Retail Direction. The State Of Retail Adoption Of Connectivity, Cloud, And Mobile To Meet Consumers New Requirements. October 2013

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1 A Forrester Consulting Thought Leadership Paper Commissioned By AT&T The State Of Retail Adoption Of Connectivity, Cloud, And Mobile To Meet Consumers New Requirements October 2013

2 Table Of Contents An Omnichannel Customer Experience Is Critical To Delivering Brand Promise... 2 US Retailers Deployment Of Cross-Channel Capability Lags Consumers Expectations... 2 Demanding, Empowered Consumers Force The Pace For Retail... 2 Retailers Are Poorly Equipped For Omnichannel Interactions... 3 Retailers Profit From Investments In Omnichannel-Enabled Experiences... 9 Key Recommendations Appendix A: Methodology Appendix B: Demographics Appendix C: Supplemental Material Appendix D: Endnotes , Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to [1-LLKODJ] About Forrester Consulting Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit Page 1

3 An Omnichannel Customer Experience Is Critical To Delivering Brand Promise Demanding, well-informed US consumers judge the delivery of retailers brand promises on the richness and consistency of the cross-channel experiences they provide. 1 In May 2013, AT&T commissioned Forrester Consulting to evaluate US retailers priorities for and progress in delivering an omnichannel customer experience. Forrester developed a hypothesis that retailers confidence about satisfying consumers expectations from cross-channel interactions depended on their plans for and progress in harnessing store connectivity, cloud deployments, and mobile applications. 122 million US consumers have two or more connected devices. These demanding, well-informed individuals judge the delivery of retailers brand promises on the richness and consistency of the cross-channel experiences they provide. US Retailers Deployment Of Cross-Channel Capability Lags Consumers Expectations Forrester s study yielded four key findings: An omnichannel customer experience is critical to delivering on retail brand promise. More than four-fifths of our respondents (82%) claimed that an omnichannel customer experience is very important or important to the realization of their brand promises. Click and reserve is the most important cross-channel interaction. Our respondents told us that click-andreserve has most impact on consumers experience with a retailer, yet only 37% provide the capability. Only 22% of retailers drive traffic and conversion matching or exceed consumers mobility expectations. Our respondents told us that mobile applications drive quantifiable increases in footfall, conversion, average order value, and Net Promoter Scores yet only 22% of retailers believe that they match or exceed consumers mobility expectations. Only 15% of retailers drive traffic and conversion by matching with cloud deployments. Cloud deployments host loyalty, customer contact or service centers, and customer intelligence functions, driving footfall and conversion yet only 15% of retailers match or exceed competitors leverage of cloud deployments. Demanding, Empowered Consumers Force The Pace For Retail Retailers have to compete not only with discount retail behemoths for low-cost procurement, logistics, and operations, but also with Internet retailers to serve increasingly fragmented and demanding markets in North America. They face challenges to match consumers expectations about: Merchandise range. Before the advent of digital browsing and online shopping, retailers could reach their homogeneous audiences with standardized ranges of merchandise and a controllable number of seasons or new Page 2

4 product introductions. Now consumers, stimulated by the endless opportunities online, expect much wider choice and expect retailers to carry every merchandise variant in every store, driving massive extensions in range. 2 Retailers simply can t afford to carry that entire inventory. 3 Innovation. Consumers used to expect two, or at most four, seasons in a year, but innovators such as fast fashion brands have accustomed them to almost perpetual change with a high rate of new product introduction. Leading brick-and-mortar retailers can refresh their assortments every two weeks; online retailers can react even more quickly to changing consumer tastes. As merchandise becomes more sophisticated think sports equipment or consumer electronics innovation and time-to-market urgency drive the requirement for: o o o Superior customer service. Consumers engage with retailers and brands at different touchpoints during their cycle of shopping, purchasing, and use or enjoyment. 4 But the key to the quality of their experience is content and context. 5 It makes all the difference. Competitive pricing. Retailers used to enjoy the ability to set prices, knowing that comparison shopping was often too difficult to be worth the effort. Internet transparency means that consumers expect to use their mobile devices to read reviews and price comparisons in the store and expect store associates and retail brands to be aware of competitive prices and to be prepared to explain any apparent anomalies. 6 Store associate empowerment. Accustomed to dealing with highly empowered customer service representatives, consumers find that store associates, by comparison, are poorly equipped to advise on local service or merchandise availability. Their customer experience expectations have been recalibrated by consumer-facing firms that empower their service representatives or associates to resolve consumer problems with next best actions to save the sale or prevent customer churn. 7 Retailers Are Poorly Equipped For Omnichannel Interactions Most retailers including 82% of our respondents recognize that omnichannel customer experience is critical to the realization of their brand promise (see Figure 1). Yet they lack infrastructure and applications appropriate to omnichannel interactions and the modern consumer s requirement for accurate availability and comparative pricing data about a very wide range of merchandise. They struggle to support: Click-and-reserve, the most important cross-channel interaction. Our respondents told us that click-andreserve is the most differentiating omnichannel customer experience with a retailer (see Figure 2). Yet only 37% provide the capability (see Figure 3). Surprisingly, our survey shows that click-and-reserve is more important to superstores and supermarkets than it is to specialty retailers (see Figure 4). Forrester s interviewees explain that this is because of changing consumer habits, such as ingredients for a specific dinner occasion or clothes for a specific event. Dynamic cross-sell and upsell capabilities. One-quarter of our respondents believe that the ability to dynamically cross-sell and upsell based on customer profiling or history is highly differentiating; a further 42% indicated that this capability is differentiating. However, only 34% indicate that they have the capability today. Forrester found that supermarkets also valued the ability to dynamically cross-sell and upsell based on consumer Page 3

