Connecting Commerce. Retail industry confidence in the digital environment. Written by

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1 Connecting Commerce Retail industry confidence in the digital environment Written by

2 About the research This article is part of the Connecting Commerce research programme from The Economist Intelligence Unit, commissioned by Telstra. The analysis is based on a survey of 2,620 executives in 45 cities across 11 industries conducted in June and July C-level respondents account for 42% of the survey sample, with the balance being other senior executives. Based on the survey, The Economist Intelligence Unit created a digital cities barometer for industry to assess and compare confidence in the digital transformation environment across industries. Business confidence is a highly subjective measure of a state of affairs, based on attitudes, and is not necessarily an indication of an industry s actual level of digital development. Confidence in the overall digital environment among survey takers in retail was rated relatively poorly (sixth out of 11 industries overall and no higher than eighth in any subcategory). At the same time, business-to-consumer industries are often seen as being more aggressive in pursuing digital transformation than those in business-to-business. Retail is an industry characterised by a strong customer focus and intensive competition, which drives the digital focus within retail more towards customer experience, e-commerce and marketing compared with other industries, says Peter Muld, chief digital officer (CDO) at ICA Gruppen. Besides competition, there is also an argument for taking advantage of economies of scale when it comes to investment. In the retail industry, cost savings were also cited as the primary motivation for digital transformation to a greater extent than in other industries, according to an Economist Intelligence Unit survey (56% v 48%). The US, which leads the regional barometer in every single retail subcategory, leads the push to digital platforms to improve efficiency and cut costs. In January 2018 Amazon, an American e-commerce giant that acquired Whole Foods, a grocery chain, accounted for about 18% of online grocery sales, according to estimates. 1 In hopes of boosting that number, Amazon recently announced free two-hour delivery in four American cities. Besides offering convenience to customers and cost savings, the initiative pairs well with the company s prime delivery service, from which Amazon can also collect additional data on consumer purchases. Figure 1: Overall barometer readings retail Score (out of 10) Rank (out of 11) Overall environment Innovation and entrepreneurship th th Financial environment th People and skills th Development of new technologies th ICT infrastructure th Telstra Connecting Commerce The Economist Intelligence Unit Limited

3 A lack of support? One reason for the poor perception of industry confidence in the digital environment may be that the pace of digital transformation in the industry exceeds other industries, and therefore leads to a lack of support (perceived or otherwise) from external stakeholders. According to the survey, retail executives are less likely to say that city authorities have consulted with their organisation regarding cyber-security frequently in the past two years compared with other industries (14% v 23%), despite the fact that retail organisations hold an increasing amount of information about customers, including financial data. One reason for the poor perception of industry confidence in the digital environment may be that the pace of digital transformation in the industry exceeds other industries The many benefits of a plastic card There is a strong focus within ICA Gruppen to use digital technology to maintain relevance for our customers, says Mr Muld, CDO at ICA Gruppen, a leading Swedish-based retail company that focuses on food and health. 2 Although best-known for its grocery chains, the conglomerate also includes real estate, financial services and pharmacy operations, among other business areas. We use digital technology to increase customer experience, increase relevance and personalisation and to drive efficiency within our organisation, continues Mr Muld. One way in which ICA uses technology is through a customer card. The plastic card is used to track purchases and offer personalised rewards; however, it also contains additional features. The card allows customers to shop online and get home delivery or to self-collect at the nearest store. The card can also be linked to a bank account through the ICA financial services group and used for payment, not only in stores but also at other merchants. Finally, the card can also be used for self-scanning and selfcheckout to avoid waiting in line Telstra Connecting Commerce The Economist Intelligence Unit Limited

4 A technology-driven future The development and adoption of new technologies is clearly an area of increasing importance in the cut-throat retail industry. Staying relevant and making every day easy for our customers is a clear focus for us, says Mr Muld. Using new technologies, such as personalisation, is one of the tools we use to enhance our customer experience. Respondents in EMEA rate their environment particularly strong in three subcategories on the digital barometer, including the development of new technologies, which are increasingly mobile-based to deliver a better customer experience. At ICA, for example, the customer card can be linked to a mobile app that can be used to pay for groceries. The app also allows for the creation of shopping lists, which can either be manually entered or come from the company s food magazine, and sorted according to the in-store location of ingredients. Despite such innovative features, digital transformation doesn t stop and neither does the need for organisations to identify and adopt emerging technologies to remain competitive. In general, many organisations find it challenging to keep up with technology and to make sure that new technology is adopted when it becomes mature enough, says Mr Muld. ICA puts a lot of effort into making sure we are early to try to address and learn about all new technologies available to us. Figure 2: Barometer readings by region retail OVERALL ENVIRONMENT US 7.40 INNOVATION AND ENTREPRENEURSHIP US 6.88 FINANCIAL ENVIRONMENT US 7.14 Regional takeaways for retail ASIA 6.86 ASIA 6.54 ASIA 6.50 AUS 6.35 EMEA 6.32 EMEA 6.41 EMEA 6.35 AUS 5.94 AUS 6.29 PEOPLE AND SKILLS DEVELOPMENT OF NEW TECHNOLOGIES ICT INFRASTRUCTURE US 7.40 EMEA 6.63 US 7.23 EMEA 6.59 US 6.88 EMEA AUS 6.63 ASIA 6.41 ASIA 6.52 ASIA 6.32 AUS 6.21 AUS 5.90 American retail executives rate their digital transformation environment higher than all other regions overall and in every subcategory, possibly due to the large size of the domestic market, which leads to higher levels of competition. Respondents in EMEA rate their environment particularly strong in three subcategories people and skills, the development of new technologies and ICT infrastructure. Asian respondents rate their environment particularly strong in two subcategories innovation and entrepreneurship, and the financial environment. The high scores in the first subcategory illustrates the opportunities for innovation, particularly in emerging markets. Australian executives rate their overall digital transformation environment poorly (tied for last with EMEA), and is also rated last in four (out of five) subcategories. 6 Telstra Connecting Commerce The Economist Intelligence Unit Limited

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