Digital Transformation in the Retail Industry – and What it Means to You

Written By: Eric Kimberling
Date: November 26, 2018

Digital transformation initiatives have the potential to truly revolutionize companies in industries of all types. In some industries, transformation is a matter of survival. Digital transformation in the retail industry is an example of the latter.

The retail industry going through massive amounts of change at the moment. Competitors such as Amazon and Wal-Mart have put price pressures on everything from electronics to organic groceries. Supply chain efficiencies, robotics, and automated warehouses have taken the concept of scale to a whole different level. These are just a few examples of the challenges our retail and distribution clients face.

Why digital transformation is a necessity in the retail industry

In addition to these supply chain and cost optimizations, eCommerce is threatening the traditional brick-and-mortar retail business model. It is estimated that the share of eCommerce retail sales has increased from 4.6% to 9.1% between 2010 and 2017 – a number that is expected to increase dramatically again this holiday season. In fact, Adobe systems estimates that compared to last year, online shopping has surged 26.4% in the US so far this holiday shopping season.

These transformative events are not limited to consumer retailers, either. We recently worked with a B2B wholesale distributor that sells its products through over 300 sales centers throughout the world. Even this client isn’t a consumer retailer, it is feeling profit margin pressures and additional effects of Amazon and other online retailers.

With the busiest time of year in full swing for retailers across the world, these data points are good reminders of how digital transformations can help enable transitions to entirely new business models. It is also a good reminder of some of the risks to avoid.

In the retail industry, digital transformation isn’t solved simply by implementing a new ERP system

Many organizations focus their digital transformation efforts on replacing their ERP systems. This is a myopic view of digital transformation - even in industries outside of retail and distribution. This limited view is a key reason why so many organizations fail to achieve the third stage of digital transformation success, or even worse, why some realize ERP catastrophes such as the recent SAP failure at Lidl.

In the retail industry, this simply isn’t a viable option. Their business models are fundamentally changing. Customers are demanding lower prices, fully integrated omnichannel experiences through online and bricks and mortar stores, more choices, and better service. A shiny new ERP system alone won’t solve these essential strategic issues.

In addition to providing integrated omnichannel customer experiences, retailers are revamping other aspects of their business models. For example, retailers are collaborating with shipping providers such as FedEx and UPS to better plan and optimize surges in shipping demands. US-imposed tariffs are affecting consumer demand in certain product categories, which is in turn affecting demand.

A new ERP system won’t fix these problems or address other opportunities for improvement. ERP vendors may try to sell their solutions as silver bullet answers to these core business challenges, but these issues transcend technology. Avoiding this common trap is a great way to understand how to avoid ERP failure.

What this all means to your business

For retailers, the opportunities and challenges are a bit clearer. Their survival is at stake, so they have no choice but to find a way for digital transformation to enable their business model revolutions. They understand that omnichannel, eCommerce, investments in improving the brick-and-mortar retail experience, and increased service are key competitive advantages for their future success.

But what if you are responsible for digital transformation at an organization outside of retail? What does this mean to your organization and your team? The implications to your business are significant.

Provide better Customer Experience. No matter what product you sell or service you provide, you are selling to people that are used to today’s modern retail environment. Your customers are used to researching and buying online, receiving outstanding service in person, and getting it all for a lower price. This affects your business – no matter which industry you are in.

Find creative ways to improve your business model. Retailers are required to find creative ways to better service their customers and compete with the behemoths such as Amazon. Chances are, you are missing out on some creative ways to transform your business model outside the realm of a traditional ERP implementation.

Your people, process, and technologies will all need to evolve to meet these changing needs. Technology alone won’t fix the problems. Your business processes and employees will need to change as well, which requires significant time and focus on these non-technology aspects of your transformation.

Define a digital strategy that fits your future state. Automating your current business model and processes won’t get the job done. You will need to objectively and technology-agnostically define a digital transformation strategy that helps your organization evolve into what it needs to become in the future.

This is an exciting time to be part of a digital transformation, but also a risky one. Contact me when you’re ready for a sounding board to plan next steps in your digital transformation journey!

Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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