5 profiles more highly than specialty retailers (see Figure 5). Forrester s interviewees attribute this to the growing number of line extensions and trade promotions that manufacturers offer to retailers and to retailers own increasingly sophisticated private-label portfolios. Figure 1 An Omnichannel Customer Experience Drives The Realization Of Brand Promise For 82% Of Retailers How important is an omnichannel customer experience to the realization of a retailer s brand promise? Very important 5 49% 4 33% 3 14% 2 Not at all important 1 Don t know 3% (percentages do not total 100 because of rounding) Figure 2 Click-And-Reserve Is The Most Differentiating Omnichannel Customer Experience Element How differentiating do you feel the ability to provide the following elements of the omnichannel customer experience is? Majorly differentiating Not at all differentiating The ability for customers to instantly click and reserve 18% 52% 4% 2 5% The ability to dynamically cross-sell or upsell offers based on the customer's profile or history 25% 42% 27% 4% 2% The ability for customers to order in store and track order status 24% 43% 22% 2% 9% The ability for the store associate to stay with the customers, advising and helping, with mobile connectivity to inventory status and merchandise- or trip-relevant content 2 42% 3 The ability for customers to compare prices and check customer reviews while in the store 1 42% 32% 10% The ability for customers to instantly locate and obtain expert support 17% 40% 38% 2% 3% The ability for customers to stay connected to their social networks while shopping 14% 38% 33% 3% 12% Page 4

6 Figure 3 A Mere 37% Of Retailers Support Instant Click-And-Reserve,The Most Differentiating Element Of CX Which of the following elements of the omnichannel customer experience do you currently provide to customers? The ability to for customers to order in store and track order status 54% The ability for customers to stay connected to their social networks while shopping The ability for the store associate to stay with the customers, advising and helping, with mobile connectivity to inventory status and merchandise- or trip-relevant content The ability for customers to instantly locate and obtain expert support 38% 42% 4 The ability for customers to instantly click and reserve 37% The ability to dynamically cross-sell or upsell offers based on the customer's profile or history The ability for customers to compare prices and check customer reviews while in the store 34% 33% None of the above 1 Don t know (multiple responses accepted) Page 5

7 Figure 4 Click-And-Reserve Is Seen As More Important For Supermarkets Than Specialty Retailers How important is the ability for customers to instantly click and reserve for your company to deliver superior service? Very important 5 29% 37% 55% 4 27% 4 40% 3 2 Not at all important 1 Don t know/not applicable 1 10% 13% 1 2% Superstores/ supermarkets (N = 33) Specialty retailers (N = 70) Total Figure 5 Cross-Sell And Upsell Based On Consumer Profile Is More Important To Supermarkets Than To Specialty Retailers How important is the ability to dynamically cross-sell or upsell offers based on customers profiles or history for your company to deliver superior service? Very important % 64% 4 18% 29% 25% % 7% 7% 2 2 Superstores/ supermarkets (N = 33) Not at all important 1 Specialty retailers (N = 70) Don t know All respondents Base: 151 North American retail decision-makers Page 6

