Modernizing the technology stack propels retailers’ growth

Omnichannel retail is the new normal

Some of the pandemic-induced consumer behavior changes, such as the upsurge in e-commerce, social commerce, voice commerce, buy-online-pickup-in-store (BOPIS) and buy-online-return-in-store (BORIS), are becoming mainstream, while consumers are returning to brick-and-mortar stores for their usual shopping needs.

Retailers are now looking beyond their own infrastructure and are open to sharing their infrastructure for store-in-astore concepts, partnering with third-party delivery service providers and leveraging mom-and-pop stores for faster fulfillment and delivery.

ISG observed that the consumers in the U.S. are seeking faster product discovery, smooth transition from one channel to another, better loyalty programs, faster checkout and delivery and increased digital payment options, especially buy-now-pay-later.

Service providers are seeing increased investment by retailers in technology modernization across business functions such as e-commerce websites, mobile apps, customer management, contact centers and supply chains.

To ensure a smooth, seamless and consistent unified experience, service providers are providing integrations across retail systems to enable the real-time, free flow of information, achieve end-to-end visibility, improve demand planning and raise customer satisfaction across channels.

Service providers are also helping retail store associates digitally transform their roles by automating mundane store operation tasks, and by providing more bandwidth to them to assist consumers with buying decisions.

ISG analysts saw a consensus among service providers that the U.S.-based retailers are spearheading technology adoption and modernization.

Intelligent supply chain is imperative

Retailers have realized that resilient supply chain is crucial for successful digital transformation and creating unified experience for consumers.

Retailers are partnering with service providers for continuous improvement programs to achieve high productivity and cost efficiencies through store, warehouse and distribution center automation. Certain niche platform providers enable faster realization of such automation benefits and focus on expanding and enhancing their portfolios. They also help retailers leverage stores as mini-fulfillment centers to expand digital business and manage returns effectively.

Service providers are creating a digital twin and control tower for supply chain management by leveraging advanced technologies such as AI, automation, IoT and blockchain. This enables retailers to assess various scenarios for faster fulfillment and ensure optimum inventory levels across locations with the right cost mix.

Among the next-gen themes, sustainability is gaining importance in the discussions between clients and service providers. Retailers observe increased interest among consumers toward health and sustainable products that are responsibly sourced, produced and transported, being aware of their impact on health. The consumers are ready to pay a premium price for sustainable and healthy products for their merit, and not as a markup for retailer.

Retailers are seeking strategic partners to envision sustainability in business operations and educate consumers proactively.

Reimagining brick-and-mortar stores

The brick-and-mortar store must be reimagined for CX. In the U.S., store locations and footfalls continue to drop from their peaks, in light of the COVID-19 pandemic. However, consumers are now willing to visit brick-and-mortar stores for their usual purchasing. They demand a touchless and frictionless experience. To cater to this, retailers are partnering with service providers to enable digital payment, endless aisles, checkout anywhere and computer vision applications to automatically detect hand hygiene.

Earlier, there were obituaries written for brick-and-mortar stores. Retailers are now reimagining this concept as experience centers through gamification, showrooming and embedding technology in fixtures such as mirrors, displays and mannequins to offer an immersive experience.

In certain industries such as cosmetics and beauty, apparel and footwear, and furniture, retailers are increasingly adopting augmented reality (AR) and virtual reality (VR) within the store, along with mobile apps, to offer an immersive experience to customers. 

Mining data to hyper-personalize CX

U.S.-based retailers have sufficient data regarding customers’ shopping behavior; the volume of data is increasing rapidly.

Customers, despite all the privacy concerns, are now more open to sharing data with retailers, realizing the benefits of a personalized experience.

At the same time, retailers and providers handling information have become more transparent in sharing the purpose of data collected and the security measures taken to limit the access.

Services providers use analytics and big data solutions to help retailers gain articulated insights in real time and act upon them through effective marketing campaigns that are highly personalized.

Service providers help retailers envision and execute a customer data platform (CDP) to capture customer behavior data beyond the 360-degree profile, generated from varied digital sources in one instance.

The main goal of implementing a CDP is to enable hyper-local and personalized experience for consumers through marketing and promotional campaigns.

Cloud migration and transformation are the essence of digital business

ISG estimates that by the end of 2022, more than 70 percent retailers will leverage cloud and would need a strategic partner to manage the complex cloud environment and accelerate cloud-native transformation.

Cloud migration helps retailers enhance channel operations, personalize customer service, simplify their IT landscape and improve business performance through enhanced agility and scalability of the business model.

Service providers highlighted that pure-play migration of code, databases and applications to cloud services is commoditized. Cloud-native transformation is crucial for retailers at present and in the future.

To create differentiation in the market, service providers partner with hyperscalers such as Azure, AWS and GCP and product vendors (including SAP, Oracle, Salesforce and ServiceNow) that are aligned with the industry to ensure swift migration to the cloud and successful cloud-native transformation for faster go-to-market.

Strategic partnerships on the rise

As technology becomes the core of business strategy and a catalyst for growth, retailers must spend heavily to maintain the IT landscape and focus on core business activities. At the same time, continuous investments are required for building technology skills and the IT talent pool.

Retailers are strengthening their existing relationship with service providers and are focusing on more strategic partnerships to maintain a balanced cost profile without compromising on service quality and innovation.

E-commerce, finance and operations, supply chain and logistics and IT operations continue to be the key areas for managed services.

Service providers are investing in and leveraging AI-led operation capabilities, accelerators and DevSecOps to perform extreme automation and modernize IT with in-built security while keeping the cost low.

Service providers are seeing a rise in midsize deals, ranging from $25 million to $50 million, running over a three-year period, and increased demand for skill and technology competency-based pricing.

Metaverse: An imminent future of retail

Metaverse, an amalgamation of the real world with the virtual one, is already seeing interest from retailers as well as service providers. Certain retail enterprises in the U.S., particularly in the fashion and apparel segment, have already launched their products in metaverse worlds and are seeing encouraging response from end consumers.

The metaverse gives retailers a powerful opportunity to merge the physical and digital worlds for extended CX that they weren’t looking for until now.

ISG expects that majority of the retailers will foray into metaverse in the next 12-24 months.

At the same time, all the service providers, not just leaders but also other, nimble enterprises, are conversing with their retail clients on metaverse use-cases and execution.

For the retail industry, metaverse is surely an imminent reality that looks promising for the future.

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