Retail’s Next Revolution Is Here — And Ongoing

Retail is being turned on its head by an ongoing digital/social revolution that is evolving at warp speed, according to retail expert Darrell Rigby of Boston-based Bain & Co.

Rigby spoke to about 100 industry professionals Wednesday (Oct. 17) at the annual retail conference presented by the University of Arkansas Center for Retail Excellence.

He made no bones about the fact that Amazon was leading the way and the rest of the retail industry had better get onboard because the m-commerce train has long left the station.

Rigby said online sales are now approaching $200 billion in the U.S. alone, according to research firm Forrester. He said at that level e-commerce accounts for 9% of total retail sales, up from 5% five years ago.

Globally, digital retailing is probably headed toward 15% to 20% of total sales in the next couple of years. Rigby said the digital retail channel also offers a higher return on investment, which is what drives investor interest and stock value.

Amazon’s five-year average return on investment, for example, is 17%, whereas traditional discount and department stores average 6.5% – results that can’t be ignored, Rigby added.

‘FASTER THAN YOU CAN IMAGINE’
He opened his talk with a slide of Disney’s “House of the Future” which debuted in 1957 giving a futurist look at what a home would look like in 1986.

As a child Rigby said he was amazed to see a television mounted on the wall and a stove that could cook food a record speeds – but he added the home was almost obsolete by the time 1986 arrived and was soon torn down.

“Technology has allowed the future to get here 40 years early,” Rigby said. “Traditional brick and mortar retailers are seeing their third revolution since the era of shopping malls and later discount stores. Digital retailing is coming, it’s inescapable and happening faster than you can imagine.”

Andy Murray, co-founder of Saatchi & Saatchi X, said the technology disruption is permeating businesses and driving innovations that have already resonated with the consumer.

“There’s no turning back,” he said.

“Customers are driving the digital retail push largely because the technologies they are using have become invisible, seamless in everyday life.” Murray said.

He said the last IBM study of  some 1,700 CEOs revealed the No. 1 concern that keeps top management up at night is technology, because it is disrupting their business models like never before and many of them are not tech-savvy enough to figure it out.

Murray said the Gen Y leaders likely do have the savvy, and top management needs to embrace that help.

MOBILE MOBILE
Rigby said adult consumers recently surveyed ranked an Internet connection among the top three items that couldn’t live without. Sunshine ranked first and clean drinking water ranked third.

Murray said companies today should start by reaching the mobile audience because that is the safest bet as 55% of the people today use a smartphone.

Rigby added that’s pretty amazing since the iPhone wasn’t available until 2007. He said there really isn’t an industry that won’t be transformed in some way by mobile technology.

“Five years ago, people said apparel wouldn’t ever (be sold) by a major online player, same was said for grocery,” Rigby said.

One of the fastest growing online channels is apparel and accessories and Amazon carries more than 500,000 food items on its site.

He said one of the worst mistakes a retailer can make is to think that boomers aren’t digitally wired for online shopping, because they carry smartphones and have more money to spend than most other demographics.

SHOWROOMING THREAT
While retailers like Best Buy and Wal-Mart Stores Inc. have downplayed the showrooming issue, Rigby says it’s a real threat that goes far beyond lost store volume. Showrooming is a term that implies a consumer browses brick and mortar stores for items they want and then buy them cheaper – or without sales tax – online.

Rigby said Amazon is a threat for all retailers as they have achieved the industry’s highest level of satisfaction scores based on innovation and reliability.

While the state sales tax issue continues to be a perceived headwind for Amazon, Rigby said giant e-tailer could likely set up physical centers in certain states where there is not a sales tax advantage – that would make the delivery portion of the supply chain even more competitive.

Rigby says omnichannel retail is paramount and those companies who create the best of both worlds – physical and digital – will be able to make the necessary transformation.

Companies like Wal-Mart have been made believers as evidenced by the giant’s nimble movements in the past year, with the expansion of @WalmartLabs and several small tech acquisitions. The last acquisition, a majority share in China-based Yihaodian, should close in the next couple of weeks.

Rigby and Murray each said retailers must commit to invest in both technology and the supply chain and find a way to break through strong organizational silos that have been pillars in the traditional retail world for decades.

The experts said technology has a role in all of the seven links in the supply chain from the manufacturer to the customer and retailers nimble enough to best apply it will reap the greatest market share.

Rigby said manufacturers have double the complexity of the retailers in the next couple of years as they now have the opportunity to sell their products direct to consumers online.