Much has been written about how the digital retail revolution is affecting customers – but what exactly is needed to support the evolution of the retail supply chain? Traditional stores and online channels alike are committing to significant IT investment as they both create and respond to changes in customer behaviour.
The surge towards more personalized customer interactions means increasing adoption of technologies and platforms such as IoT, cloud and Big Data – although a new report (pdf) from Vertiv shows one in four retailers are still slow to adopt these new technologies and integrate them across operations, in order to present a more integrated customer experience.
Customer engagement is critical
Retailers know their customers are demanding a more personalized service and expect to be given the opportunity to shape the products and services they consume. Businesses increasingly realise that the quality of their customer engagement not only delivers sales but recognises the role of customers as the main advocates of the brand, critically important to the company’s good reputation.
From the consumer perspective, shopping is not about bricks versus clicks or one channel versus another. Instead, consumers are largely channel-agnostic. The shopping journey and pre-shopping research is a fluid process with consumers bouncing between online and offline along the path to purchase.
What this means is that retailers must adequately and holistically plan, strategise, and execute across all channels, regardless of whether the ultimate sale happens in-store or online.
A seamless shopping experience is no longer a “nice to have,” but an imperative. And it is a key reason why retailers worldwide are heavily investing in online and digital to improve customer engagement.
In Singapore, the government has recognised the importance of this trend with its Infocomm Media Sector Industry Transformation Map. Launched in November 2017, the plan incorporates several ecosystem-wide projects, the first of which will turn the Malay heritage site of Kampong Glam into a test bed for retail digitalisation at the neighbourhood level.
Need to integrate technologies
There is no shortage of discrete, stand-alone technology applications for both physical and online stores, and the distribution centres that support them. These applications are designed to help retailers, to a greater or lesser extent, achieve the more personalized, relevant and rewarding customer relationships their business depends on.
What needs more attention, however, is the integration of technologies between these categories and the resulting impact on physical infrastructure requirements.
The Vertiv/DCD study found that the walls of siloed operations supporting physical stores, distribution centers and online retail channels are being broken down, facilitating the aggregation and analysis of data found within them.
This is helping drive a customer-directed transformation of the organisation. As the process moves forward, there is a shift from using technology primarily to cut costs, automate processes and provide better management of the supply chain, towards enhancing a well-defined and seamless customer experience.
Once integration is firmly established, retailers are able to find and put to use the mass of data held within their organisation far faster, allowing the constant refinement of the customer experience.
The growth of distribution centres
As they prepare for this evolution in the use of technology, retail IT leaders might not be able to say with certainty which specific applications they will be rolling out in half a decade. But it’s all but certain that demands on infrastructure will continue to rise and it is imperative for organisations to position themselves to adapt rapidly to a changing environment.
Certainly, the key driver for IT investment by retailers is the growth in online commerce. Over the next two years, the amount of data centre space dedicated to online retail – both on-premise and colocation – is expected to increase by 20 percent, with cloud hosting increasing by 33 percent to support store applications.
An important part of the retail digital evolution includes a massive transformation of distribution centres. The research suggests the number of distribution centres and warehouses will increase by about 26 percent over the next two years as retail companies increasingly realign operations to meet consumer demand for online purchasing. The amount of data centre space dedicated to distribution/logistics is expected to increase by 10 percent and the use of cloud hosting to support distribution will increase by 87 percent.
According to the Vertiv/DCD report, the next two years will see a strong increase in the footprint of online retail (20%) and of distribution/logistics (10%). Future increases in footprint will focus on cloud hosting and consolidation for data centres supporting on-site stores or distribution.
The report predicts that the adoption of colocation and cloud hosting will increase. Today, companies typically use different digital infrastructure strategies for physical stores, distribution, and online retail. In the physical retail sector, the use of in-house facilities, supported by colocation, external hosting and private/hybrid cloud systems is favoured. In contrast, logistics operations are mostly supported by distributed data centers.
While the principles of using a hybrid mix of in-house, colocation and cloud (private and public) are well established, plans for the future development of infrastructure in the digital-experience era show no set patterns, as retailers are feeling their way forward largely without guiding precedent. In this, they are looking for assistance from technology and business partners.
In the search for ever more intimate understanding of customer behaviour, combined with enhanced operational efficiency, retailers are moving more computing power into stores to support edge computing types of applications that communicate with customers and influence them closer to the point of decision.
And as a consequence of a retail business model that relies increasingly on data and automation, the role of data centres will become more business-critical and require increasingly higher levels of security (both cyber and physical).
Ultimately, the goal for today’s retailers is to move the organisation and its use of technology beyond selling products and services, extend its brands through the use of experiential technologies, and deploy tools that can rapidly find and analyse data in order to support a more engaging customer experience in real-time.