8 The ability for customers to order in store and then track their order status is another omnichannel capability that retailers feel is highly differentiating today (24% majorly differentiating and 43% differentiating). But just more than half of the retailers surveyed (54%) currently provide the capability. Mobile And Cloud Capabilities Are An Urgent Imperative For Retailers Mobile and cloud capabilities are key to the development of the retail omnichannel customer experience. While many retailers have some form of mobile app or online mobile presence, the consensus is that they need to improve mobility quickly in order to keep up with consumers and competitors. And for cloud capabilities, the story is even more dire: Nearly one-third of retailers use no cloud capabilities at all today. The reason for the urgency? Both mobile and cloud deliver quantifiable benefits to retailers today. Our study found that: Retailers need to improve mobile capabilities to reap the quantifiable benefits. While our survey shows that 5 of retailers have a mobile website with their product catalog and information and nearly half (47%) have a mobile application available for download, retailers still feel the urgent need to improve mobile capabilities. A mere 22% of retailers meet or exceed consumers mobility expectations and more than half of respondents said that they need to improve their mobile capabilities within two years to keep pace with competitors and meet consumer expectations (see Figure 6). More than half (5) of respondents reported quantifiable benefits as a result of their mobility initiatives, with an increase in footfall, consumer loyalty, conversion, and average order value being the top benefits. Retail cloud capabilities are becoming more important. One-third (32%) of respondents are not using any cloud capabilities in their retail operations today, and only 15% feel they are on pace with their competitors and the expectations of their own lines of business (see Figure 7). Improving cloud capabilities is a priority for retailers, with 54% indicating that they need to improve cloud capabilities within two years. The quantifiable benefits of cloud for retail are less solid than mobile 2 of respondents indicated that they have seen quantifiable benefits from using cloud capabilities but an additional 3 have observed anecdotal benefits. The main quantifiable benefits observed include improved conversion and an increase in footfall or traffic. Page 7

9 Figure 6 Most Retailers Lag Behind Consumers Mobile Expectations How urgently do you need to improve mobility to keep pace with your competitors and meet consumers expectations? We don t need to consider mobility yet We need to improve mobility within the next five to 10 years We need to improve mobility within five years We need to improve mobility within the next three to four years 5% 3% 5% We need to improve mobility within the next two years 2 We need to improve mobility within the next year 38% We are already ahead of, or equal to, our competitors and consumers expectations 22% Figure 7 Only 15% Of Retailers Match Or Exceed Competitors Cloud Leverage How urgently do you need to improve cloud capabilities to keep pace with your competitors and meet line-of-business expectations? We don t need to consider cloud capabilities yet 1 We need to improve cloud capabilities within the next five to 10 years We need to improve cloud capabilities within five years We need to improve cloud capabilities within the next three to four years 4% 7% 9% We need to improve cloud capabilities within the next two years 24% We need to improve cloud capabilities within the next year We are already ahead of, or equal to, our competitors and line-of-business expectations 15% 30% Page 8

10 Retailers Profit From Investments In Omnichannel-Enabled Experiences Forrester asked respondents about their expectations of likely business results from deploying infrastructure and applications to deliver a differentiating customer experience. Our respondents told us that their connectivity, cloud, and mobility investments had already generated: Significant consensus on traffic improvements. Almost four-fifths of our respondents expected that supporting click-and-reserve interactions would boost store traffic (see Figure 8). Agreement on conversion rate improvements. The ability for consumers in the connected store to instantly locate and obtain expert support has driven improved loyalty as measured by Net Promoter Scores for 70% of our respondents. Two-thirds (65%) of respondents observed click-and-reserve capabilities driving improved conversion rates. A general accord on hikes in average order value. Of our respondents, 64% reported an increased average order value as a result of mobile-equipped sales associates ability to complete advisory and transaction tasks without leaving the customer. Moderate agreement on increases in inventory turn. 54% of our respondents had recorded improvements in inventory turn as a result of mobile solutions enabling store associates to stay with the customer and close the sale. Page 9

11 Figure 8 Retailers Drive Revenue And Margin From Investing In The Customer Experience What types of quantifiable benefits are you seeing from the following omnichannel customer experience elements? The ability for customers to instantly click and reserve (N = 40) The ability to for customers to order in store and track order status (N = 55) The ability for customers to compare prices and check customer reviews while in the store (N = 31) The ability for customers to instantly locate and obtain expert support (N = 37) The ability for customers to stay connected to their social networks while shopping (N = 31) The ability for the store associate to stay with customers, advising and helping, with mobile connectivity to inventory status and merchandise- or trip-relevant content (N = 39) Increase in footfall or traffic Improved conversion rate (traffic to sale) Increase in average order value Improved loyalty as measured by Net Promoter Scores Increased inventory turns Increased agility and reduced time-tomarket for new initiatives Reduction in IT costs 78% 65% 58% 43% 30% 20% 10% 53% 60% % 20% 9% 48% 58% 42% 6 42% 1 10% 62% 59% 57% 70% 38% 22% 8% 58% 55% 6 48% 39% 2 10% 64% 5 64% 5 54% 28% 15% Page 10

