtz, Partner at Infosys, “10 fundamentals for a successful advanced analytics program”
• Nikki Baird, VP Retail Innovation at Aptos, “What digital transformation really means for retail”
• Daniel Newman, CEO of Broadsuite Media Group, “Top 5 digital transformation trends in retail”
• Angelica Valentine, Marketing Manager at Wiser, “Machine learning in retail is more than just the latest trend”
• Carrie Anne Philbin, Director Of Education in Cambridge, United Kingdom, “Machine learning and artificial intelligence, a crash course”