Just over one-third (35%) of organisations rate their digital transformations as ‘highly effective’, with half (50%) ranking them ‘effective’, according to a recent report from Australian analyst and research firm, Fifth Quadrant.

While retail was sustained by the ecommerce boom throughout the pandemic, economic uncertainty and inflation has seen consumer sentiment stumble with the increased cost-of-living.

Retailbiz recently spoke to Boomi director for Australia and New Zealand, Nathan Gower (above) and Fifth Quadrant director, Steve Nuttall (below) about the state of digital transformation in retail, including supply chain priorities for 2023, major challenges and disruptions, as well as digital investments and strategies for overcoming them.

Growth at scale

Throughout Covid, organisations experienced a tremendous spike in e-commerce revenue. Although this has dropped in a post-Covid environment, it remains substantially higher than pre-pandemic levels, according to Gower.

“Covid certainly accelerated spend on e-commerce and online channels, but it’s created a lot of pressure for retailers to build more resilience. In the wake of economic headwinds and uncertainty, retailers are now shifting their focus to how they can scale and grow their business without adding significant costs,” Gower told Retailbiz.

“A positive aspect out of Covid is that many retailers are more financially resilient from both a technology and collaboration perspective,” Nuttall said.

Fifth Quadrant conducts a monthly SME confidence tracker, and when respondents were asked about their approach to business – whether it’s to grow, stay the same or wind back – 44% of retailers said to grow and hospitality was the only sector ahead of retail in this sentiment. “I think the more resilient retailers can now begin to invest in innovation, technology, new products and new services to create more value.”

Supply chain visibility

During Covid, many retailers approached Boomi for assistance with their supply chain to increase visibility, Gower said.

“Previously, for an organisation selling consumer packaged goods, they could rely on a container landing every month but that completely changed through Covid,” he said.

“Increased visibility meant a huge increase in the amount of data retailers had access to, which resulted in better demand planning. Those with good connectivity between their ecosystems could run advanced analytics to better manage inventory and even rationalise the number of SKUs. Better data results in better decision making and that’s what we’re helping retailers with.”

Nuttall called out a Deloitte report (released during Covid) which asked supply chain leaders about their strategy over the next 12 months and the number one priority was investment in digital technology, ahead of improved visibility and inventory optimisation.

“This comes as no surprise when you break that down in terms of how organisations are digitising their inventory while investing in technology such as RFID. The more you invest in RFID, the more data you’re collecting, which creates a challenge around integration and management of data to make forward-looking decisions,” Nuttall said.

“But the benefits go beyond improved visibility, such as greater transparency to keep the customer informed about where their purchase is and when it is going to be delivered.”

A true omnichannel experience

With the return to shopping in-store, retailers are trying to provide a true omnichannel experience and Gower believes most retailers still struggle with this.

“We’re seeing a lot of momentum for updating point-of-sale systems in store to help deliver the same type of personalised service received through e-commerce and other online channels,” Gower said.

“Ultimately, most problems associated with personalisation come down to data connectivity. Most point-of-sale systems are siloed, so it doesn’t matter how good a loyalty program or e-commerce platform is, the point-of-sale is totally siloed because it was built 30 years ago without that functionality in mind.

“Often retailers force integration and move data in and out of the point-of-sale to other systems, but this is only a bandaid measure. The longer-term solution is to find a modern and up-to-date point-of-sale system. It’s not easy to switch out but it’s the only way retailers can deliver true personalisation.”

Nuttall believes part of the issue is organisations choosing different vendors for their ERP systems and CRM solutions. “The problem is that one system links financial records and the other links customer records. I’m seeing vendors in ERP and CRM starting to compete, which is a good thing, because it leads to being able to link the data picked up at point-of-sale for a more complete picture. It delivers a single record and one single unique identifier for that customer which travels with them regardless of whether it’s transactional data or marketing, in-store or online,” he said.

Leveraging data and AI

Data governance and data quality is the next step for retailers to provide true personalisation and ultimately, a beneficial loyalty program, according to Gower.

“A new McKinsey report shows how much businesses can improve consumer spending through a well-managed customer loyalty program so that’s where the successful retailers are building towards at the moment,” he said.

Also referencing the McKinsey report, Nuttall noted that while the decline in loyalty is seen across most income levels, it’s high-income consumers who are most likely to switch brands, so potential loss of revenue from those high value customers is quite significant.

“To run a successful loyalty program, high quality data sets are essential, along with the ability to interpret that data and utilise it to make better business decisions and be more predictive. We then turn to Artificial Intelligence (AI) as the tool for doing that. To effectively build out engaging loyalty programs, organisations need to be investing in AI,” he said.

“Human interaction can be significantly empowered by AI to understand sentiment analysis and guide agents to have a conversation down a particular pathway to uncover a customer’s real intent. Feeding that through to a human being, who can build empathy and rapport with the customer, is the ideal solution.”

Gower expects AI to experience growth in the retail industry but cautions its limitations and responsible use. “Adopting technology such as AI should take on a ‘crawl, walk and run’ mentality, and I think a lot of retailers are still on that journey.”

Fifth Quadrant created the inaugural Australian Responsible AI Index which has seen organisations learn as they go with AI. “Those who felt they were more advanced in their deployments of AI are in fact stopping and learning and having to take some steps backwards,” Nuttall said.

“We’re not seeing real progress in the deployment of AI in a responsible way but it’s important that it doesn’t cause any harm to individuals or groups in society. There are recourse mechanisms if AI makes a decision, so you can’t just immediately roll out and run with an AI program without going through a series of processes to ensure that the system itself operates as intended.”

The final word

On a closing note, Gower had the following advice: “With increasing economic headwinds around rising input costs and labour costs, one of the key ways to address these challenges is investing in technology because it enables organisations to scale better without the cost.”

Nuttall echoed this sentiment, suggesting that retailers need to be investing in technology to keep up with constantly evolving customer expectations for digital experiences that integrate with bricks-and-mortar.

“Competition is global and not confined to our shores so Australian retailers need to be looking across the water,” he said.