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Global Retailers Still Haven't Cracked the Code on Their Digital Strategy

More than half are still at the starting gate

February 24, 2017 | Retail & Ecommerce

Even though digital and omnichannel have been big retail buzzwords for years, it looks like global retailers are still struggling to come up with a profitable strategy to meet the demands of today’s fickle and mobile-phone-toting consumers who want to be able to shop whenever and wherever they desire.

And that’s by retailers’ own admission. More than half of retailers haven’t started implementing, are struggling to define or don’t even have plans to develop a “digital transformation strategy,” according to a late 2016 survey of more than 350 global retail and consumer goods CEOs in select countries including the US and China conducted by PricewaterhouseCoopers (PwC) for JDA, a supply chain software provider for retailers from Ann Taylor parent company Ann Inc. to grocer Albertsons. The survey is particularly noteworthy in that about a third of the respondents were CEOs at retailers with at least $5 billion in revenues—among the largest 250 in the world. And another 53% were top 1,000 retailers.

In another worrying sign for the industry, the survey also found that compared to 2014, there’s been a drop in retailers’ ability to manage omnichannel execution that can meet the demands of shoppers who now expect a “seamless blend” between a retailer’s physical and online store. In fact, only 10% of CEOs say they are able to make a profit while fulfilling omnichannel demand because of delivery and other supply chain complexities, down from 16% in 2014.

Higher expenses are a big culprit: 75% of retail executives said their online operating costs as a percentage of sales have seen either “significant” or “some” increase in the past 12 months. One key driver of that increase: 74% of retailers said customer returns are hurting profit to “a great extent” or “to some extent.”

On the supply chain front, CEOs, especially those in the softlines (like apparel) and hard goods (like appliances) sectors, said that their greatest concern is inventory exhaustion, or “out of stock.” Indeed, at trade group National Retail Federation’s annual Retail’s Big Show in January, Carrie Ask, Levi’s executive vice president and president of global retail, said that out of stock is a big problem hurting retailers’ ability to convert sales when consumers visit stores.

While retail giants from Walmart to Best Buy have long offered buy online and pick up in store, it looks like the overall industry is still playing catch-up. The survey found that barely half (51%) of respondents said they offer or plan to offer pick up in store in the next 12 months, up from 47% in 2016.

With the high costs of free shipping and other delivery offers, 33% of survey respondents said they would offer same-day delivery in 2017, down from 44% last year. Meanwhile, a third of respondents said they plan to increase the minimum order value. The percentage of retailers offering specific delivery time slots also has declined.

However, it remains to be seen how retailers’ plans on this front will play out as free shipping has become an imperative, especially during the crucial holiday season. A case in point, Walmart and Amazon have recently lowered their free-shipping minimum order threshold.

In another vote of confidence for physical retail in the wake of store closing announcements from Macy’s to Sears, almost three-fifths of retailers surveyed said they have no plans to reduce their store investment and said their online sales are “additional” sales that aren’t hurting their physical store sales. Echoing that point, Walmart, The Home Depot and Macy’s CEOs have all spoken out recently about the importance of physical retail as they fine-tune their digital strategy.

“While ecommerce is growing rapidly, customers continue to rely on brick-and-mortar formats,” Walmart president and CEO Doug McMillon said this week.

In the area of technology investment, retailers said they are spending money on mobile and big data insights. Automation and internet of things rank lower on their investment list for now, even though these are the areas that are gaining ground as retailers consider them “true game changers,” according to the survey.

Andria Cheng

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