12 KEY RECOMMENDATIONS North American retailers struggle to meet the expectations of highly empowered consumers, either in terms of merchandise availability across an extended range or in terms of customer service taking account of consumers transaction histories and preferences. In order to match consumers expectations and the competitive advantages of pure-play Internet retailers, North American retailers must: Understand the interactions and touchpoints that matter to their audiences. Documenting the interactions that are most important to a retailer s audience helps develop the business case for investing in infrastructure and applications to meet consumers expectations. Invest in store connectivity. Retailers need to take customer orders in store for pickup or home delivery to meet the endless-aisle requirement to offer a range of merchandise that matches Internet pure-play retailers, but the have to do it without breaking the bank due to holding vastly inflated inventories. They also need instant access to inventory (and on-order) availability and to each consumer s history and expressed (or inferred) preferences. To do this effectively, each location needs robust connectivity to enterprise data stores. Invest in cloud services. Retailers must focus their scarce IT resources on highly differentiating capabilities such as downloadable apps for consumers or employees. They should standardize, centralize, and eventually outsource nondifferentiating capabilities such as data center management. Most importantly, retailers need to capitalize on elastic cloud capabilities to support highly variable workloads for processes such as price optimization in light of competitive offers and next best offers, as well as exposing customer service or merchandise attribute data for orchestration in mobile applications. Invest in mobile applications. North American consumers use mobile devices to check prices and recommendations as well as local availability of merchandise. Savvy retailers deploy downloadable apps to help advise them and to be sure they use the latest data to make their decisions. They also empower their associates or employees with mobile apps that help them leverage the power of the enterprise without leaving the consumer s side. Page 11

13 Appendix A: Methodology In this study, Forrester conducted an online survey of 151 retail decision-makers in North America to evaluate priorities around improving store connectivity, application mobility, and cloud deployment in order to capitalize on opportunities in cross-channel shopping. Questions provided to the participants asked about their investment plans and progress to date in harnessing connectivity, cloud, and mobile technologies to deliver superior custom experiences in cross-channel retail interactions such as click-and-collect or in-store ordering. The study began in May 2013 and was completed in July Appendix B: Demographics Figure 9 Demographics: Company Size And Respondent Job Title Using your best estimate, how many employees work for your firm/organization worldwide? 10,000 or more employees 58% Which title best describes your position at your organization? C-level executive (e.g., CEO, CIO, CFO) Vice president (in charge of one/several large departments) 5,000 to 9,999 employees 10% 2,500 to 4,999 employees 14% 1,000 to 2,499 employees 18% Manager (manage a team of individual contributors) 63% Director (manage a team of managers and high-level contributors) 25% Page 12

14 Appendix C: Supplemental Material Related Forrester Research Welcome To The Era Of Agile Commerce, Forrester Research, Inc., July 19, 2013 Predictive Apps Are The Next Big Thing In Customer Engagement, Forrester Research, Inc., June 25, 2013 Powering The Agile Store, Forrester Research, Inc., June 5, 2013 The Unified Customer Experience Imperative, Forrester Research, Inc., May 7, 2013 Defining New Metrics For The Agile Business, Forrester Research, Inc., January 11, 2013 Retail CIOs: Prepare For Retail 2020, Forrester Research, Inc., August 10, 2009 Assess The Impact Of Touchpoints Along The Consumer Path-To-Purchase, Forrester Research, Inc., April 9, 2013 Appendix D: Endnotes 1 Source: Welcome To The Era Of Agile Commerce, Forrester Research, Inc., July 19, Source: Powering The Agile Store, Forrester Research, Inc., June 5, Source: Retail CIOs: Prepare For Retail 2020, Forrester Research, Inc., August 10, Source: Assess The Impact Of Touchpoints Along The Consumer Path-To-Purchase, Forrester Research, Inc., April 9, Source: The Unified Customer Experience Imperative, Forrester Research, Inc., May 7, Source: Defining New Metrics For The Agile Business, Forrester Research, Inc., January 11, Source: Predictive Apps Are The Next Big Thing In Customer Engagement, Forrester Research, Inc., June 25, 2013 Page 13